Contraction of Household Wealth by 14.0 Percent
in
First Quarter 2020 in the Global Recession, with Output in the US Reaching a
High in Feb 2020 (https://www.nber.org/cycles.html), in the
Lockdown of Economic Activity in the COVID-19 Event, Strength of Household Real
Estate Assets, Destruction
of Household Nonfinancial Wealth with Stagnating Total Real Wealth in the Lost
Economic Cycle of the Global Recession with Economic Growth Underperforming
Below Trend Worldwide, World Inflation Waves, Collapse of United States Dynamism of Income Growth and
Employment Creation in the Lost Economic Cycle of the Global Recession with
Economic Growth Underperforming Below Trend Worldwide, World Cyclical Slow
Growth, and Government Intervention in Globalization
Carlos M. Pelaez
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
I World
Inflation Waves
IA Appendix: Transmission of
Unconventional Monetary Policy
IB1 Theory
IB2 Policy
IB3 Evidence
IB4 Unwinding Strategy
IC United
States Inflation
IC Long-term US Inflation
ID Current US Inflation
IE Theory and Reality
of Economic History, Cyclical Slow Growth Not Secular Stagnation and Monetary
Policy Based on Fear of Deflation
IIB Destruction of Household Nonfinancial Wealth
with Stagnating Total Real Wealth in the Lost Economic Cycle of the Global
Recession with Economic Growth Underperforming Below Trend Worldwide
II IB Collapse of United States Dynamism of Income
Growth and Employment Creation in the Lost Economic Cycle of the Global
Recession with Economic Growth Underperforming Below Trend Worldwide
III World Financial Turbulence
IV Global Inflation
V World Economic
Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk
Financial Assets
VII Economic
Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe
Haven Currencies
IIIC Appendix on
Fiscal Compact
IIID Appendix on
European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on
Deficit Financing of Growth and the Debt Crisis
Foreword
A. The
comparison of net worth of households and nonprofit organizations in the entire
economic cycle from IQ1980 (and from IVQ1979) to IIIQ1993 and from IVQ2007 to
IQ2020 is in Table IIA-5. The data reveal the following facts for the cycles in
the 1980s:
- IVQ1979
to IIIQ1993. Net worth increased 187.9 percent from IVQ1979 to IIIQ1993,
the all items CPI index increased 89.2 percent from 76.7 in Dec 1979 to
145.1 in Sep 1993 and real net worth increased 52.2 percent.
- IQ1980
to IVQ1985. Net worth increased 66.5 percent, the all items CPI index increased
36.5 percent from 80.1 in Mar 1980 to 109.3 in Dec 1985 and real net worth
increased 22.0 percent.
- IVQ1979
to IVQ1985. Net worth increased 70.1 percent, the all items CPI index
increased 42.5 percent from 76.7 in Dec 1979 to 109.3 in Dec 1985 and real
net worth increased 19.3 percent.
- IQ1980
to IQ1989. Net worth increased 121.5 percent, the all items CPI index
increased 52.7 percent from 80.1 in Mar 1980 to 122.3 in Mar 1989 and real
net worth increased 45.1 percent.
- IQ1980
to IIQ1989. Net worth increased 126.1 percent, the all items CPI index
increased 54.9 percent from 80.1 in Mar 1980 to 124.1 in Jun 1989 and real
net worth increased 45.9 percent.
- IQ1980
to IIIQ1989. Net worth increased 131.9 percent, the all items CPI index
increased 56.1 percent from 80.1 in Mar 1980 to 125.0 in Sep 1989 and real
net worth increased 48.6 percent.
- IQ1980
to IVQ1989. Net worth increased 136.2 percent, the all items CPI index
increased 57.4 from 80.1 in Mar 1980 to 126.1 in Dec 1989 and real net
worth increased 50.1 percent.
- IQ1980
to IQ1990. Net worth increased 137.6 percent, the all items CPI index
increased 60.7 percent from 80.1 in Mar 1980 to 128.7 in Mar 1990 and real
net worth increased 47.9 percent.
- IQ1980
to IIQ1990. Net worth increased 140.2 percent, the all items CPI index
increased 62.2 percent from 80.1 in Mar 1980 to 129.9 in Jun 1990 and real
net worth increased 48.1 percent
- IQ1980
to IIIQ1990. Net worth increased 138.4 percent, the all items CPI index
increased 65.7 percent from 80.1 in Mar 1980 to 132.7 in Jun 1990 and real
net worth increased 43.9 percent.
- IQ1980
to IVQ1990. Net worth increased 143.1 percent, the all items CPI index
increased 67.0 percent from 80.1 in Mar 1980 to 133.8 in Dec 1990 and real
net worth increased 45.5 percent. The National Bureau of Economic
Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991
(Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US
GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion
of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in
IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). This new cyclical
contraction explains the contraction of net worth in IIIQ1990
- IQ1980
to IQ1991. Net worth increased 149.3 percent, the all items CPI index
increased 68.5 percent from 80.1 in Mar 1980 to 135.0 in Mar 1991 and real
net worth increased 47.9 percent.
- IQ1980
to IIQ1991. Net worth increased 149.9 percent, the all items CPI index
increased 69.8 percent from 80.1 in Mar 1980 to 136.0 in Jun 1991 and real
net worth increased 47.2 percent.
- IQ1980
to IIIQ1991. Net worth increased 152.9 percent, the all items CPI index
increased 71.3 percent from 80.1 in Mar 1980 to 137.2 in Sep 1991 and real
net worth increased 47.6 percent.
- IQ1980
to IVQ1991. Net worth increased 159.2 percent, the all items CPI index
increased 72.2 percent from 80.1 in Mar 1980 to 137.9 in Dec 1991 and real
net worth increased 50.6 percent.
- IQ1980
to IQ1992. Net worth increased 160.2 percent, the all items CPI index
increased 73.9 percent from 80.1 in Mar 1980 to 139.3 in Mar 1992 and real
net worth increased 49.6 percent.
- IQ1980
to IIQ1992. Net worth increased 161.1 percent, the all items CPI index
increased 75.0 percent from 80.1 in Mar 1980 to 140.2 in Jun 1992 and real
net worth increased 49.2 percent.
- IQ1980
to IIIQ1992. Net worth increased 164.9 percent, the all items CPI index
increased 76.4 percent from 80.1 in Mar 1980 to 141.3 in Sep 1992 and real
net worth increased 50.1 percent.
- IQ1980
to IVQ1992. Net worth increased 171.3, the all items CPI index increased
77.2 percent from 80.1 in Mar 1980 to 141.9 in Dec 1992 and real net worth
increased 53.2 percent.
- IQ1980
to IQ1993. Net worth increased 174.9 percent, the all items CPI increased
79.3 percent from 80.1 in Mar 1980 to 143.6 in Mar 1993 and real net worth
increased 53.3 percent.
- IQ1980
to IIQ1993. Net worth increased 177.7 percent, the all items CPI increased
80.3 percent from 80.1 in Jun 1980 to 144.4 in Jun 1993 and real net worth
increased 54.0 percent.
- IQ1980
to IIIQ1993. Net worth increased 182.0 percent, the all items CPI
increased 81.1 percent from 80.1 in Jun 1980 to 145.1 in Sep 1993 and real
net worth increased 55.6 percent.
There is comparatively weaker performance in the current
economic cycle:
- IVQ2007
to IQ2020. Net worth increased 56.8 percent, the all items CPI increased
22.9 percent from 210.036 in Dec 2007 to 258.115 in Mar 2020 and real or
inflation adjusted net worth increased 27.6 percent. Real estate assets
adjusted for inflation increased 7.3 percent. Growth of real net worth at
the long-term average of 3.2 percent per year from IVQ1945 to IQ2020 would
have accumulated to 45.4 percent in the entire cycle from IVQ2007 to
IQ2020, much higher than actual 27.6 percent. Net worth decreased by
$6,548.2 billion from IVQ2019 to IQ2020 or by 14.0 percent in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in
the lockdown of economic activity in the COVID-19 event. Real estate
increased $433.3 billion from IVQ2019 to IQ2020 or 5.6 percent. Financial
assets decreased $6,947.4 billion from IVQ2019 to IQ2020 or 7.4 percent.
Stock markets recovered in Apr to Jul 2020.
The explanation is partly in the sharp decline
of wealth of households and nonprofit organizations and partly in the mediocre
growth rates of the cyclical expansion beginning in IIIQ2009. Long-term economic
performance in the United States consisted of trend growth of GDP at 3 percent
per year and of per capita GDP at 2 percent per year as measured for 1870 to
2010 by Robert E Lucas (2011May). The economy returned to trend growth after
adverse events such as wars and recessions. The key characteristic of
adversities such as recessions was much higher rates of growth in expansion
periods that permitted the economy to recover output, income and employment
losses that occurred during the contractions. Over the business cycle, the
economy compensated the losses of contractions with higher growth in expansions
to maintain trend growth of GDP of 3 percent and of GDP per capita of 2
percent. The US maintained growth at 3.0 percent on average over entire cycles
with expansions at higher rates compensating for contractions. US economic
growth has been at only 2.1 percent on average in the cyclical expansion in the
43 quarters from IIIQ2009 to IQ2020 and in the global recession with output in
the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Boskin (2010Sep) measures
that the US economy grew at 6.2 percent in the first four quarters and 4.5
percent in the first 12 quarters after the trough in the second quarter of
1975; and at 7.7 percent in the first four quarters and 5.8 percent in the
first 12 quarters after the trough in the first quarter of 1983 (Professor
Michael J. Boskin, Summer of Discontent, Wall
Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are
new calculations using the revision of US GDP and personal income data since
1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the
third estimate of GDP for IQ2020 (https://www.bea.gov/sites/default/files/2020-06/gdp1q20_3rd.pdf). The
average of 7.7 percent in the first four quarters of major cyclical expansions
is in contrast with the rate of growth in the first four quarters of the
expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP
of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009
{[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter
growth rates (https://cmpassocregulationblog.blogspot.com/2020/06/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states_31.html). The
expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from
IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983
to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to
IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to
IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to
IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989,
4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5
percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent
from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from
IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983
to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to
IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to
IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to
IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to IIIQ1993
and at 7.9 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2020/06/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states_31.html). The
National Bureau of Economic Research (NBER) dates a contraction of the US from
IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of
chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US
maintained growth at 3.0 percent on average over entire cycles with expansions
at higher rates compensating for contractions. Growth at trend in the entire
cycle from IVQ2007 to IQ2020 and in the global recession with output in the US
reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event would have accumulated to
43.6 percent. GDP in IQ2020 would be $22,634.2 billion (in constant dollars of
2012) if the US had grown at trend, which is higher by $3656.8 billion than
actual $18,977.4 billion. There are more than three trillion dollars of GDP
less than at trend, explaining the 41.3 million unemployed or underemployed
equivalent to actual unemployment/underemployment of 23.9 percent of the
effective labor force with the largest part originating in the global recession
with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/07/increase-of-total-nonfarm-payroll-jobs.html and earlier https://cmpassocregulationblog.blogspot.com/2020/06/creation-of-three-million-private.html). Unemployment is decreasing while employment is increasing in
initial adjustment of the lockdown of economic activity in the global recession
resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-june-2020.pdf). US GDP in IQ2020 is 16.2 percent lower than at trend. US GDP
grew from $15,762.0 billion in IVQ2007
in constant dollars to $18,977.4 billion in IQ2020 or 20.4 percent at the
average annual equivalent rate of 1.5 percent. Professor John H. Cochrane
(2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane
(2016May02) measures GDP growth in the US at average 3.5 percent per year from
1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at
2.0 percent annual equivalent in the current expansion. Cochrane (2016May02)
proposes drastic changes in regulation and legal obstacles to private economic
activity. The US missed the opportunity to grow at higher rates during the
expansion and it is difficult to catch up because growth rates in the final
periods of expansions tend to decline. The US missed the opportunity for
recovery of output and employment always afforded in the first four quarters of
expansion from recessions. Zero interest rates and quantitative easing were not
required or present in successful cyclical expansions and in secular economic
growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas
(2011May). There is cyclical uncommonly
slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing.
There is classic research on analyzing deviations of output from trend (see for
example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The
long-term trend is growth of manufacturing at average 2.9 percent per year from
Jun 1919 to Jun 2020. Growth at 2.9 percent per year would raise the NSA index
of manufacturing output (SIC, Standard Industrial Classification) from 108.2987
in Dec 2007 to 154.8159 in Jun 2020. The actual index NSA in Jun 2020 is 95.097
which is 38.6 percent below trend. The underperformance of manufacturing in Jun
2020 originates partly in the earlier global recession augmented by the current
global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19. Manufacturing grew at the
average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3
percent per year would raise the NSA index of manufacturing output (SIC,
Standard Industrial Classification) from 108.2987 in Dec 2007 to 162.5089 in
Jun 2020. The actual index NSA in Jun 2020 is 95.0970, which is 41.5 percent
below trend. Manufacturing output grew at average 1.6 percent between Dec 1986
and Jun 2020. Using trend growth of 1.6 percent per year, the index would
increase to 132.0671 in Jun 2020. The output of manufacturing at 95.0970 in Jun
2020 is 28.0 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification
System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the
low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index
increased from 86.3800 in Apr 2009 to 96.1857 in Jun 2020 or 11.4 percent. The
NAICS manufacturing index increased at the annual equivalent rate of 3.5
percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the
NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.9940 in Jun
2020. The NAICS index at 96.1857 in Jun 2020 is 41.3 below trend. The NAICS
manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999
to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output
index from 106.6777 in Dec 2007 to 131.6999 in Jun 2020. The NAICS index at
96.1857 in Jun 2020 is 27.0 percent below trend under this alternative
calculation.
Table IIA-5,
Net Worth of Households and Nonprofit Organizations in Billions of Dollars,
IVQ1979 to IIIQ1993 and IVQ2007 to IQ2020
|
Period IQ1980
to IIIQ1993
|
|
|
Net Worth of
Households and Nonprofit Organizations USD Millions
|
|
|
IVQ1979
IQ1980
|
9,097.9
9,290.5
|
|
IVQ1985
IIIQ1986
IVQ1986
IQ1987
IIQ1987
IIIQ1987
IVQ1987
IQ1988
IIQ1988
IIIQ1988
IVQ1988
IQ1989
IIQ1989
IIIQ1989
IVQ1989
IQ1990
IIQ1990
|
15,471.3
16,526.5
17,096.6
17,720.6
18,012.4
18,424.3
18,369.6
18,879.0
19,317.2
19,638.8
20,146.9
20,579.8
21,002.2
21,544.8
21,947.4
22,076.3
22,314.7
|
|
III1990
|
22,146.8
|
|
IV1990
|
22,581.0
|
|
I1991
|
23,165.8
|
|
IIQ1991
|
23,214.3
|
|
IIIQ1991
|
23,493.9
|
|
IVQ1991
|
24,080.6
|
|
IQ1992
|
24,170.9
|
|
IIQ1992
|
24,256.5
|
|
IIIQ1992
|
24,607.3
|
|
IVQ1992
|
25,206.6
|
|
IQ1993
|
25,536.0
|
|
IIQ1993
|
25,798.5
|
|
IIIQ1993
|
26,195.1
|
|
∆ USD IVQ1979
to IVQ1985
IVQ1979 to
IIIQ1993
IQ1980-IVQ1985
IQ1980-IIIQ1986
IQ1980-IVQ1986
IQ1980-IQ1987
IQ1980-IIQ1987
IQ1980-IIIQ1987
IQ1980-IVQ1987
IQ1980-IQ1988
IQ1980-IIQ1988
IQ1980-IIIQ1988
IQ1980-IVQ1988
IQ1980-IQ1989
IQ1980-IIQ1989
IQ1980-IIIQ1989
IQ1980-IVQ1989
IQ1980-IQ1990
IQ1980-IIQ1990
|
+6,373.4 ∆%70.1
R∆19.3
+17,097.2 ∆%187.9R∆%52.2
+6,180.8∆%66.5
R∆%22.0
+7,236.0
∆%77.9 R∆%29.3
+7,806.1
∆%84.0 R∆%33.4
+8,430.1
∆%90.7 R∆%36.3
+8,721.9
∆%93.9 R∆%36.8
+9,133.8
∆%98.3 R∆%38.1
+9079.1
∆%97.7 R∆%37.2
+9588.5
∆%103.2 R∆%39.7
10,0026.7
∆%107.9 R∆%41.1
+10,348.3 ∆%111.4
R∆%41.3
+10,856.4
∆%116.9 R∆%44.2
+11289.3
∆%121.5 R∆%45.1
+11,711.7
∆%126.1 R∆% 45.9
+12,254.3
∆%131.9 R∆% 48.6
+12,656.9
∆%136.2 R∆%50.1
+12,785.8
∆%137.6 R∆%47.9
+13,024.2
∆%140.2 R∆%48.1
|
|
IQ1980-IIIQ1990
|
+12,586.3∆%138.4 R∆%43.9
|
|
IQ1980-IVQ1990
|
+13,290.5 ∆%143.1 R∆%45.5
|
|
IQ1980-IQ1991
|
+13,875.3 ∆%149.3 R∆%47.9
|
|
IQ1980-IIQ1991
|
+13,923.6 ∆%149.9 R∆%47.2
|
|
IQ1980-IIIQ1991
|
+14,203.4 ∆%152.9 R∆%47.6
|
|
IQ1980-IVQ1991
|
+14,790.1 ∆%159.2 R∆%50.6
|
|
IQ1980-IQ1992
|
+14,880.4 ∆%160.2 R∆%49.6
|
|
IQ1980-IIQ1992
|
+14,966.0 ∆%161.1 R∆%49.2
|
|
IQ1980-IIIQ1992
|
+15,316.8 ∆%164.9 R∆%50.1
|
|
IQ1980-IVQ1992
|
+15,916.1 ∆%171.3 R∆%53.2
|
|
IQ1980-IQ1993
|
+16,245.5 ∆%174.9 R∆%53.3
|
|
IQ1980-IIQ1993
|
+16,508.0 ∆%177.7 R∆% 54.0
|
|
IQ1980-IIIQ1993
|
+16,904.6 ∆%182.0 R∆% 55.6
|
|
Period
IVQ2007 to IQ20120
|
|
|
Net Worth of
Households and Nonprofit Organizations USD Millions
|
|
|
IVQ2007
|
70,644.2
|
|
IQ2020
|
110,787.2
|
|
∆ USD
Billions
|
+40,143.0
∆%56.8 R∆%27.6
|
Net Worth =
Assets – Liabilities. R∆% real percentage change or adjusted for CPI percentage
change.
Notes:
Deposits: Total Time and Savings Deposits FL15303005; Net Worth = Assets –
Liabilities
Source: Board of Governors of the Federal Reserve System. 2020. Flow
of funds, balance sheets and integrated macroeconomic accounts: first quarter
2020. Washington, DC, Federal Reserve System, Jun 11. https://www.federalreserve.gov/releases/z1/current/default.htm
Foreword
B. Chart
IIA-1 of the Board of Governors of the Federal Reserve System provides US
wealth of households and nonprofit organizations from IVQ2007 to IQ2020. There
is remarkable stop and go behavior in this series with two sharp declines and
two standstills in the 43 quarters of expansion of the economy beginning in
IIIQ2009. The increase in net worth of households and nonprofit organizations
is the result of increases in valuations of risk financial assets and
compressed liabilities resulting from zero interest rates. Wealth of households
and nonprofits organization increased 27.6 percent from IVQ2007 to IQ2020 when
adjusting for consumer price inflation. Net worth of households and nonprofit
organizations fell 3.2 percent from 109,194.1 billion in IIIQ2018 to 105,727.4
billion in IVQ2018 or $3,466.7 billion. Financial assets decreased 4.3 percent
from 87,676.4 billion in IIIQ2018 to 83,890,3 billion in IVQ2018 or $3786.1
billion. Corporate equities fell 13.1 percent from $19,160.7 billion in
IIIQ2018 to $16,650.4 billion in IVQ2018 or $2,510.3 billion. These are the
revised data in the report of Jun 11, 2020, for IQ20120. Net worth decreased by
$6,548.2 billion from IVQ2019 to IQ2020 or by 14.0 percent in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Real estate increased
$433.3 billion from IVQ2019 to IQ2020 or 5.6 percent. Financial assets
decreased $6,947.4 billion from IVQ2019 to IQ2020 or 7.4 percent. Corporate
equities fell $4820.9 billion from $20,607.7 billion in IVQ2019 to $15,786.8
billion in IQ2020 or 23.4 percent. Stock markets recovered in Apr to Jul 2020.
Chart IIA-1, Net Worth of Households and Nonprofit
Organizations in Millions of Dollars, IVQ2007 to IQ2020
Notes: Deposits: Total Time and Savings Deposits FL15303005;
Net Worth = Assets – Liabilities
Source: Board of Governors of the Federal
Reserve System. 2020. Flow of funds, balance sheets and integrated
macroeconomic accounts: first quarter 2020. Washington, DC, Federal Reserve
System, Jun 11. https://www.federalreserve.gov/releases/z1/current/default.htm
Chart IIA-2 of the Board of Governors of the Federal Reserve
System provides US wealth of households and nonprofit organizations from
IVQ1979 to IIIQ1993. There are changes in the rates of growth of wealth
suggested by the changing slopes but there is smooth upward trend. There was
significant financial turmoil during the 1980s. Benston and Kaufman (1997, 139)
find that there was failure of 1150 US commercial and savings banks between
1983 and 1990, or about 8 percent of the industry in 1980, which is nearly
twice more than between the establishment of the Federal Deposit Insurance
Corporation in 1934 through 1983. More than 900 savings and loans associations,
representing 25 percent of the industry, were closed, merged or placed in
conservatorships (see Pelaez and Pelaez, Regulation
of Banks and Finance (2008b), 74-7). The Financial Institutions Reform,
Recovery and Enforcement Act of 1989 (FIRREA) created the Resolution Trust
Corporation (RTC) and the Savings Association Insurance Fund (SAIF) that
received $150 billion of taxpayer funds to resolve insolvent savings and loans.
The GDP of the US in 1989 was $5641.6 billion (https://apps.bea.gov/iTable/index_nipa.cfm), such that
the partial cost to taxpayers of that bailout was around 2.66 percent of GDP in
a year. The Bureau of Economic Analysis estimates US GDP in 2019 at $21,539.7
billion, such that the bailout would be equivalent to cost to taxpayers of
about $573.0 billion in current GDP terms. A major difference with the Troubled
Asset Relief Program (TARP) for private-sector banks is that most of the costs
were recovered with interest gains whereas in the case of savings and loans
there was no recovery. Money center banks were under extraordinary pressure
from the default of sovereign debt by various emerging nations that represented
a large share of their net worth (see Pelaez 1986). Net worth of households and nonprofit organizations
increased 177.7 percent from IQ1980 to IIQ1993 and 54.0 percent when adjusting
for consumer price inflation. The National Bureau of Economic Research (NBER) dates a
contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of
chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). This new cyclical contraction explains the
contraction followed by stability of net worth in the final segment followed by
mild increase and then rising trend in Chart IIA-2.
Chart IIA-2, Net Worth of Households and Nonprofit
Organizations in Millions of Dollars, IVQ1979 to IIIQ1993
Notes: Deposits: Total Time and Savings Deposits FL15303005;
Net Worth = Assets – Liabilities
Source: Board of Governors of the Federal Reserve System.
2020. Flow of funds, balance sheets and integrated macroeconomic accounts:
first quarter 2020. Washington, DC, Federal Reserve System, Jun 11. https://www.federalreserve.gov/releases/z1/current/default.htm
Chart IIA-3 of the Board of Governors of the
Federal Reserve System provides US wealth of households and nonprofit
organizations from IVQ1945 at $806.6 billion to IQ2020 at $110,787.2 billion or
increase of 13,635.1 percent. The consumer price index not seasonally adjusted
was 18.2 in Dec 1945 jumping to 258.115 in IQ2020 or increase of 1,318.2
percent. There was a gigantic increase of US net worth of households and
nonprofit organizations over 74.25 years with inflation-adjusted increase from
$44.319 in dollars of 1945 to $429.216 in IQ2020 or 868.5 percent. In a simple
formula: {[($110,787.2/806.6)/(258.11/18.2)-1]100 = 868.5%}. Wealth of
households and nonprofit organizations increased from $806.6 billion at year-end
1945 to $110,787.2 billion at the end of IQ2020 or 13,635.1 percent. The
consumer price index increased from 18.2 in Dec 1945 to 258.115 in Mar 2020 or
1,318.2 percent. Net wealth of households and nonprofit organizations in
dollars of 1945 increased from $44.319 in 1945 to $429.216 in IQ2020 or 868.5
percent at the average yearly rate of 3.1 percent. US real GDP grew at the
average rate of 2.9 percent from 1945 to 2019 (https://apps.bea.gov/iTable/index_nipa.cfm). The combination of collapse of values of real estate and
financial assets during the global recession of IVQ2007 to IIIQ2009 caused
sharp contraction of net worth of US households and nonprofit organizations.
Recovery has been in stop-and-go fashion during the worst cyclical expansion in
the 74.25 years when US GDP grew at 2.1 percent on average in the forty-three
quarters between IIIQ2009 and IQ2020 (https://cmpassocregulationblog.blogspot.com/2020/06/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states_31.html). US GDP was
$228.0 billion in 1945 and net worth of households and nonprofit organizations
$806.6 billion for ratio of wealth to GDP of 3.54. The ratio of net worth of
households and nonprofits of $70,644.2 billion in 2007 to GDP of $14,451.9
billion was 4.89. The ratio of net worth of households and nonprofits of
$117,335.4 billion in 2019 to GDP of $21,427.7 billion was 5.48. The final data
point in Chart IIA-3 is net worth of household and nonprofit institutions at
$110,787.2 billion in IQ2020 for increase of 13,635.0 percent relative to
$806.6 billion in IVQ1945. CPI adjusted net worth of household and nonprofit
institutions increased from $44.319 in IVQ1945 to $429.216 in IQ2020 or 868.5 percent
at the annual equivalent rate of 3.1 percent. Net worth of households and
nonprofit organizations fell 3.2 percent from 109,194.1 billion in IIIQ2018 to
105,727.4 billion in IVQ2018 or $3,466.7 billion. Financial assets decreased
4.3 percent from 87,676.4 billion in IIIQ2018 to 83,890,3 billion in IVQ2018 or
$3786.1 billion. Corporate equities fell 13.1 percent from $19,160.7 billion in
IIIQ2018 to $16,650.4 billion in IVQ2018 or $2,510.3 billion. These are the
revised data in the report of Jun 11, 2020, for IQ20120. Net worth decreased by
$6,548.2 billion from IVQ2019 to IQ2020 or by 14.0 percent in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Real estate increased
$433.3 billion from IVQ2019 to IQ2020 or 5.6 percent. Financial assets
decreased $6,947.4 billion from IVQ2019 to IQ2020 or 7.4 percent. Corporate
equities fell $4820.9 billion from $20,607.7 billion in IVQ2019 to $15,786.8
billion in IQ2020 or 23.4 percent. Stock markets recovered in Apr to Jul 2020.
Chart IIA-3, Net Worth of Households and Nonprofit
Organizations in Millions of Dollars, IVQ1945 to IQ20120
Notes: Deposits: Total Time and Savings Deposits FL15303005;
Net Worth = Assets – Liabilities
Source:
Board of Governors of the Federal Reserve System. 2020. Flow of funds,
balance sheets and integrated macroeconomic accounts: first quarter 2020.
Washington, DC, Federal Reserve System, Jun 11. https://www.federalreserve.gov/releases/z1/current/default.htm
Full Text Excessively Long, Available from Authors
