Another feature of the world since 2008 is that government and the central bank has pulled every conceivable lever to prevent what has happened from happening. It has not only failed to accomplish that end. It has actually forestalled the necessary liquidation that would have created a clear path forward for the rebuilding of prosperity.
[…]
Well, welcome to 2012 America. Have a look at the extremely scary Federal Reserve report, the Survey of Consumer Finance. If you have the stomach for it, read it yourself. The bean counters have put together the most broad and deep look at the finances of the median family. It turns out that the median American family is financially falling off a cliff, despite (or because of!) the trillions spent trying to prevent this from happening.
The short summary:
Two decades of seeming prosperity have been entirely wiped out since 2008, putting the net worth of the households at the same level it was in the early 1990s.
The housing crash is the main cause of the wreckage, but the actual income of the median family has fallen by 7.7% since 2007. The report compiles data from 2010 and would probably be worse in this respect if it included data from today.
Nearly all measurable increases in what the government calls economic growth actually come from consumers depleting what resources they have and not saving much, if any, income at all.
Meanwhile, 75% of households report that they are still holding an unchanged level of debt. Those households paying less in debt finance are doing so because they are deferring student loan payments and refinancing houses at subsidized rates.
It’s actually difficult to come up with a metaphor to fully capture the grim reality here. We could fall back on the farmer that is eating the seed corn held for next year’s planting. Or perhaps we could imagine a household that is feeding the fireplace with shingles from the roof. In short, this is not a sustainable pattern of family finance, and it is currently driving American wealth straight down.
To the extent we are not entirely aware of this, there can only be two reasons. First, the proliferation of debt finance is providing a temporary illusion. Second, the technological revolution came just in time to vastly increase the efficiency of just about everything industry and households do, thereby enabling more blood to be extracted from the economic turnip than anyone ever thought possible.
[…]
