The Dubious Goal of Replacing Lost Bubble Wealth « The Washington Independent
Jul 31, 202039.1K Shares782.8K Views
The Washington Post runs a piece todayabout how markets, despite this week’s uptick, “have a long way to go to replace the vast wealth lost by Americans in recent months.”
“„Falling stock and home prices have wiped out four years of gains in Americans’ net worth since the start of 2008, according to new data from the Federal Reserve. Nearly half of those losses occurred over the last three months of the year, the biggest quarterly decline since record-keeping began in 1952.
“„The new data underlined just how quickly wealth created during the biggest credit bubble in history has vanished, leaving Americans without the college funds, nest eggs and other reserves they had set aside.
The implication is that we should be measuring the economy’s comeback relative to the bubble levels of the last few years.
Yet, as we wrotehere last month, that’s a recipe for failure because bubbles, by definition, are unsustainable. That is, if consumer spending (which constitutes 70 percent of the nation’s economy) was fueled by home prices that proved to be wildly inflated — and if Wall Street had been propped up by a similar reliance on mortgage-backed investments that were also grossly overvalued — then it’ll take much more than $787 billion in stimulus spending to fill the void.
In fact, unless we find a way to build a more sturdy pedestal on which to build this economy, that shouldn’t even be the goal. Returning to sustainability should, even if it means that the “vast wealth” lost by Americans isn’t fully replaced.
Paula M. Graham
Reviewer
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