>As a nation our net worth declined by $1.7 trillion in Q1 2008, according to the Federal Reserve’s flow of funds report. That’s $1.7 Trillion! A trillion is equal to a thousand billion, or a million millions. To put this in perspective, the market capitalization of America’s 3 largest companies (Exxon Mobil, GE and Wal-Mart) is less than this amount. Simply put, its like wiping out these companies in one quarter, or 4 months. This is the biggest drop in wealth since 2002 and is mainly due to declining home prices and a very sluggish stock market, resulting in steep declines across our investment and retirement accounts.
Here are some more statistics from the article that paint a very bleak picture of the economy and the country. If this trend continues the US may become an economic basket case akin to some of our South American neighbors, which we use to once upon look down for their national financial mismanagement.
The amount of equity people have in their homes fell to 46.2%, the lowest level on record. The net worth of U.S. households fell 3% to $56 trillion at the end of March.
The value of real estate assets owned by households and non-profits declined by $305 billion, while financial assets fell by $1.3 trillion, led mainly by a $556 billion drop in stocks and a $400 billion decline in mutual funds.
Household debt grew by 3.5% in the first quarter, down from 6.1% in the fourth quarter. The growth of home mortgage debt, including home equity loans, cooled to an annual rate of 3%, less than half the pace of 2007. Consumer credit, which includes credit cards, rose at an annual rate of 5.75%, the same as the 2007 pace. [Even as people get poorer, they continue to pile on the credit card debt!]
While these statistics are at a macro or national level, I can speak from personal experience and say that my net worth has definitely declined and I do actually “feel” poorer. At least my wife and I have a decent household income and low debt levels; I can only imagine how tough it is for retiree’s, folks with large debts or those out of a job (that rate also recently went up to 5.5% on Friday!).
As people begin to feel poorer, jobs and wage growth decline and subsequently growth in consumer spending slows the specter of a prolonged and deep recession looms large. I had thought the worst was behind us and being an investor I was hoping this was the case. But I may have been wrong and 2008 could end up being a very disappointing financial year for me and millions of others around the country.
The full CNN article, from which the data in this post is drawn, can be found here.