U.S. families lose $11 trillion in net worth
Posted
Mar 13 2009, 05:03 AM
by
Bernhard Warner and Matthew Yeomans
Rating:
This post is from partner site The Big Money.
Your pockets no doubt feel a bit lighter these days, but just how much wealth has been lost in the tumult of the economic downturn? The Federal Reserve has the answer, releasing a calculation of the incredible shrinking income of the American family on Thursday.
Citing the Fed figures, the Wall Street Journal says last year the wealth of American families fell nearly 18%, "the biggest loss since the Federal Reserve began keeping track after World War II." American families, the engine of the global economy, saw their net worth slip by a remarkable $11 trillion, or, the WSJ points out, "a decline in a single year that equals the combined annual output of Germany, Japan and the U.K."
Even those at the top will be (if they haven't already) feeling the pinch. According to a front page WSJ article, New York Attorney General Andrew Cuomo is talking with Rep. Barney Frank and other lawmakers to devise "a plan to tie Wall Street pay to the long-term performance of the firms."
There is not yet any new legislation targeting fat-cat compensation, but Frank told the newspaper to expect something soon. "We plan to put laws into effect, no question," he said. "We have to address this 'heads I win, tails I break even' issue."
Yesterday's plea hearing for Bernard Madoff once again put in focus the growing venom the public feels toward dodgy businessmen. The New York Times reports celebrity gossip programs like Extra, Inside Edition and gossip blog TMZ have been following the Madoff case closely and are now "expanding their coverage of starlets and Hollywood break-ups to include billion-dollar business scandals and the economic collapse."
Uh oh, America's biggest creditor is not happy. This morning, China's Wen Jiabao said he was "worried" about the security of China's massive holdings of U.S. Treasuries and called on the U.S. "to provide assurances that the investment was safe," the NYT reports.
It is believed as much as $1 trillion worth of China's foreign currency reserve is invested in U.S. Treasuries and related notes backed by Uncle Sam, a sum that literally underpins the Treasuries market. Now Wen wants added assurances, asking the U.S. to "maintain its good credit, to honor its promises and to guarantee the safety of China’s assets."
The Chinese premier also demonstrated a little of China's economic might, saying the country can and would introduce new economic stimulus packages should it become necessary, the WSJ reports.
Wen's comments could put Europe in an awkward position. On Thursday, European leaders said the economic recovery measures they've already introduced are enough, rejecting calls by President Obama for the rest of the world's biggest economies to start introducing "American-sized spending programs," Time reports.
The markets got an unlikely lift Thursday from one of America's most beaten-up sectors. Revised retail sales for January actually showed a spending increase, the latest Commerce Department statistics show.
The WSJ says the report indicates "last year's sharp declines in consumer spending appear to be easing, though other factors continue to weigh on economic growth." Retail sales did fall slightly in February, the Financial Times points out, but less than economists were expecting.
With 70% of U.S. GDP coming from consumer spending, the numbers were viewed with a modicum of hope. "Clearly the consumer is not completely knocked out," an analyst told the FT. "The difficulty, though, is we still need jobs growth and credit markets to thaw out before we can have a normal recovery, and we don’t have that yet." The news helped the markets extend their rally for a third straight day, with the Dow now up 9.5% since Monday, the WSJ writes.
One of Thursday's biggest gainers was General Electric (GE), which climbed 13% on news that it was downgraded only a single notch to AA by Standard & Poor's. The rating agencies weren't done there. Fitch downgraded Warren Buffett's Berkshire Hathaway (BRK.A), knocking it from "a prized short list of the healthiest corporations," the Washington Post writes.
The Triple-A rating, the gold standard of fiscal fitness, is rapidly becoming extinct, BusinessWeek warns. The magazine says that after GE's downgrade, there are just five U.S. nonfinancial companies holding the top mark, including Johnson & Johnson, Exxon Mobil, Microsoft, and Automatic Data Processing. A fifth, Pfizer, is now "on watch for a possible downgrade, after Pfizer said it would borrow $22.5 billion to buy rival Wyeth."
And finally, there's now a Googler at the helm of long-suffering AOL. On Thursday, Time Warner chief Jeffrey Bewkes announced that Google senior vice president Tim Armstrong will take over as new chairman and chief executive of "the famously troubled" AOL, as BusinessWeek puts it.
The magazine is speculating that naming Armstrong will revive plans to spin off the online property. The appointment of Armstrong, who headed Google's advertising sales efforts in North America and Latin America, is meeting with some skepticism though.
"I'm not sure AOL's problem is something that you can fix with a body," Rob Enderle, a tech industry forecaster told the Washington Post.
This post was written by Bernhard Warner of The Big Money.
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