America's lost trillions

NEW YORK (CNNMoney) -- One reason that the U.S. economy still struggles to achieve sustained growth is that Americans are a long way from recovering the trillions of dollars of household wealth lost during the Great Recession.

U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009, according to figures from the Federal Reserve.

While a rebound in the stock market, an improved savings rate and consumer steps to reduce debt resulted in net worth gains since 2009, only a little more than half of that lost wealth - $8.7 trillion -- is back on household balance sheets.

That leaves American household wealth $7.7 trillion less than it was before the recession.

"The huge loss of consumption is due to loss of $8 trillion in bubble wealth," said Dean Baker, co-director of Center for Economic and Policy Research.

The gap that remains in household wealth is in stark contrast to the nation's gross national product, the broadest measure of economic activity, which has recovered all of the lost output of the recession. And the wealth gap helps to explain why consumers are still so reluctant to spend a full two years after the official end of the recession.

Much of the lost household wealth came from declines in the value of real estate, which dropped $6 trillion, or nearly 30% of its value, from the end of 2006 to the end of last year. And after posting modest gains in 2009 and the first half of 2010, the value of homes started to fall again in mid-2010.

Let’s remember this all was caused by Keynesian economics. Keynesians believe that HOUSING drives economic growth and rig policy towards housing.

The Fed killed a great economy after 2006 because they raised interest rates (aimed at housing) from 1% to 5.25% between 2004 and 2006. Bernanke’s stated purpose was the KEYNESIAN claim that we were at “full employment” and he feared letting wages rise because of a “labor shortage”—which might cause PRICES to rise in a good economy—which he called “inflation”.

So the Fed caused this economy to crash and burn for fear of rising prices because of rising wages, BUT

what about now? Why did the Fed let food and gas prices rise into a BAD economy and falling incomes? I’ll tell you why!

Because “core inflation” doesn’t include what people actually buy and can’t put off buying. “Core” inflation does NOT include food or gas prices—therefore the FED claims that there’s NO INFLATION....so people get no cost of living increase!

But the Fed counts HOME PRICES as 40% of “core inflation” and these wackos are convinced—because they are Keynesian wackos—that HOUSING drives GDP growth, hence the claims that the conomy won’t recover until housing recovers—which is a KEYNESIAN LIE.

These people are killing the economy with their voodoo economic belief that housing is all important—so they aren’t worrying about food and gas prices at all—and ALL they are worried about is their CRAZY belief that more inflation will get home prices to rise and spur home buying....they believe that as long as home prices fall, then people will put off buying homes and the economy can’t recover until home prices rise—then people will start buying them again when they rise and the economy will then recover FOLLOWING the housing market.

Of course this is CRAZY, but that’s what the Keynesian Democrats inside and outside the Fed believe! They care about what people can’t afford and already have and won’t buy and don’t care at all about the markets of what people can and do buy every day! It’s Keynesian economics keeping us in recession...plain and simple——just like Japan.

I get so very tired of the common assumption that some sort of government action back in 08 or thereabouts could have “saved” this money.

In actual fact, much of this “wealth” existed (to the extent it did) only because government interventions of various types artificially inflated value of real estate. It WAS going to crash sometime, like any other bubble. The longer you keep it inflated, the greater the damage when it finally pops.

If an individual, through chance or foresight, timed exit from the real estate market wisely, they got to keep the funny money. But this option, by definition, was not available to most.

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