US crisis wiped out 18 yrs of household gains

The financial crisis wiped out 18 years of gains for the median US household net worth, with a 38.8 per cent plunge from 2007 to 2010 that was led by the collapse in home prices, a Federal Reserve study showed.

Median net worth declined to $77,300 in 2010, the lowest since 1992, from $126,400 in 2007, the Fed said in its Survey of Consumer Finances. Mean net worth fell 14.7 per cent to a nine-year low of $498,800 from $584,600, the central bank said yesterday in Washington. Almost every demographic group experienced losses, which may hurt retirement prospects for middle-income families, Fed economists said in the report.

 

“The impact has been a massive destruction of wealth all across the board,” said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston. “What you see is an economy that’s really very, very stressed for the bottom 60 to 70 percent of the population that’s struggling just to make ends meet.”

The declines in household wealth in the course of the longest and deepest recession since the Great Depression have held back the consumer spending that makes up about 70 percent of the economy. Fed policy makers led by Chairman Ben S Bernanke meet next week to consider whether the central bank needs to add to its record stimulus after employment grew at the slowest pace in a year in May.

The Fed has already taken unprecedented steps to boost the economy as it battled the 18-month recession that ended in June 2009, cutting its key interest rate almost to zero and purchasing $2.3 trillion in debt to lower long-term borrowing costs. Even so, the jobless rate has stayed above eight per cent since February 2009, compared with the central bank’s long-range goal of 4.9 per cent to six per cent.

“Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” economists wrote