Monday, October 4, 2010
America's declining wealth
The net wealth held by American households has decreased by $17 trillion dollars following the housing market meltdown. Here's a nice review. Households will continue to increase saving to help offset the losses in housing equity and retirement accounts. This will only prolong the current recession. Again we are seeing the major difference between short-run and long-run factors. Increased saving in the short run will worsen the current recession, but will put us a more sustainable path in the future. This is especially true with the large fiscal deficits.