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July 03, 2009

Slipping wealth

As another sign of the economic times, the Federal Reserve recently reported that household wealth fell again in the first three months of 2009. How much wealth have we lost, and what does this mean?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This has really been unprecedented. It has been one of the ways this recession sets itself apart from previous recessions . . . it's the gigantic reduction in wealth. And of course, wealth is the value of your assets minus the value of your liabilities, or another way of saying, what you own minus what you owe. And in the first three months of 2009, household wealth dropped $1.4 trillion. And since the recession began, household wealth is down $14 trillion. That's over 20 percent. We still have substantial wealth left. Households today have about $50 trillion of wealth. But one result of this drop in wealth is that it is has motivated households to save. Our saving rate now is up to almost 5 percent. A few years ago, it was down to 0 percent. This 5 percent is still less than the typical 10 percent saving rate we saw for most of the post-war period."

Posted by Dave at July 3, 2009 08:00 AM