While this will hardly come as a surprise to most readers, the Fed has released the results of research conducted in 2007 and 2009 showing a 23% decline in household income during those two years. While there is some evidence that some households, including some of the poorer, have seen slightly better days since then, this survey makes it possible to actually quantify somewhat the extent of the damage done by this recessions.
A rare survey of U.S. households, first performed in 2007 but repeated in 2009 in order to gauge the effects of the recession, reveals the median net worth of households fell from $125,000 in 2007 to $96,000 in 2009. As reported by CNN Money:
Titled “Surveying the Aftermath of the Storm,” the report offers a broad look at how the financial crisis impacted individual households.
It is widely known that the 2008 financial crisis resulted in the vaporization of trillions of dollars in household wealth. But Federal Reserve officials said Thursday the new report offers a look at exactly how hard the recession hit families, and how they reacted.
But there was an interesting bit at the end of this article that caught my eye. The article quotes the report that American consumers are responding in a way that might stall the recovery; “”[F]amilies’ behavior may act in some ways as a brake on reviving the economy in the short run,” quoth the Fed. And what is this unseemly behavior? Increasing their savings! By saving their money and not pumping it back into the economy, they are slowing things down.
I get the theory behind this. With social safety nets being dismantled left and right, and a lot of uncertainty remaining about how this is all going to shake out, the possibility of unemployment a very real possibility, not stocking up a reserve of cash is just plain silly. I think it helps to illuminate just how clueless the Fed is about how the rest of us are required to live. Besides, the same can be said of many corporations who are “saving” by sitting on massive piles of cash. Perhaps if the banks and finance companies in particular would loosen their purse strings and do some lending, it would have at least as much positive effect as millions of families spending their reserves to placate the sensibilities of those who helped get us into this mess.
I sense a double standard here, and a set of rules that need to be changed, but since that isn’t likely to happen, they should be flouted. More on this in future installments.
