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alstry (35.38)

Our Nation's Wealth Evaporating

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August 18, 2008 – Comments (3)

NEW YORK (CNNMoney.com) -- Americans saw their net worth decline by $1.7 trillion in the first quarter - the biggest drop since 2002 - as declines in home values and the stock market ravaged their holdings.

The first quarter's decline follows a $530 billion drop in wealth in the fourth quarter of 2007.

[The first quarter's drop more than tripled the fourth quarter's drop]

The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report

The value of real estate assets owned by households and non-profits declined by $305 billion

[This number seems grossly understated as we know that housing alone(excluding commerical and investment property) was valued at over $20 Trillion at the peak....thus a $300 million dollar decline would be less than a 1.5% decline which is much less than the real fall in housing values....add in non residential RE and the number is not even reasonable]

Whether household wealth will be up or down at the close of 2008 depends more heavily on the stock market's performance than on housing values, since financial assets account for about two-thirds of net worth.

[This is one of the most idiotic statements I have ever read.  Yes, on a net basis financial assets out weigh real estate...however on a gross basis they are more equally weighted because real estate is leveraged.  (ie a family with a $1 million dollar house and a $700K mortgage and a $1 million dollar investment portfolio) Thus if a house falls in value 50%, it is just as much a real loss to the individual as if his/her finanical assets fell 50%.(using our previous family, if either the house or investment portfolio dropped 50%, the loss would be the same $500K)]

"The jury is really still out," said Englund, adding that wealth could end up flat for 2008.

http://money.cnn.com/2008/06/05/news/economy/fundflows/index.htm?postversion=2008060516

The jury is still out?????  Housing is down about 20%.  That is over a $4 Trillion dollar loss without counting investment property.  Factor in the decline in debt securities and stock values and we could be looking at another $4-6 Trillion.  That would be the equivalent of a 50% crash in the stock market.

Wealth evaporation tripled from the fourth quarter to the first quarter.  I expect it to double or triple again from the first quarter to the second quarter as housing, debt, and equity continues to fall due to lower revenues and earnings.

If it were to triple for four quarters in a row, the net worth of Americans would just about be cut in half.  Just one more triple would more than wipe out Americans net worth completely.

Compounding is amazing on the way up, but very devasting on the way down....and much easier to occur with leverage.  Never before has America been so leveraged.

From the above article:

Meanwhile, the amount of equity people have in their homes fell to 46.2%, the lowest level on record.

Thus, if home values just fell another 46%, bringing us back to 2000 levels....on a net basis, Americans would have no equity in their homes.

3 Comments – Post Your Own

#1) On August 18, 2008 at 11:39 AM, russiangambit (29.24) wrote:

The question is whether it was real wealth, or make beleive wealth based on easy credit.

It was a game of musical chairs, where peope sold each other houses at higher and higher prices and then music stopped.

I like Calfiorniana and I like Florida and I ike Hawaii even more, but I Iive in Texas because I'd rather buy a house for 250K than for 750K. I am not sure how an average person can buy a 750K house and the somehow hope to have enough money for everything else.

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#2) On August 18, 2008 at 12:23 PM, edwjm (99.87) wrote:

What about each household's share of the national debt???

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#3) On August 18, 2008 at 4:21 PM, alstry (35.38) wrote:

There goes another 5%.................

SAN FRANCISCO (MarketWatch) -- Auto parts maker Delphi Corp.  will lay off 600 salaried jobs this year from its electronics and safety division in a bid to reduce the division's costs by 25%, Thomson Reuters reported in its online edition Monday. Delphi employs about 10,200 salaried workers in the United States, according to the report.

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