Household Wealth Still Down 14 Percent Since Recession – Federal Reserve Knowingly Lied

2/27/14

– Faults in the Federal Reserve Claim that Household wealth was highest since records began in 1945

–  it included accounts held by foreigners living outside of the United States

It didn’t adjust for inflation or population growth

–  it included wealth held by nonprofits and not just households

– Those who suffered the most were people aged 35 to 54, Olsen  said.  In 2012, they were 27 percent  below their peak net worth recorded in 2006.

– “As much as the Federal Reserve might want people to believe  we have recovered from the recession, the bottom line is that we haven’t.”

Description: Newspaper clipping USA, Woodrow W...

Description: Newspaper clipping USA, Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)

COLUMBUS, Ohio – Household wealth for Americans still has not  recovered from the recession, despite last summer’s optimistic report from the U.S. Federal Reserve, a new study  suggests.

Economists at The Ohio State University found that the mean  net worth of American households in mid-2013 was still about 14 percent below  the pre-recession peak in 2006. Their analysis suggested that middle-aged  people took the biggest hit.

In a report last June, the Federal Reserve said that net  worth of Americans – which includes the value of homes, stocks and other assets  minus debts – had essentially recovered since the recession of 2007 to 2009.  In fact, the Fed claimed wealth was the  highest it had been in nominal terms since records began in 1945.

But the Fed’s analysis included four data issues that gave a  significant boost to its optimistic reading of the economy, said Randy Olsen, co-author of the  study and a professor of economics at Ohio  State.

The four problems with the data: It didn’t adjust for  inflation or population growth; it included accounts held by foreigners living  outside of the United States; and it included wealth held by nonprofits and not  just households.

“All four of these issues with the Fed report pointed in the  same direction, leading toward a conclusion that was far rosier than what  exists in the real world,” Olsen said.

Olsen conducted the study with Lucia Dunn, also a professor  of economics at Ohio State.  Their  results appear in the February 2014 issue of the journal Economics  Letters.

Olsen and Dunn used data from the Consumer Finance  Monthly, a monthly telephone survey of U.S. households conducted by Ohio  State’s Center for Human Resource Research.  Olsen is director of CHRR.

The CFM was run monthly from 2005 to 2013 and does not have  any of the four issues associated with the Fed report, Olsen said.  To date, more than 25,000 households have  been surveyed on their assets and debts.

“The CFM dataset fills in some key gaps in the history of the  Great Recession and allows us to have a much clearer picture of what happened  to American households during this economic downturn,” Olsen said.

The results of the new study showed that the mean real net  worth of American households peaked in 2006 at $398,620.  At the bottom of the recession in 2009, it  fell to $217,687.  It recovered to  $333,859 in 2012, still 16 percent below its pre-recession high.  Additional improvements in the first half of  2013 brought household wealth to 14 percent below the 2006 high.

But the recession and the recovery didn’t affect all American  households the same way.  Results showed  that less wealthy people and younger people lost more during the recession in  percentage terms, but also recovered more since then.

American households in the 25th percentile in  terms of net worth (meaning that 75 percent of households had more wealth than  they did) had by 2012 essentially recovered the wealth they lost during the  recession.

But that is because they had very little to lose and to  recover, Olsen said.

“Many may have already lost their homes and had their credit  cards taken away,” Olsen said.  “If they  can’t borrow, they can’t go into debt.   Some may have paid off their old car loans, which gives them a small  asset.”

Meanwhile, those households at the 75th and 90th  percentile in terms of net worth were still 19 and 23 percent below their 2006  wealth levels, respectively, in 2012.

As far as age groups go, it was the young who have recovered  best from the recession.  Those under 35  were 4 percent below their 2006 net worth by 2012.  Those over 55 were 13 percent below.

Those who suffered the most were people aged 35 to 54, Olsen  said.  In 2012, they were 27 percent  below their peak net worth recorded in 2006.

“What we’re seeing in these middle-aged people is very  disheartening, because they are in what should be their peak earning years,  when they should be accumulating assets before retirement,” he said.

“We might be seeing people who have lost their jobs and are  forced to spend their assets because they can’t find work.  Some of them may have given up looking.”

Olsen said much of the recovery in net worth that has  occurred since the recession can be attributed to the rise in value of  financial assets, such as stocks.  This  tends to help those who are already wealthy, he noted.

This increase has occurred because of the Federal Reserve’s  policy of quantitative easing, which means the Fed has bought large amounts of  longer-term bonds and other financial assets, boosting their prices.

“Without quantitative easing, we probably would show even  lower levels of household net worth,” Olsen said.

“As much as the Federal Reserve might want people to believe  we have recovered from the recession, the bottom line is that we haven’t.”

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Contact: Randall Olsen, (614) 442-7348; Olsen.6@osu.edu
Written by Jeff Grabmeier, (614) 292-8457; Grabmeier.1@osu.edu

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