With asset prices having fallen dramatically since 2007, Americans have seen their total net worths plummet.
Household net worth is still far below the starting quarter of the recession, and the pace in which it is growing lags every other recession back to 1969.
This chart shows just how far we need to go to get back to zero, via Mark Thoma:
And with many of those assets now underwater, it’s pretty clear Americans are spending their hard earned pay (or unemployment checks) deleveraging from a period of financial profligacy that led to this recession.
Mark Thoma argues this is just the reason we need to see tax cuts increase, to avert a Japanese scenario.
Japan made the mistake of allowing balance sheet problems for both households and banks to linger and the result was a prolonged recession. We seem to have gotten the message about banks, though not fully — the problems are not being resolved as fast as I’d like to see — but the message that households need just as much attention seems to be harder for policymakers to get.
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