A Wealth Exposion

We certainly do not have to look far and wide to find troubling news these days - the Afghanistan withdrawal, dysfunction in Washington, huge deficit spending by the Federal Government, predictions of Social Security not meeting its full obligations later this decade, ubiquitous social media’s negative impacts on our mental health, declining education attainment in our public schools.  You get the idea.  That said, recall when the last time any of our mass news outlets came out and proclaimed the sky is all clear and it’s all smooth sailing from here.

What is getting little media attention these days is the huge expansion in household wealth in this country.  Total household net worth increased $32 Trillion or 28% to $145 Trillion over the past two years (source: JP Morgan Asset Management).  And that was through the worst pandemic and economic downturn in over 100 years.  This is not to dismiss the challenges associated with the concentration of wealth evident today and throughout history.

Furthermore, the dramatic decline in long-term interest rates allowed millions of homeowners to refinance their mortgages to record low rates, and new buyers to borrow at these low rates.  The net result is the cost to service household debts as a share of disposable income is the lowest it has been in over 40 years (source: JP Morgan Asset Management).  In fact, 40 years ago on September 30th the rate on 10 Year Treasury bonds peaked at 15.78%.  Mortgages rates were 17-20% depending on credit rating.  A $300k mortgage back then would cost you around $55k in interest ($4,500 a month) in year one.  Today that same mortgage costs you about $8.5k – 85% less interest.

Finally, households today have record savings in the bank due primarily to stimulus transfer payments.  Combining these key data points, the overall financial situation of households is the brightest it has been in decades.  This is likely to translate into vibrant economy activity over the next few quarters as the pandemic recedes.

Best to keep all the doom and gloom in perspective.  Clearly democracy and capitalism are messy systems, and they always have been, but our country generally muddles through and makes great strides over time for the benefit of us all.

The Psychology of Money

Stock Market Downturns - Not so Scary