Good News Trumps Bad News

by: Calafia Beach Pundit

Bad news seems more prone to get the headlines, whereas there's a lot of good news that goes largely unnoticed. Some examples:

The bad news: This is the weakest recovery ever; the labor force participation rate has been falling for 15 years; productivity growth is dismally low; our national debt is at a post-war high of 72% of GDP; race relations have deteriorated; tax and regulatory burdens are suffocating the private sector; savers and retirees have been severely penalized by seven years of near-zero interest rates; the rule of law has been weakened by the emergence of the Imperial Presidency; crony capitalism (a euphemism for corruption in government) is rampant; the tax code is a nightmare; and transfer payments are at record-high levels that correspond to 20% of personal income and over 70% of federal spending.

The good news: Despite all the bad news, household net worth is at an all-time high ($85.7 trillion), whether measured in nominal, real or per capita terms; households' leverage has fallen by more than 30% since the 2009 peak; the economy has been growing and jobs have been expanding for more than six years; 30-year fixed mortgage rates are 3.84%, only 40 bps higher than their all-time lows of 2012; housing starts have increased by an annualized 15% rate for the past six years; the private sector has created over 4 million net new jobs since 2007; inflation has averaged only 2% for the past 10 years; and the dollar is still one of the world's strongest currencies.

Here are some charts which incorporate the data on Q2/15 household net worth released today:

Household net worth has reached an astounding $85.7 trillion. That represents an increase of almost 30% ($18.9 trillion) from the pre-recession levels of 2007. The increase was driven by a $16.7 trillion increase in financial assets, and it occurred - in a very healthy fashion - alongside a modest reduction in liabilities.

After adjusting for inflation, household net worth now stands at a new, all-time high. That continues the long-term trend of annualized increases of almost 2.5% in real household net worth.

After adjusting for inflation and population growth, real per capita net worth is also at a new, all-time high of about $268K.

Even if all this staggering amount of wealth were held by just a handful of people, it would still be the case that we all benefit from it. This wealth is the ultimate source of all jobs and our living standards. Because our economy can produce so much, so efficiently, the fruits of modern life (e.g., iPhones, air travel, clean water, abundant food) are available to virtually everyone. This is unequivocally good news.

As the chart above shows, all of the wealth gains have occurred against a backdrop of pronounced deleveraging on the part of the household sector. Leverage has been rolled back to the levels of the mid-1980s. Who says that deleveraging is bad for growth and prosperity?

The chart above shows the Fed's calculation of the average homeowner's percentage equity ownership in his or her home. Although still relatively low from a long-term historical perspective (it was over 80% in the early 1950s), it has rebounded significantly in the past six years. Households' real estate holdings today have just about regained their prior peak levels of 2006. You can almost hear the sighs of relief all across the country.