Saturday, March 10, 2012

Household Net Worth: The "Real" Story

A quick glance at the complete quarterly data series in linear chart suggests a bubble in net worth that peaked in Q2 2007 with a trough in Q1 2009, the same quarter that the markets bottomed. The latest Fed balance sheet shows a total net worth that is 15.9% above the 2009 trough but still 12.5% below the 2007 peak. The positive news in the Q4 balance sheet is that real total net worth has increased 2.1% from Q3 of 2011, although the year-over-year number is a fractional decline of 0.6%.

But there are problems with this analysis. Over the six decades of this data series, total net worth has grown by 5000%. A linear vertical scale on the chart above is misleading in its failure to provide an accurate visual illustration of growth over time. It also gives an exaggerated dimension to the bubble that began in 2002. (more)

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