Wednesday, February 4, 2009

ClusterStock: Americans Lost $10.2 Trillion in 2008

We are becoming so immune to large numbers with all these multi billion bailouts and now trillion dollar stimulus/bad bank comments. I've read in multiple places that 40% (yes 40%!) of world wealth has been destroyed in this downturn. Think about that for a moment; it is staggering. Which is why I continue to believe (unlike the punditry) that government is not larger than the problem. Now, with that said a lot of that wealth, especially of the American kind, was transitory and fictional - such as $400,000 Phoenix homes owned by people of $42K annual salary. Or $140 investment banks that are... $0.

ClusterStock breaks it down specifically to America - I believe (off top of my head) there was somewhere between $50 and $60 Trillion of net worth in the country (assets) in 2007. We've now lost $10.2T in 1 year. So that is somewhere between 17-20% of all US wealth (again some of it imaginary by the bubbles our financial system created) vaporized.

Put another way - we talk every few weeks about the massive obligations coming to current and future generations based on what we've done the past few decades plus what we are doing today. We have many more emergencies, especially of the Medicare variety, coming in the future (less than a decade from what I read when we need to "face up to reality"). Since these numbers are so hard to wrap your arms around just be aware that what was lost in the country in 2008 could effectively have EXTINGUISHED ALL U.S. GOVERNMENT DEBT. Our federal deficit could of been reset to zero with this amount of money. When you think about it that way - you realize how staggering these losses are.

And this is why the recovery - when it comes - will be of a variant nature than we have been used to... (after the government induced (V-shaped) bounce) we'll be returning to a totally different long term trajectory as we rebound. This is center stage for my catch phrase the past 1.5 years - the "Pooring of America". The long term living standards will fall - we will have to pay the piper.
  • You'll hear lots of talk about how recessions are caused because people feel poorer or irrationally react to a flood of bad economic news. But the truth is that these depressed feelings are rooted in reality. Americans don't just feel poorer, they are poorer:
  • U.S. homeowners lost a cumulative $3.3 trillion in home equity during 2008, according to a report from Zillow. (MortgageWire.)
  • The stock market erased $6.9 trillion in shareholder wealth in 2008.
Since the end of 2008? Already, the market is down another 7-8% and housing prices continue their dive. I do believe housing has another 10-15% (minimum) to go even with government interference. And yes at some point equities will rebound, but there is no coming back for Lehman, Fannie, Freddie and the numerous bankrupt non financial companies that have occured and WILL occur in 2009 and into 2010. Not to mention the devastation you rarely hear about that is occurring by the month in the private sector.

But I'm sure it's all priced in.

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