Aftermath of Boom Bust Policies: US Family Net Worth Fell Nearly 40% Between 2007-2010

From the Wall Street Journal Blog (bold emphasis mine)

Families’ median net worth fell almost 40% between 2007 and 2010, down to levels last seen in 1992, the Federal Reserve said in a report Monday.

As the U.S. economy roiled for three tumultuous years, families saw corresponding drops in their income and net wealth, according to the Fed’s Survey of Consumer Finances, a detailed snapshot of household finances conducted every three years.

Median net worth of families fell to $77,300 in 2010 from $126,400 in 2007, a drop of 38.8%–the largest drop since the current survey began in 1989, Fed economists said Monday. Net worth represents the difference between a family’s gross assets and its liabilities. Average net worth fell 14.7% during the same three-year period.

Much of that drop was driven by the housing market’s collapse. Families whose assets were tied up more in housing saw their net worth decline by more. Among families that owned homes, their median home equity declined to $75,000 in 2010, down from $110,000 three years earlier.

Between 2007 and 2010, incomes also dropped sharply. In 2010, median family income fell to $45,800 from $49,600 in 2007, a drop of 7.7%. Average income fell 11.1% to $78,500, down from $88,300. That was a departure from earlier in the decade. During the preceding three years, median income had been constant, while the mean had climbed 8.5%.

Family incomes also dropped the most in regions of the country hardest hit by the housing market tumble. Median family income in the West and South decreased substantially, while those in the Northeast and Midwest saw little change.

This serves as evidence of how interest rate policies (zero bound rates) which attempts to induce a “permanent quasi boom” essentially impoverishes a society.

The market’s fierce backlash from Keynesian snake oil policies, serves as another validation or the realization of admonitions from the great Ludwig von Mises.

He who wants to "abolish" interest will have to induce people to value an apple available in a hundred years no less than a present apple. What can be abolished by laws and decrees is merely the right of the capitalists to receive interest. But such decrees would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty.

Capital consumption indeed.

Postscript:

Policymakers instead has been shifting the blame on China than accepting their mistakes and has further pursued similar set of policies. This means we should expect the same results overtime. Yet part of the imbalances caused by the boom phase of bubble cycles has been to overvalue a currency.

As a side note, politicians and mercantilists have long blamed China for alleged currency manipulation. The US Treasury recently avoided a direct confrontation by refusing to label China as one. That's because the US Treasury has become beholden to China, as evidenced by the privilege of direct access. This represents the another case where the mythical pot calls the kettle black.