Industrial Insight

85% of wealth in US is paper…. | April 6, 2015

http://www.hussmanfunds.com/wmc/wmc150406.htm

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April 6, 2015 Stock-Flow Accounting and the Coming $10 Trillion Loss in Paper Wealth

John P. Hussman, Ph.D.

As indicated above, when we examine both the net worth of U.S. corporations and the net worth of U.S. households, both have become gradually dominated by paper assets instead of real ones. This is of significant economic concern.

Financial assets now represent over 82% of the net worth of both households and U.S. non-financial corporations (Data: Federal Reserve Z.1 Flow of Funds). Except for periods where total net worth had itself retreated (for example, 2008-2010), the concentration of private net worth on financial assets, rather than real assets or productive capital, has reached the highest extreme in history in recent years. In our view, this is just temporarily overvalued paper masquerading as something durable. The previous extreme – again, outside of periods where net worth itself had retreated – was not surprisingly in Q1 of 2000. We are rather helpless observers to this, as we were prior to the last financial crisis, and as we were prior to the technology collapse – despite the same conviction each time that the imbalances and elevated valuations would end badly.

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