The Federal Reserve yesterday released statistics showing that for all of 2007, household net worth rose 3.4% to $57.7 trillion, the slowest growth in five years. After the effects of 4.1% inflation are included, real net worth fell for the year.
Despite these figures, I think we need to put things in perspective. After all, economic growth is cyclical and as such from time to time as the economy weakens, household net worth will decrease. It happened 5 years ago. It's not as if households lost 20-30% of their net worth. After factoring in inflation, the decrease was less than 1%. The US is still by far the wealthiest nation on earth and Americans have the highest standard of living of any people on earth. That's why there is an immigration problem. People from around the world will do whatever it takes to get to the US. So if their wealth drops minimally, I don't think it's such a big deal.
The pessimists can complain that things are bad and if you listen to them the economy will never recover.
Things have been bad before and they have always recovered.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no positions in any stock mentioned as of 3/07/08
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Reader Comments (Page 1 of 1)
3-08-2008 @ 2:05AM
thebigkill said...
Okay.
This may sound horrible.
This will also be very true.
Minorities paid a large amount of $$$ to buy homes for the first time. These minorities, many less than knowledgable first-time homebuyers, were very dependent on their jobs to last forever.
Little did they know they're $40 / hr jobs were temp jobs while home building and private business construction and manufacturing got big driving up EPS for many, many companies. It's over.
Publicly traded companies started taking their first steps (and fixed income investors) in deleveraging in September 2007 meaning job losses, foreclosures, FDI loss.