The return of wealth
Wealth took a beating during the recession. Both real-estate and stock wealth plunged. But, as N.C. State University economist Mike Walden explains, collectively, we have regained what was lost.
“First of all, the losses: The wealth held by households … took a big drop during the recession – $13 trillion …. dollars of wealth were lost by household. These are average people. Two-thirds of that was … drops in financial wealth like (the) stock market; one third in real-estate.
“So this was a big hit, and I would argue this is the main reason why the recession was so bad.
“Now the good news is that we just have fresh data from the Federal Reserve. The Federal Reserve tracks wealth (and) shows that that $13 trillion has been totally recovered, primarily because the financial markets … are back, but also that housing market is beginning to come back.
“Now this is very, very important for the economy. Studies show that for every dollar increase in wealth, households spend 5 cents more. So I think this is a big reason why some economists like myself think the economy’s actually going to do much better this year and next year, and I think it’s because of a spending boost that households will get from seeing their wealth go back up.”Category: Economic Perspective