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Charting The Government's Chronic And Flawed Overrepresentation Of Household Net Worth: A $2.1 Trillion Downward Revision In One Quarter
After we posted our preliminary thoughts on the Z.1 "Flow of Funds Accounts of the U.S." report earlier, we had the chance to dig deeper through the data in the governmental cash flow report. To our surprise we uncovered some dramatic data revisions whose presence highlights the recent "consumer resurgence" in a very different light. The key finding is that the government has been chronically overrepresenting Household Net Worth in original publications, and subsequently revising the data dramatically in order to hide the fact that consumers' wealth is nowhere near as impressive as originally represented. Putting a number to this statement: a $2.1 trillion downward revision in just one quarter.
Exhibit A - ratio of Household Net Worth to Disposable Income
Two of the most critical data sets in the Z.1 are total Household Net Worth and Disposable Income, and their respective ratio. Over the past decade this ratio has averaged roughly 5.5x, and as the confluence of the real estate and stock price market lifted household net worth into the unrealistic stratosphere, this ratio hit an all time high of 6.5x in 2006. Ever since then the ratio has collapsed, and according to today's release it hit 4.86x. Yet what is notable are the recent revisions to this data, whereby this ratio, which in Q2 was disclosed to be 4.87x originally, was subsequently reduced to 4.63x per today's data. This is a dramatic revision.
What was the reason for this revision? One specific item.
Exhibit B - Household Real Estate Worth
Comparing the constituents of household net worth, yields one glaring disparity. While in Q2 Household Real Estate was valued at $18.3 trillion dollars, in today's data it was revised by a stunning $2.1 trillion lower. To put that into perspective, the entire increase in HNW from Q2 to Q3 was $2.7 trillion, of which $2.3 trillion was from "Equity Shares At Market Value." In other words, had the government not fudged the data initially (or had it not subsequently revised it by a whopping 11.4%), today's Z.1 would have shown a much less ebullient picture, with just a $600 billion increase in HNW instead of $2.7 trillion: an 80% haircut! Our data demonstrates that over the past 5 quarters this has been a habitual game of over-inflating household real estate by the government, only to trim it subsequently, as the stock market picks up courtesy of an imaginary (and soon to be revised massively downward) "improvement" in the consumer's net worth status. A big (and potentially fraudulent) Catch 22 perpetrated by the government: consumers believe they are richer (when they are not), they buy into the ponzi, the government then removes the "net worth" crutches, but the ponzi has ratcheted up a notch in value; next period: rinse, repeat.
The comparison of originally reported real estate value and any given period's most recent revision is presented below. Ever since the peak of the housing bubble, 10 quarters ago, the government has been consistently deflating the margin of actual-revised numbers, while over the past 5, the revisions have gotten simply blatant, with a record $2.1 trillion in actual-revised adjustments in Q1 and Q2 of 2009. Not a bad way to make it seem that the consumer is $2.1 trillion dollars richer based on "adjustments," even if these disappear into thin air after a mere 90 days.
And if the United States government is willing to "adjust" numbers to the tune of $2 trillion+ within 90 days, who is to say what goes on in the Bureau of Labor Statistics, Department of Labor and the Census Bureau...
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The Government?
Lying????
You've gotta be kidding me!!!
Yeah... Well, you just might as well track tax receipts and unadjusted employment data from private sources. Because you ain't gonna get it right the first couple of times from the Feds.
Any sites provide that sort of information without being forced to join? I already spend money at sites like Shadow Stats.
This (digital) town ain't big enough for the two of us...partner...
FUBO!
I guess we can expect more of the same tomorrow on the retail numbers?
People are missing the real point here. It doesn't matter what household net worth is. What income is it generating? The sad fact is, very little.
A retired American has to have $1,000,000 in the bank to generate the $19,000 in interest he'd need to be at the poverty level.
American equity is worthless. If America had this much ballyhood $54 trillion in net worth, why can't the government generate the 3 trillion it needs to pay it's bills?
Simple. Our net worth is a product of inflation, not fundamental business. America's return on equity, net of write offs of worthless assets is probably barely a positive number.
If we were so freakin rich, why do they offer an installment plan to pay for the TV guide?
You mean we have to make stuff in order to create wealth, and everything else is just an inflation-based ponzi?
+10
Indeed, we got big problems.
Ireland goes bust and they only have a 14% budget deficit:
http://www.youtube.com/watch?v=KQx4cAUWE18
We have a 40% deficit. At least they are cutting government spending, so they will probably be better off. We just print money, and we all know where that will take us.
I am just lifting this from WSJ and would like to answer the oft repeated question about "strategic defaults"
"""The U.S home-ownership rate has charted its biggest decline in more than two decades, falling to 67.6% as of September from a peak of 69.2% in 2004. And more renters are on the way: Credit firm Experian and consulting firm Oliver Wyman forecast that "strategic defaults" by homeowners who can afford to pay are likely to exceed one million in 2009, more than four times 2007's level.
Stiffing the bank is bad for peoples' credit, and bad for banks. Swelling defaults could also mean more losses for taxpayers through bank bailouts.Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion."""
The consumer has just decided to take revenge on the all-fucking banks. JUST DON"T PAY.
Actually for those who don't find it repugnant and qualify under the means test, the real way to get even is to plan a strategic bankruptcy, then file a Chapter 7.
Well I don't find the bailouts and 30% cc rates repugnant, but I will never consider bankruptcy - that's for irresponsible people.
@Anon
"American equity is worthless. If America had this much ballyhood $54 trillion in net worth, why can't the government generate the 3 trillion it needs to pay it's bills?
Simple. Our net worth is a product of inflation, not fundamental business. America's return on equity, net of write offs of worthless assets is probably barely a positive number."
Excellent post. I suggest you consider registering a userid.
WTF is a tv guide??
It's like the Hulu channel page for old people.
It's a magazine that tells you what's on TV at what time and has fluff articles about celebrities. It used to be the most read magazine in America back in the 80's and 90's.
Nazi Germany got through 1923 and Soviet Russia
through 1991 making everyone dependent on
government or the mafeya. Worth reading Cox's
Russia Report before he went to the SEC for insights
on what's going on now...
http://www.fas.org/news/russia/2000/russia/part00-cover.htm
Just like to share my shorter version of this headline for Twitters maybe. Why? Cause I am good at it and got notin else do to (obviously)
Chart of Gov's Flawed & Overrepresented Household NetWorth: A Stunning $2.1 Trill Revision Down In Just 1Q
Even shorter:
Chart of Gov's Flawed Household Net Worth: $2.1 Trill Revision Down In 1Q
Even more better-er: "Govt Lies in Wealth Stats: $2.1 trillion"
All Governments Lie, but usually to make money. We're so back-asswords, all we can do is lie to wallpaper over losses.
I highly, highly, highly recommend everyone reading the 'The Fourth Turning' by William Strauss and Neil Howe. This book was written in the late nineties and it's predictions on the future are chilling and deadly accurate. The 2nd to last paragraph on page 283 lays out the exact scenario for the market crash in 2008 down the the year. The gov. can manipulate the numbers all they want... they can't change what's coming.
Read it. Fantastic book. Looks of good articles out there also that draw reference to current events and predictions from the book.
I am Jack's Complete Lack of Surprise.
Time to ask the SEC http://tinyurl.com/ybpml3f
Time to ask the SEC http://www.bostonwealth.net/2009/12/11/what-is-an-investment-advisor-to-do-time-to-ask-the-sec/
Climategate, economically speaking;
I think it’s also a question of supply and demand, more specifically, pent up demand for those who refute the claims of the AGW crowd. The demand pent up courtesy of the scientific journals and peers for ten years, silenced those who would offer a well reasoned scientific analysis. Now the flood gates of ten years of pent up demand for that analysis have been opened, consumers need their fix, and they are finally going to get it.
"...[t]he key finding is that the government has been chronically overrepresenting Household Net Worth in original publications, and subsequently revising the data dramatically i..."
And this surprises you HOW, exactly?
This is me, writing in 2004...
And from Jan 2005...
And June 3 2005...
I wrote about hedonics and the birth/death model in 2004, about CDOs in 2005 and have been sounding the alarm about BLS/BEA manipulation of CPI and GDP data almost as long as John Williams (NOT the Star Wars guy).
What purpose does it serve? (note - I'm a tad drunk at present, so I'm having a crisis of confidence).
Lucky I'm so handsome...
Kisses,
GT
GT's Market Rant
What purpose does it serve? I've been an Austrian-school advocate and libertarian for quite awhile; What purpose was served? Reality is reasserting itself, and someone needs to be shown to have told the truth all along. Mises:
Tell the truth, or embrace the lies.
I'll meet your Mises and raise you a Hayek:
The problem I have with popular books like the 'Fourth Turning' is they sensationalize well known historical patterns. If one were to consider essential reading, Mises, Hayek & Rothbard pretty much lay out everything one needs to know.
Because of his personal experiences in Germany, Hayek has great insight as to how dictatorships develop. The one book that is an absolute must read is the 'Road to Serfdom'.
I started with Mises, then read "The Road to Serfdom"; it was life-changing. After "Road" I read Nock's "Our Enemy the State." Clarity followed. Prying myself out of the serf-mentality took time but was well worth it. I can now read statements like these and know exactly what is meant:
“If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen." ~ Samuel Adams
"Is this same relinquishment of rights worthy of freemen? Is it worthy of that manly fortitude that ought to characterize republicans: It is said eight States have adopted this plan. I declare that if twelve States and an half had adopted it, I would with manly firmness, and in spite of an erring world, reject it. You are not to inquire how your trade may be increased, nor how you are to become a great and powerful people, but how your liberties can be secured; for liberty ought to be the direct end of your Government." ~ Patrick Henry, speaking against ratification of the Constitution
Both you guys rock. Everytime someone talks about the effects of inflation I want to scream, "If we actually cared about freedom we wouldn't have inflation!"
Throw, not vote, the bumbs out.
"If one were to consider essential reading, Mises, Hayek & Rothbard pretty much lay out everything one needs to know."
Yep. The chapter on inflation in "Constitution of Liberty", plus five or ten minutes' observation of the fools getting together with their money, was enough to let me safeguard my money through the Crash of 08.
Nice job, ZH. It seems that one can only get this info here. Thanks yet again.
Oddly, I also mentioned it just yestrday with specific reference to the Japs and their GDP...
Cheerio
GT
(fourth glass of deplorably cheap white... and not your girle 140ml glass. either)
I'll drink to that!
Ding! Why dirty a glass for it - those are for when you're trying to impress people.
Since we no representitives in the majority in congress.
And the media won't report the fraud we have fewer peaceful choices.
Household net worth is $53 trillion. What a nonsense!
are there $53 trillion of consumables or other goods that can facilitate the flipping of all those real estate and paper assets into something tangiable?
At present oil prices, this equals to 1,800 years of global oil sales, 2500 years of global gold sales, etc.
How liquid are those assets if they take thousands of years to convert into tangiable commodities? What their haircut would be? 90% or more? What is their best by date? Houses are useable for about 50 years, companies dont live much longer, governments default every 50 years or so.
The Government's idea of Net worth is way more precise than what the charts will have us believe. It is not difficult for someone to lean over your household activity via credit card, mortgage and car stuff along with deposits.
What they should be doing is watching the Grocery and Food and seeing how much is being spent on what each week as a family runs out of spending money or tries not to spend at all waiting for the first of the month's bills.
I say net worth is negative, accounting for the Homeless and other individuals heavily in debt against what little they have coming in.
'And if the United States government is willing to "adjust" numbers to the tune of $2 trillion+ within 90 days, who is to say what goes on in the Bureau of Labor Statistics, Department of Labor and the Census Bureau...'
By George I think he's got it.
http://anonymousmonetarist.blogspot.com/2009/11/our-top-story-tonight-yi...
I hereby proclaim my intention to seek a constitutional convention whereby we the people will move to implement the Garrett Morris amendment.
This amendment will seek to codify the following:
All terrestrial broadcasts of Bubblevision and Hee Haw will hereby include captioning for the learning impaired.
What a complete and utter scam. Thank you ZH for your great efforts in unearthing this and posting it.
One in Four children on food stamps show what reality is really like.
The US is now riddled with poverty but the rich banksters at the top are baled out so that's okay then
Don't forget 29,970 Goldman Shlepps thieves STILL get their bonuses for being a bunch of cowards and pussys!
What a deplorable crock of shit the United States has degraded into.
A den of thieves and a Congress of incompetents.
Andrew Jackson sed: 'den of vipers'
'cave of squids'?
Speaking of retail sales, keep in mind that the goverment decided to change the sample used to calculate retail sales with this November release.
They didn't want to wait 'til a new year comes to make the change.
Don't be surprised to see a surprise number. Hope our good bloggers can pick that up - if it's the case.
Did someone say Chronic. Yes please.
Why not just release the data on a quarter lag? No revisions, final figures?
You are having a great joke ... ROFL
GeoffreyT
Liked your posts. Hope you enjoyed the rest of your wine, that made me smile!
DavidC
My net worth is up. Here's what I did. Instead of reporting my assets at fair market value, I simply bumped them up by a million here, a couple of million there and man, I'm flush. I figure if the banks can report assets at some made up value, so can I. Happy days are here again.
The Fed and Treasury pumped nearly $3 trillion into the markets to bid up the values of stocks. $3 trillion equals 300 billion shares of $10 stock or nearly the entire Dow 30...then they re-evaluated peoples net worth based upon the increased value of the market after they fraudulently bid up the prices...its a fraud being perpetrated on the unsuspecting American public to convince those who still have some money not in the market to put it in so the government can have some poor unsuspecting grandma to unload the trash stock of some zombie bank on...
You are off by a factor of 10-20X. The "money" created by the Fed out of thin air is subsequently loaned to banks at 0%, which is then pyramided via FRB based on established (and shadow ie CDS) reserve requirements. Rothbard illustrates exactly how this is done in his seminal publication:
The Case Against the Fedhttp://mises.org/story/3480
Let us see how this process typically works. Suppose that the "money multiplier" — the multiple that commercial banks can pyramid on top of reserves, is 10:1. That multiple is the inverse of the Fed's legally imposed minimum reserve requirement on different types of banks, a minimum which now approximates 10 percent. Almost always, if banks can expand 10:1 on top of their reserves, they will do so, since that is how they make their money. The counterfeiter, after all, will strongly tend to counterfeit as much as he can legally get away with. Suppose that the Fed decides it wishes to expand the nation's total money supply by $10 billion. If the money multiplier is 10, then the Fed will choose to purchase $1 billion of assets, generally U.S. government securities, on the open market.
In the first step, the Fed directs its Open Market Agent in New York City to purchase $1 billion of U.S. government bonds. To purchase those securities, the Fed writes out a check for $1 billion on itself, the Federal Reserve Bank of New York. It then transfers that check to a government bond dealer, say Goldman, Sachs, in exchange for $1 billion of U.S. government bonds. Goldman, Sachs goes to its commercial bank — say Chase Manhattan — deposits the check on the Fed, and in exchange increases its demand deposits at the Chase by $1 billion.
Where did the Fed get the money to pay for the bonds? It created the money out of thin air, by simply writing out a check on itself. Neat trick if you can get away with it!
Chase Manhattan, delighted to get a check on the Fed, rushes down to the Fed's New York branch and deposits it in its account, increasing its reserves by $1 billion. Figure 10 shows what has happened at the end of this Step One.
The nation's total money supply at any one time is the total standard money (Federal Reserve Notes) plus deposits in the hands of the public. Note that the immediate result of the Fed's purchase of a $1 billion government bond in the open market is to increase the nation's total money supply by $1 billion.
But this is only the first, immediate step. Because we live under a system of fractional-reserve banking, other consequences quickly ensue. There are now $1 billion more in reserves in the banking system, and as a result, the banking system expands its money and credit, the expansion beginning with Chase and quickly spreading out to other banks in the financial system. In a brief period of time, about a couple of weeks, the entire banking system will have expanded credit and the money supply another $9 billion, up to an increased money stock of $10 billion. Hence, the leveraged, or "multiple," effect of changes in bank reserves, and of the Fed's purchases or sales of assets which determine those reserves.
Note that the Federal Reserve balance sheet after a few weeks is unchanged in the aggregate (even though the specific banks owning the bank deposits will change as individual banks expand credit, and reserves shift to other banks who then join in the common expansion.) The change in totals has taken place among the commercial banks, who have pyramided credits and deposits on top of their initial burst of reserves, to increase the nation's total money supply by $10 billion.
If people knew just how easy it is/was for CBs to radically inflate the money supply starting back in Mar '09, no one would be surprised at the ensuing manipulation of markets & information.
Of course, the other shoe is yet to drop. All the extra debt taken on by the public sector in lieu of private sector de-leveraging still must be brought to account. If it had been invested in anything even remotely productive, there might have been some way to pay back the capital (interest) costs.
But, of course it was merely spent on current consumption ie gov't paychecks, social programs, etc. We still haven't even begun addressing Part II of this story. It ain't gonna be pretty.
WG looks like that recession we just had was parlayed into a collapse
Give CNBC a hand in their "not a scientific survey" on the state of the economy.... Unlike their accurate (in their words) economic indicator of 800 people reported by Steve Liesman earlier today. In other words, 2.34e-6 of the population surveyed.
http://www.cnbc.com/id/34365031/
Obama is all about change, expect lying multiples.
The simplier explanation is that the Gov't just sucks ass at collecting useful data in a timely manner, designing predictive models, etc...
no...as Gresham's Law operates, there is tremendous selective pressure to "interpret" the numbers in such a way as will be rewarded.
Nobody gets far telling the unvarnished truth.
are government bonds included in this number?
owing money as a group to yourself as a person nets to 0.
The over-estimating of "good news"--be wealth, employment, whatever--in preliminary reports and then revising the "good news" to a much lower number has an additional perception effect ALWAYS REPORTED IN THE MSM when the next new "good news" report is issued: the positive change in the "good news" is much greater from the less-good revised number to the new over-estimated preliminary number.
Never believe the spin; always analyze the data.
The over-estimating of "good news"--be wealth, employment, whatever--in preliminary reports and then revising the "good news" to a much lower number has an additional perception effect ALWAYS REPORTED IN THE MSM when the next new "good news" report is issued: the positive change in the "good news" is much greater from the less-good revised number to the new over-estimated preliminary number.
Never believe the spin; always analyze the data.
http://www.foreignaffairs.com/articles/65446/c-fred-bergsten/the-dollar-and-the-deficits
"If it is serious about recovery, the United States must balance the budget, stimulate private saving, and embrace a declining dollar.
C. FRED BERGSTEN is Director of the Peter G. Peterson Institute for International Economics.
'I felt so good, like anything was possible.
Hit the cruise control, rubbed my eyes.
There's somethin' good, waiting down this road.
I'm pickin' up whatever's mine.
Running down a dream.'
-Tom Petty
'I was sitting around a dead dial
Just another lost number in a file
I was trying to find my way home
This is Radio Nowhere.'
-The Boss
'Karma police, arrest this man
He talks in maths
I've given all I can
It's not enough
I lost myself.'
-Radiohead
'Its a primal thing, this very unconscious place with the fears of what can happen to your children and will you be able to keep them safe. Then there's that place of utter desperation where you wonder if you're completely insane.'
-Jodie Foster
Retail sales better than expected!
Yea beer!
Uh well, only place seeing sales growth are the discount houses and gas huts. A gazillion bucks buys you a couple bips up off the Apocalypse.
The 1.3% 'leap' off about a 350 billion base is ~4 billion.
If employment is at First Great Depression levels and credit is till slippin' down the sloppy slope where is this V shape recoverin' extrapolatin' moolah coming from?
Almost nose-snotted by coffee when I read this in the WSJ yesterday:
By Mark Whitehouse
People's increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.
Thanks to a rare confluence of factors -- mortgages that far exceed home values and bargain-basement rents -- a growing number of families are concluding that the new American dream home is a rental.
Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That's freeing up cash to use in other ways.
(Moral hazard writ large! And its' good boys and girls, its' good! -AM)
Stiffing the bank is bad for peoples' credit, and bad for banks. Swelling defaults could also mean more losses for taxpayers through bank bailouts.
(Punish the sober, exalt the drunk, the Oracle at Eccles has junk in the trunk. -AM)
"It's just a better life. It really is," says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth. Ms. Richey's family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March.
"We're saving lots of money," Ms. Richey says.
(Good times. Good times. -AM)
For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven't paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month (there's your retail sales ladies and gentleman -AM) -- an injection that in the long term could be worth more than the tax breaks in the Obama administration's economic-stimulus package.
"It's a stealth stimulus," says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. "The quicker these people shed their debts, the faster the economy is going to heal and move forward again."
(The American Dream as the American Scheme. Necessity is the mother of invective. Its' all clear to me now. Should not have paid off the house, could have taken out a federally guaranteed mortgage, short sold it to the bank, dropped the proceeds and a couple bars into a triple index long fund with some gold and gun stocks on the side , ka-chinged off the debasement of our standard of living, and chased it down with some sweet ambrosia from the skull cup of the common man. What was I thinking?
How can this not end in a short-hair curling moment? -AM)
Incredible investigative journalism and analysis. This site is truly one-of-a-kind. In my opinion, the most important service Zero Hedge provides is exposing government sponsored manipulation of data and social reality; the manipulation is so perverse I don't even know where to begin when going off on it.
There is nothing more frustrating than being whipped back and forth by my own beliefs, observations, and common sense on one hand and the government's spin on the other (which happens to be gobbled up by 99.9% of the people I like and respect). It tends to make one doubt oneself when making preparations for the inevitable implosion.
WOW John--GREAT comments!
That is how SO many people feel. It is both amazing and frightening how hard the government is pushing such mis-information and out right LIES through the mainstream fiancial media.
You can count on one hand the real journalists, who have not been bought out by this manipulation machine.
The real ones are working at Home Depot four hours a day.
Isn't this really tied to the rebound of our 401Ks? And isn't this partial bullish run also related to those working, continuing their 401Ks and keeping the market on life support? Just a thought.
Isn't this wealth increase really tied to the rebound of everyone's 401Ks? And isn't the market really on life-support because idiots continue to dump their earnings into 401Ks?
These numbers aren't being "cooked" but maybe they are being paid to do the "cooking."
http://www.usatoday.com/printedition/news/20091211/1afedpay11_st.art.htm...
I think home values are based on replacement cost in the z-1
Are we up to the bank failures yet? I'm getting antsy.
Change.
Apparently Obama meant HE was going to change
his opinion on everything, right after he was sworn in....
I am one of the idiots putting money in my 401k. I don't think it is really so dumb...my company puts in 8k per year no matter what. I really do need to keep working with 3 young kids. My company also matches th first 5 k I put in...then I have to the option of commodity funds, emerging markets, international bonds etc...I'd have to be a pretty bad investor not to at least be able to preserve what I have been putting in there. The taxes I'm avoiding are significant , the longer I can put off payign them the better chance I have of escapign with my money eventually.
If I switch jobs, I'll put a big chuck in precious metal...but in this economy I'm sticking with the job/home I have.
This lunacy is like the Energizer bunny. You, and the zombies, will probably be right in the end! Just have some kind of backup plan: canned food, water filter, and lead backed with gunpowder.