Fun With Math: National Net Worth 2/12/2014

It’s probably been five years since I looked in detail at this series, but just for fun, I downloaded the latest Fed Z1 report and flipped down to table B.100 which gives us the balance sheet…Assets/Liabilities/Net Worth of the country…actually…just households and non-profits, though that should pretty much cover everything…since you would expect the value of corporations to be included in the balance sheets of households…right?? In any case, it contains great news…the Net Worth increased $2T from Q2-2013 to Q3…up to an all time high of $77.3T

But remember, this is a balance sheet so let’s start at the top. Total assets ring in at $90.9T. Is it just me, or does that sound like a really big number? How about per capita? $90.9T divided by 316M people….gives us $287k of assets per person in the US….on average of course. So…for my family of five…just to be average…I have about $1.4M of assets under my control right? Yeah….not hardly. Now admittedly…I’m not a 1%er by any stretch…but that number seems pretty damned ridiculous to me.

For comparison…let’s look at the value of only real estate assets..$21.611T. Lets say there are 117M households….that would put the value of real estate in the US at $185k per household….for all of it…not just homes, but acreage as well. I guess can buy that. According to Yahoo answers, there are 2.4B acres of land in the US….so on average…land cost is $9,080 per acre. Of course that includes a lot of uninhabitable land with limited value mixed in with Manhattan skyscrapers. Also note we haven’t taken into account that much land is owned by the government.

Rounding out “Nonfinancial Assets” is primarily consumer durable goods….cars…refrigerators, TV’s, furniture ect at about $5T…or $$43k per household. This too seems quite reasonable for a household with a few late model cars and a big screen TV in the furnished game room. All together, nonfinancial assets total $27B.

 

That of course leaves us with a full $63.9T of “financial assets”. Think cash, stocks, bonds, and of course $19.1T of “pension entitlements” Before we investigate this…let’s take a trip back in time to the late 1800’s a la “Little House on the Prairie”. What would a typical family think of as their assets? Their land, their buildings, equipment, animals, and perhaps a small amount of cash(or gold/silver) and stored goods. Primarily anything tangible right? Lets just say, that added all up, the net worth of our Prairie family is $1,000.

Now lets send back in time a few corporate lawyers, MBA’s, accountants and economists. Wait just a minute they explain to Papa….you are selling yourself short. You see…using modern financial and economic theories…let’s expand the definition of wealth beyond just tangible accumulated wealth….let’s monetize your future wealth….and of course…add that to the total. So your little farm here generates $2,000 worth of goods per year in the form of grain, meat, and peach cobbler, at a cost of only $1000. So let’s incorporate you in the state of Delaware, and have an IPO offering and sell for future earnings at a PE of 20….so $20,000. So you see….your real net worth…after some financial trickery we skim a big chunk of isn’t $1000…the value of all that you own….it’s $21,000(at this point who really cares if you are double counting)

And there you have it…voila….nonfinancial wealth….up from $21T in 1995 to almost $64T as of Q3-2013. This, it would seem is the real story of the last 30 years of “growth”. So ask yourself…are we really any better off? The stock market is up pretty big in the last 12 months….but the truth is, we have all of the same factories, all the same employees we did a year ago. Sure…things are always changing, but not that much. Do you really believe auctioning off and bidding up the price of our future cash flows really make us better off? The net benefit to society is the same regardless of whether the government Z1 shows Papa’s net worth at $1k or $21k….

Don’t get me wrong…looking back to 1995, when Net Worth (assets less liabilities…well except the government’s $17T of liabilities of course…those are “assets” for your pension fund) was a mere $28T(vs $77T now) I will grant you that things seem better to me personally. The houses are bigger and they all have granite countertops. The cars are faster, and safer, and they seem to get better gas mileage. The TV is definitely larger, and while I wouldn’t want to go back…the 19” mostly color TV my parents had for the first 15 years of my life never bothered me back then. It would be hard for me to say things aren’t better in some ways…just not $49T better…maybe $10T or so.

Well…I’m clearly rambling now…perhaps the point of all of this is that just about any report the government puts out is a bogus piece of crap. Don’t be fooled….rising prices for “financial” assets or even homes on net don’t actually create any wealth…it can only transfer it. If the price of housing doubles….wealth is transferred from those who own those houses to those who would like to buy those houses. At the end of the day…you have the same house that provides the same shelter….just one family is $150k richer, and one family is $150k poorer. Same goes with the stock market.

Perhaps the real lesson of the last 30 years is that we as a species are pretty easy to fool. Put a chart in front of us with a nice positive slope and more often than not…we’ll believe whatever you say.