Comment by paulpauper | Hacker News Reader

Comment by paulpauper | Hacker News Reader

Per the Federal Reserve, total Household Net Worth before COVID-19 was $110 trillion. Two years later on 12/31/21, it clocked in at $150 trillion - a 36% increase - the largest increase ever over such a time period.

Isn’t it odd that during a period of economic turmoil, household wealth increased by the most on record? Indeed this strange dichotomy can be understood in large part by low rates and QE.

What would explain the increase of household wealth pre-2008, before QE was even invented? The economy was in turmoil for a few months but then everything picked up again. GDP, corporate profits surged. Unemployment fell.

Home prices and stocks surged in the 80s and 90s despite high interest rates.

The fed raised rates from 0% in early 2016 to 2.5% by late 2018 and the stock market and economy did fine.

Correlation does not mean causation, as it's said. 0% interest rates forever didn't help japan until possibly only very recently. why is it suddenly different here.

The other thing about that chart is that is it's on a linear scale. If you have productive assets that compound returns, you should expect log structured growth.

https://fred.stlouisfed.org/series/BOGZ1FL192090005Q

You only get 36% if you measure from the bottom of the sharp V-shaped recession in 2020. If you measure from 2019Q4 to 2021Q4 you get something more like 29%. Still sounds like a lot, but compare 2002Q4 through 2004Q4 - that's also about 26%, it's just not so obvious on the linear scale.

In fact, if you look at the percentage growth over a two-year look-back, household wealth has grown by at least 20% on multiple occasions on that time series.

For comparison, this is what the same timeseries looks like if you plot it ending at the end of 2004:

https://imgur.com/EehsZbs

https://wtfhappenedin1971.com/

I’ll bite. The data/graphs look suspicious and convincing enough, so WTF did happen?

I was hoping for an answer but alas there was none. Anyone have plausible theories? Is this an unexplained mystery or just an artifact of S curve growth?

I always thought the site might imply getting off the gold standard.

Of course it implies it, but that's been debunked

I think the gold standard ended because of globalization. After all gold wasn't widely distributed enough to allow a global economy to develop so the USD had to decouple from gold.

Nixon shock/move to fiat standard instead of gold convertibility.

A lot happened around that time: Technology and automation really started taking off, sending productivity way up. Global shipping costs plummeted, giving way to a new era of international trade. The first personal computers started entering the market. Trade relations with China opened up around that time. Households started moving from single-earner to dual-income.

It was a time of rapid change. That particular website is usually used to suggest that the only thing that changed was the gold standard, but it's been debunked and refuted all across the internet.

Stills begs the question... why would we see inflation when all of those trends are deflationary? Can't possibly be because the fed is printing money out of thin air..

> ... top marginal rates in the 1950s and 1960s were extraordinarily high by present-day standards

> ... observers from the 1950s to today repeatedly noted that, at one time, social rules curbed CEO greed.

https://corpgov.law.harvard.edu/2016/08/18/executive-compens...

Other sources -- sorry no links -- ascribe the genesis of such "social rules" to a US WW II norm of austerity among elites, who might otherwise have found ways to seize a greater share of the economy's wealth for their own dissipative pleasures.

Or the threat of Communism, which was still at least officially trying to inspire revolution around the world. If you have someone trying to inspire your workers to revolt, you'd better be giving them a better deal than the other guy is offering.

The website is a crypto ad making a big deal about the gold standard

> I’ll bite. The data/graphs look suspicious and convincing enough, so WTF did happen?

Energy volatility and energy austerity https://pbs.twimg.com/media/FPjE8zVX0AQCFuD?format=jpg&name=...

I think its more what happened in 1980 with Reagonomics and the Volker Fed followed by Clintonomics and the shift towards "third way" neoliberalism. We've actually had 40 years of what I'd call Republican free-market economic policies and decimation of unions and the power of the average worker to get a higher nominal wage. Most of the trends start closer to 1980.

Nice, but aggregates like this hide the distribution: who got that increase matters, and the distribution is likely extremely lopsided towards the upper extreme. The more you had, the greater your percentage increase.

> What would explain the increase of household wealth pre-2008, before QE was even invented? The economy was in turmoil for a few months but then everything picked up again.

The economy was in turmoil in 2007? There were problems at a few banks, but other than that, spending and investment was extremely optimistic.

House prices hadn't started to decline, and they were coming off their biggest 6-year increase in a long time. HH wealth was at an all-time high for most of the year.

i meant turmoil in 2020 due to coivd.

Yeah, but that $150T is no longer worth $110T (and that number itself was illusory).

That is the curse of inflation. Your household is now worth millions but you can't afford a house. This has always been the lie of compound interest and savings. You're always told that if you don't buy a Big Mac and put the $2.99 in the bank instead, you'll have ten dollars in 30 years. But in 30 years a Big Mac is going to cost $12, so you just played yourself. The whole system is an illusion.

> You're always told that if you don't buy a Big Mac and put the $2.99 in the bank instead, you'll have ten dollars in 30 years. But in 30 years a Big Mac is going to cost $12, so you just played yourself.

There's more to it than that. You also get to pay taxes on your $7 of capital gains.

You'll get to pay taxes on that Big Mac too.

The point here isn't so much that all taxes are unreasonable as that, in this scenario, there are no capital gains, but you're paying capital gains taxes anyway. You're paying a 10% tax (assuming capital gains tax rate of 15%) on an investment that is down 17%.

True enough. Though… the original example is in the bank. If I stick $2.99 in the bank, in 30 years, I'll have $3.08. (Or $0 when the bank decides to add some random fee, which is why my H"S"A is currently giving a negative return…)

It's on purpose. Consoom now, spend all your money on grubhub and funko pops and onlyfans and weed otherwise it will be worth less later. Just trust the government to take care of you. Poor people aren't allowed to get rich any more.

It seems to me the only way to level up (without extraordinary luck) is say fuck the system and run an under the table business and hope you can get rich enough to pivot to something "legit" before the state comes and screws you.

It's not an illusion, it's doing exactly what it's designed, which is stimulating the economy by discouraging you from sitting on a dragon hoard of money.

The more money moves around in the economy, the more work gets done. When money stops moving, people lose their jobs, productive output drops, etc, etc.

Inflation ran more than 36% over the last two years? Sorry, no. It may feel like it, but still no.

Because not all wealth is liquid, the future purchasing power of the money you'd get from the assets matters as well.

We've seen about 11% inflation since 2019 already, but the m1 money supply increased by about 40% during this time.

I have yet to hear anyone suggest reasons why consumer prices will not eventually catch up to that 40%. There's a big difference between it happening overnight versus happening over the course of a decade, but it still matters.

On another thread:

Presumably, houses are included in this metric. You could sell your massively overvalued house now, and realize that gain in asset prices... But then you're probably going to either be paying inflated rent or buying another property with an inflated value so it kind of ends up being a wash.

The M1 money supply increased by 40% during that time though.

We've already realized a ~10% increase in the CPI.

Presuming that houses are included in this metric, those are currently pretty inflated in value.

As of December 31st 2021, the market hadn't even really started to pull back yet.

If you say that household wealth has increased nominally, in terms of there being a bigger number of dollars, sure. But I think you have a pretty hard case if you want to argue that _Real_ household wealth has increased very much.

I suspect we'll start to see more 40 year mortgages to keep the housing market going too.

To be fair, it's still better than renting. I'm curious how long a mortgage has to be before renting is a better buy for consumers, but I'd bet it's closer to 80 years than 40.

If you're spending $2k/month on rent vs interest, taxes, and equity, with the idea that you'll get at least the value of the equity back when you sell (and probably more, when inflation is higher than a fixed rate mortgage) you'll come out ahead no matter how long you hold the debt.

And frankly 40 year mortgages are probably better than 30 years with debtors that can't afford the monthly rate. It's like 72 month car loans, it's a better deal for everyone.

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