In the third quarter, when the S&P500 rose to a new all time high, so did US financial assets according to the latest just released Flow of Funds report published today by the Fed. Also known as the Fed's Z.1 statement, it revealed that with $130.2 trillion in assets and a modest $16.4 trillion in liabilities, the net worth of US households rose to a new all time high of $113.8 trillion, up $574 billion in last quarter, its third consecutive increase following the $3.9 trillion drop in Q4 of 2018 and bringing the total increase in 2019 to $7.614 trillion.
The increase was due to a modest increase in various deposits, and even though the value of corporate equities dipped by $256BN to $18.0 trillion, financial assets overall rose thanks to a $76BN increase in Mutual Fund Shares, a $176BN increase in Pension Entitlements, an impressive $246BN in Equity in Noncorporate businesses and a $237BN increase in other financial assets. On the tangible asset side, i.e., mostly housing or assets that even the middle class can enjoy, the increase was $384 billion, while other tangible assets increased by $59BN.
At the same time total liabilities, i.e., household borrowings, rose by $176 billion from $16.21 trillion to $16.39 trillion, the bulk of which was $10.5 trillion in home mortgages. Homeowners’ real estate holdings minus the change in mortgage debt rose by $299 billion (a positive number means that the value of real estate is growing at a faster pace than household mortgage debt).
And here is the historical change of the US household balance sheet: it shows that US household net worth and the stock market are intimately linked, rising and falling together.
And since the bulk of net worth is held by a tiny fraction of US households, the increase in mostly financial assets and net worth in the last quarter only truly affected a sliver of the population, since most of America's assets are held in financial market derivatives.
Which once again brings up the age old problem of the US wealth divide: as the following chart from Deutsche Bank shows, the wealth inequality in the US is now as bad as it just during the Great Depression, with the top 0.1% of the US population owning as many assets as the bottom 90%.
Worse, as we showed two weeks ago, the top 10% now own 70% of all the US wealth, the same as the middle and lower classes combined...
And the scariest chart of all: whereas total household net worth is indeed at an all time high, it is mostly benefiting the Top 1%, as the Fed's ZIRP and QE have been behind the greatest wealth redistribution in the past decade
In other words, roughly 70% of the latest $574BN increase in assets went to benefit just 10% of the population, who also account for roughly 70% of America's financial net worth.
It also means that just 10% of the US population owns roughly $91 trillion of all US assets, while half of the US population has virtually no wealth, and if anything it is deeply in debt.
The above is particularly topical at a time when either party is trying to take credit for the US recovery. Here, while previously Democrats, and now Republicans tout the US "income recovery" they may have forgotten about half of America, but one entity remembers well: loan collectors. As the chart below shows, America's poor families have never been more in debt.
The share of families in debt (those whose total debt exceeded their total assets) remained almost unchanged between 1989 and 2007 and then increased by 50 percent between 2007 and 2013. In 2013, those families were more in debt than their counterparts had been either in 1989 or in 2007. For instance, 8 percent of families were in debt in 2007 and, on average, their debt exceeded their assets by $20,000. By 2013, in the aftermath of the recession of 2007 to 2009, 12 percent of families were in debt and, on average, their debt exceeded their assets by $32,000.
The increase in average indebtedness between 2007 and 2013 for families in debt was mainly the result of falling home equity and rising student loan balances. In 2007, 3 percent of families in debt had negative home equity: They owed, on average, $16,000 more than their homes were worth. In 2013, that share was 19 percent of families in debt, and they owed, on average, $45,000 more than their homes were worth. The share of families in debt that had outstanding student debt rose from 56 percent in 2007 to 64 percent in 2013, and the average amount of their loan balances increased from $29,000 to $41,000.
Of course all of the above is especially topical in a time of record wealth divides and an ever increasing wealth redistribution rhetoric, and it won't be lost on the socialist wing of the democratic party whose core political campaign is to take as much of this wealth away from America's "top 1%" and redistribute it as they see fit.