As I said I do not agree with the Van Den Berg point in its entirety and you pretty much got it in one, essentially the purchasing power of the dollar is the primary problem with his argument. I note though the increase in $20T in networth was accounted by $8T in real estate and the rest was in own business $3T, equities $4T, pensions $4.5T. My conclusion is that US households will be in good shape if those investments in equities, pensions and own business was in the sectors that will benefit from inflation. Since debt will be inflated away the real value of debt will decline and if the additions in recent years is in the right asset classes the US consumer will do well. One thing strengthens your argument is that there is a good chance that the US consumer does not know what sectors to be in. Hence, I conclude by sharing one of my favourite notions which is truth is an illusive concept and there are no absolute answers hence we must remain open minded and flexible. We’ll see how it pans out, but I don’t think things are dire in the US vis a vis Europe. Excellent work with this site, my congratulations. Mem

I agree that numbers can be used to slant things towards one point of view. This was not my intention.

I could play devils advocate back at you in asking why is it that a recession is defined as two consecutive quarters of lower GDP? We haven’t had two consecutive quarters of lower GDP for four years, yet we’ve had 4 consecutive years of lower GDP. The media never talks about this because of how a recession is defined. Who is behind this definition? Or a better question is who manipulated what the definition of recession has come to be known?

That said, lets take a look at the bigger picture of the 4 years mentioned in the Federal Reserve chart by Van Den Berg in your post….

In 2002, net worth was $38,830 and grew to $57,860 by 2007. This is a nice 49% gain and by any calculation looks pretty good!

Looking closer at the numbers, the growth was primarily fueled by higher prices in real estate from the Fed artificially lowering interest rates allowing the consumer to borrow from their equity and fuel the real estate market higher via speculation with their newfound wealth. As the consumer did this, you’ll see from the chart that mortgage debt also increased by about 35%.

In 2002, the U.S. dollar was trading at 120 and by 2007, the dollar was trading 34% lower. So a dollar in 2002 was worth 34% less in terms of purchasing power than a dollar in 2007. This also means that the 49% growth is reduced by 68% thus showing that real growth was only about 3% a year during this time-frame.

Now we are in 2008 and the dollar has fallen another 8%, real estate prices are declining and mortgage debt has increased. So the Federal Reserve chart that will come out this June and next June won’t be looking too pretty. Of course, as I mentioned in the blog, the Fed is doing all they can to keep the game going…and remember, George Bush says we’re not in a recession!

GDP is being hurt by the U.S. debt while individuals and other countries are trying to get out. The Fed is printing at historic rates adding to this debt resulting in increased inflation. The future unfunded liabilities will add to this and the result will be higher taxes.

If I have missed your point, please let me know.

Good hearing from you!

Doug Eberhardt