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Old May 30th, 2013, 10:05 PM   #1
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Is the Cup Half Full or Half Empty?

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Originally Posted by CBC
U.S. households have recovered only 45% of wealth lost in recession



American households have recovered only 45 per cent of the wealth they lost since the onset of the economic downturn in 2007, a new report released Thursday by the Federal Reserve Bank of St. Louis says.

The bank is one of 12 regional banks that together with the board of governors in Washington, D.C., make up the U.S. Federal Reserve central banking system.

In its annual report for 2012, titled After the Fall, the bank takes stock of the damage the financial crisis caused to American households and examines how they are faring today.

At the height of the financial crisis, Americans had a record-high debt-to-income ratio of 133 per cent and the lowest personal savings rate since the Great Depression. Between 2007 and 2010, average household wealth declined 15 per cent while median household wealth dropped 39 per cent, the report says.

Much of that wealth has since been recovered but not as much as some think, say the authors of the report, Ray Boshara and William Emmons.

"While household balance sheets have improved in the past few years — families are rebuilding their savings and paying down their debts — balance sheets have not yet fully rebounded," they write.
Inflation, population growth skews recovery

The Federal Reserve's Flow of Funds accounts released in March 2013 indicate that aggregate household net worth at the end of 2012 was $66.1 trillion US, nearly back to its pre-crisis peak of $67.4 trillion, but that figure does not take into account inflation, population growth and variability across households, the report said.

The authors point out that 62 per cent of the total recovery between the first quarter of 2009 and the fourth quarter of 2012 was due to higher stock-market wealth.

"Stock wealth is unevenly held, with the vast majority of stocks owned by a relatively small number of wealthy families. Thus, most families have recovered much less than the average amount," they write.

"Considering the uneven recovery of wealth across households, a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified."

The number of households has also increased — by about 3.4 per cent between the third quarter of 2007 and the end of 2012 — Boshara and Emmons said, meaning wealth is "shared by more families than before."

Boshara and Emmons adjusted the aggregate household net worth figure for these effects and came up with a new measure: the inflation-adjusted net worth per household. That recalibration brought the percentage of wealth recovered since the crisis from 91 per cent down to a much less impressive 45 per cent.
Household balance sheets affect larger economy

Understanding how the microeconomic activity of individual households affects a country's macroeconomic performance is an area that is understudied, the authors say. But it is one that is becoming increasingly important given that weaknesses in household balance sheets, such as high levels of debts, low levels of savings and insufficient assets beyond home ownership, were "important contributors to the downturn and weak recovery," Boshara and Emmons write.

"Many economists now are calling the Great Recession of 2007-09 a 'balance-sheet recession,'" the authors write.

Gaining a better understanding of the links between household finances and the broader economy will be the mandate of the bank's newly launched research centre, the Center for Household Financial Stability, the report said.
U.S. households have recovered only 45% of wealth lost in recession - Business - CBC News
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Old May 30th, 2013, 10:33 PM   #2
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The cup is half empty and not filling up at he same pace as previous recoveries.

Many, like myself, are choosing to reduce debt rather than run out and make major purchases. Until that corrects, expect the slow pace to continue or even lapse back into recession. Companies are maintaining profits by reducing costs and cutting their workforces.
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Old May 30th, 2013, 10:42 PM   #3
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After the big stock market sell-off, many middle income Americans got out and stayed out of the stock market. Therefore, they took the big hit and have never enjoyed the rebound that has happened since.

The FED has been pumping $ 80 billion a month into the stock market for years now in an effort to re-inflate retirement accounts back to levels before the sell-off. But those that shunned the market are still sitting on deflated retirement accounts.

Add to that fact that many middle class Americans have been forced to tap into their retirement accounts in order to simply get by and it only makes matters worse. Not only did they get out at the bottom of the market but they’ve had to tap those funds as well.

A double whammy.

To add insult to injury, all that funny money the FED has been using has jacked up the inflation rate. So the little cash Americans have to spend on food and clothing buys less and less each year. Dare we toss in the fact that good old Uncle Sam keeps throwing new taxes our way each time we turn around?

State and local governments are feeling the pinch too. They are scrambling to grab every dollar they can from their citizens in order to make up for budget shortfalls. Every five minutes a new money grab comes rolling our way.

Historically speaking, the American middle class has always been the backbone of our economy. Why then, do our fearless leaders continue to squeeze every last nickel out of the most important economic sector of our nation?
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Old May 31st, 2013, 06:54 AM   #4
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"Historically speaking, the American middle class has always been the backbone of our economy. Why then, do our fearless leaders continue to squeeze every last nickel out of the most important economic sector of our nation?"

Why, because they need to keep paying for all the entitlement programs; and the Federal as well as the State governments, need to pay for all the ludicrous, obscene, retirement programs that the various unions have lobbied for and won because those in power need to feed their base constituencies so they will be re-elected!
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