Wealth in America – The Carnage of 2008

January 6, 2009

By John Newcomer:

burning moneyIf you’re feeling a bit poorer these days, you’re in good company.  The numbers are staggering whether it’s your home value, your stock portfolio or your 401K.  Just about everyone took a hit, and now that 2008 is finally over we can tally the numbers.  The loss of wealth in America is truly massive.  It’s not just that the Dow Jones industrial average fell 33.8%, its worst year since 1931, and its fourth worst performance since its inception in 1896.  The percentage declines mean nothing, until you look at the actual figures.

When all is added up, about $7 trillion dollars of shareholder’s wealth was lost in 2008.  If you add in October, November, and December of 2007 the total loss is close to $8.4 trillion.

But the loss of wealth spilled over to the residential home market, and the numbers there are really dismal.  U.S. homes lost $2 trillion in value for the year.  In fact 11.7 million American households (14.3 % of all homeowners) now owe more on their mortgage than their homes are worth.

$7 trillion in the stock market and $2 trillion in the residential home market means that we lost $9 trillion in wealth.  That is more than the combined industrial output of China, Canada, Russia, and Mexico for 2007; it is about the size of the total debt of the United States; or roughly $36,000 per capita (that is, per U.S. resident).

The question is where did it all go?  Mostly up in the air.  It was perceived value.  Some investors, however, actually made money.  Where did they put it? It went into safe, liquid investments such as C.D.s and money markets.  In fact, liquid investments (cash or investments that can be converted to cash quickly) increased more than $668 billion for 2008.   Americans now own more than $8.1 trillion in liquid assets.

Let us all hope that 2009 is better!