Try reading something other than a Conservative Yellow Journal and you'll see that we're already in a rebound.

I don't believe it will be a lost decade for us we have already lost a decade which is about to finish and we got hit twice within the decade; the problem is no one felt it because it was covered up so we continued with out bad habits. The circumstances in Japan, when the lost decade hit them, were very different to those that we are living. Though I liked the article in the Washington Post it is still a bit dramatic for my taste. Let us see what has happened to us: Chart #2 U.S. Household Net Worth – Inflation Adjusted As a first step, let’s adjust the total U.S. household net worth data for inflation. Chart #2 shows this data, adjusted for inflation, in 2008 dollars. Suddenly, the picture is not so bright. As you can see from the chart, when adjusted for inflation, U.S. household net worth is relatively flat over the past decade. It is important to adjust for inflation because it captures the decrease in purchasing power of the dollar over the past decade. Also, it is worth noting that it captures at least a fair share of gains in innovation. Why? The Government’s CPI numbers actually reflect product improvements. For example, if a computer cost the same in 2007 as it did in 2006, but the computing power has increased, it is reflected as a price decrease in the CPI calculations. So, by adjusting for inflation we capture the change in the purchasing power of the dollar and gains from innovation. Chart #3 Per Capita Net Worth The next step is to personalize the data by putting it in per capita terms. Chart #3 uses Census Bureau data on U.S. population to develop the per capita net worth data. Since 1999, the U.S. population has grown by about 10%. Therefore, the total household net worth in the U.S. is now divided among many more individuals. The data is also adjusted for inflation and is shown in 2008 dollars. This calculation shows that per capita, net worth has declined substantially since 1999. Also, to the degree that an individual’s net worth largely reflects how they live, it shows that our standard of living has declined. Chart #4. The National Debt’s Affect on Net Worth Now that we have adjusted the data for inflation and personalized it by showing it on a per capita basis, we are ready for the final step. This step subtracts the inflation adjusted national debt from the numbers. See Chart #4. Why include national debt in the net worth numbers? Simple, as citizens of the U.S. we own the national debt. Let’s consider the 2008, $165 billion stimulus package. Essentially, it was a transfer of money from the U.S. Government to most U.S. citizens. It made the U.S. household net worth increase by $165 billion, but at the same time increased the national debt by $165 billion. If the national debt is not relevant, then we could just print $10 trillion tomorrow, and give a prorate share to every U.S. citizen. That would take care of the declining per capita net worth and living standards. Obviously, this is ridiculous because wealth is not created by simply transferring money. By not including the national debt as a liability when calculating household net worth it becomes an off balance sheet liability for households. That is definitely not the proper way to account for it. Therefore, I believe Chart #4 best reflects the trends in per capita net worth in the U.S. over the past decade. Also, to the degree that an individual’s net worth largely reflects how they live, Chart #4 best reflects what is happening to our standard of living in the U.S. Conclusion: In absolute terms total household net worth in the U.S. has increased at a modest pace in the past decade. However, to really understand wealth creation over the past decade we need to look at net worth on a relative basis. To achieve this: 1) total household net worth is used as a baseline; 2) the national debt is subtracted as a liability; 3) all data is adjusted for inflation; and 4) population data is used to develop a per capita view. Chart #4 below reflects these calculations. It shows, on a relative basis, that the net worth of individuals since 1999 has declined almost 25%. In 2005 the housing bubble was creating a wealth illusion, and if/when it burst we would be ill prepared. As it turned out the housing bubble was also a credit bubble, and now that both have burst our net worth and standard of living have suffered. This is largely due to the fact that over the past decade we have: 1) had a lack of savings; 2) over leveraged ourselves; and 3) not invested enough in wealth creating ventures. For now living standards in the U.S. will continue to decline until we turn the tide. We need to get back to creating wealth in the U.S. Let’s not have another lost decade as we already had it. Sources: U.S. Federal Reserve – Flow of Funds report U.S. Census Bureau U.S. Treasury – Bureau of the Public Debt