The loss of wealth incurred by American households in the crisis has been estimated at $11.2 trillion. Total French wealth is 12.15 trillion euros. According to this blog, what this means in terms of purchasing power parity is that the equivalent of one France has vanished as a result of the crisis--economically speaking, of course.
Worldwide, I might add, the loss of asset value has been estimated at $50 trillion. There goes Europe.
16 comments:
Paper wealth... big deal.
Y'know, that's a comment I hear often and have never understood. Whenever I choose to turn my "paper wealth" into cash, I find that I can eat it, travel on it, buy hardware with it, etc. So the fact that my paper net worth is smaller than it was affects my behavior in very concrete ways. In the US, moreover, we accumulate our futures on paper: someday I'll retire, I suppose, and the bottom line on my statement from Fidelity will have a bearing on when that day comes and how comfortably I'll live afterward. So I don't sneer at paper wealth, but I do fret about it.
Your paper wealth is wealth if you choose to convert it to cash, at which time in neither appreciates nor depreciates any more. All these people getting excessive returns on investments (such as the housing bubble) believed that their paper wealth could never depreciate. They were wrong, as people always are in a bubble.
As for your retirement, you take the chances you are willing to take. I know people who bought into the whole "long-term investment" thing and saw their paper wealth go back to about the level of the real wealth they put in.
I'm just saying... It's all virtual until you cash in your chips.
When you convert it to cash, it depreciates or appreciates as the price level increases or decreases. That's one reason for investing in "paper": inflation eats cash. So there's no escaping the fluctuations of the economy. It's a question of choosing your risks.
Inflation eats cash: sure. But when appreciation reaches rates that are way above inflation, it's obviously a bubble (or you're damn lucky picking your investments). I have no bad feelings for people who were foolish enough to borrow on their homes thinking that the price could never go down. I understand that people have short memories - though the dotcom crash wasn't that long ago - but it's just too bad for them that they were foolish.
As for retirements, that's another story. It's sad that everyone invests in stocks (and, as some say, that's because the Wall St lobby got such investments de-taxed so they could rake in the billions) with the risk they entail.
Sorry to change the subject, but my inner pedant (never far from the surface, actually) is crying out to observe that the comparison in the blog that Art cites is a nonsense.
The losses are, of course, enormous and the impact very real, so the fact that it was 'paper wealth' is very much beside the point. However, the comparison made is between a stock and a flow -- the loss of wealth (a reduction in a stock variable) vs the annual GDP of France (a measure of value-added and a flow variable).
US households' wealth has not fallen by 'a France, more or less' but by a year's French value-added. That's still a staggering sum but nothing like what wiping the 'value' of France (its wealth) off the balance sheet of US households would be like. THAT would be cataclysmic indeed.
Correct as usual, Tex. But you have to admit, the comparison is amusing, even if it isn't good economics.
Indeed, it is, but it's only amusing because it wasn't MY retirement savings that softly and suddenly vanished away.
Well, some of mind did, and gallows humor is the only remedy for that ... but then again, I was nicely diversified, and it's good to find oneself with a portfolio of Treasuries after half the stocks have melted away. To be sure, Treasury bonds, too, fall under the head of what Kirk calls "paper wealth," but this is paper I plan to hold on to for a while, at least, even if CDS spreads suggest that the default risk on US paper is rising. If the US government defaults, neither paper nor "real" wealth will matter much, unless the latter is in the form of shotguns and canned goods.
Wait a minute, Tex, while we're being pedantic, I just looked again, and the INSEE estimate is of France's WEALTH, not GDP (I misspoke). Indeed, French GDP is only about 1.9 trillion. So what's been vaporized is indeed a stock, not a flow.
Or gold. But I'd go with better firepower than shotguns. You need to re-load them too often, Art. Why not take advantage of living in a country where you buy semi-automatics freely?
Just saw your latest,posted while I was posting mine. So the comparison holds -- it was the labelling that was in error. Ouch.
Tex, re the semi-automatics, you burn through ammo too fast. Have you ever humped a case of 5.62mm through the boonies? Anyway, I'm too old for a war of maneuver. I figure I'll take up a position at my parents-in-law's summer home, which is on an island and affords clear fields of fire in all directions. And I'll wait until I've run out of canned tuna, and if it hasn't all blown over by then, well, I can set out for France in a dinghy and trust my fate to the gods.
Good plan. Be sure to pack a copy of Astérix et La Grande Traversée for the voyage.
Art, TexExile,
Just thought I'd make you guys thoroughly confused.
See, when you talk about a change in wealth, you're not talking about a stock, but about a change in a stock, and that's a flow measure.
Thus, for instance, the change in inventories - the change in stocks that companies hold, for instance - is one component of what GDP is.
Or, the FED's flow of funds tables - makes fun reading these days, incidentally - , is one component of the increase or decrease in wealth.
So, you were right, Art, to compare the fall in Wealth to GDP, only you didn't realize you were quoting wealth and not GDP (a hint, orders of magnitude are useful, French GDP is always of a 0.1 order of magnitude compared to US GDP).
I watched this conversation developing and knew I'd catch you all at some point.
As for those who think it's all paper wealth, they remind me of our favorite bu...ht argument in banking with clients when performance wasn't there: as long as you haven't sold, you haven't lost. It was a nice line for avoiding mutual funds redemptions. Usually worked, too...
Treasuries can depreciate too, and will according to b, when the coming need to sell huge amounts of them causes interest rates to rise, thus lowering the value of those at current interest rates.
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