http://reason.com/archives/2012/09/12/worse-than-the-recession

When this column was written, the smart money was once again
saying that the bad times were behind us. “Nearly seven years after
the housing bubble burst, most indexes of house prices are bending
up,” David Wessel wrote in The Wall Street
Journal in July. “Nearly 10 percent more existing homes
were sold in May than in the same month a year earlier, many
purchased by investors who plan to rent them for now and sell them
later, an important sign of an inflection point.”

In the summer edition of the house magazine for Markit Group
Ltd., a credit-default swap pricing firm, Bruce Kasman, head of
economic research at J.P. Morgan, explained why he believes the
American economy will triumph over “persistent lacklustre growth.”
Kasman identified three hopeful trends: 1) “A competitive corporate
sector that is willing to hire,” 2) “Consumer behaviour has turned
neutral,” and 3) “Housing turns from drag to lift.”
But in the battle for hope, it’s no surprise that President
Barack Obama has gained the highest ground. “The private sector is
doing fine,” the president intoned in June. That phrase was
immediately controversial, but it had the rare distinction of
sounding even worse in context than standing alone. Obama’s real
concern was for government employees facing “cuts initiated by, you
know, governors or mayors who are not getting the kind of help that
they have in the past from the federal government.”So is economic health
returning? The short answer is no. The
mortgage crisis has become so grave that some city governments are
threatening to deploy their eminent domain powers to seize loans at
high risk of default. Seven municipal governments, including three
of the 50 largest cities in California, have declared bankruptcy.
Wealth creation in America has become so difficult, and wealth
destruction so common, that in many respects the recovery, which is
not a recovery at all but a period of indefinite stagnation, has
become worse than the “Great Recession” that allegedly ended in
2009.
The long answer is also no. A June Federal Reserve study
revealed that the median value of pretax family income fell 7.7
percent between 2007 and 2010; during the same period, median net
worth declined a whopping 38.8 percent, and mean net worth dropped
14.7 percent. The Fed’s quarterly flow of funds reports have
consistently shown flat household net worth since 2010. At $62.9
trillion in the first quarter of this year, household net worth is
still almost $5 trillion below where it was in 2007.
As if having fewer dollars weren’t bad enough, the dollars have
been, according to the strict definition of the word, decimated.
Consumer Price Index inflation has robbed the dollar of 10 percent
of its value since 2007. With the interest rate on a savings
account below 1 percent, saving money in the bank has come to mean
losing your money, and not slowly.
Under those conditions, who would save? Nobody. According to the
Bureau of Economic Analysis, the U.S. personal savings rate
(disposable personal income less outlays), which briefly topped 6
percent in 2009, has averaged below 4 percent throughout this year
and is now close to 3 percent. That rate was 10 percent as recently
as the late 1980s.
Also headed steadily downward is the equity portion of real
estate owned: Mortgage debt makes up 55 percent (and growing) of
all real estate assets in America. Again, the long-term trend is
even more frightening: In 1983 American homeowners had more than 70
percent equity stakes in their homes.
According to a July report from Bianco Research, aggregate
personal debt has increased since the recession ended. Total
credit-market debt is nearly $54 trillion. Public-sector debt has
increased from $21 trillion to $24 trillion during that period—and
as the Golden State cities of Stockton, Vallejo, and San Bernardino
show, government bankruptcy is no longer something that only
happens in Rhode Island, nor is it a figment of alarmists’
imaginations.
Against this slow (and sometimes fast)
dribbling away of wealth, we are supposed to believe the economy is
improving because U-3 unemployment is “holding steady” at more than
8 percent, or because of a small spike in real estate
settlements.
Don’t believe it for a minute. It’s a step in the right
direction that lenders have finally increased the pace of
foreclosures (according to RealtyTrac, foreclosures jumped 6
percent in the first quarter), but it will take many years to work
through the backlog of distressed mortgages. The percentage of
Americans even looking for jobs, let alone holding them, continues
to fall, and the 80,000-a-month rate of private-sector job creation
doesn’t come close to keeping up with population growth.
There’s something about old-fashioned print media that makes
doomsday predictions all the more enjoyably awful. From Paul
Erdman’s The Crash of ’79 and The Panic
of ’89 to the late libertarian leader Harry
Browne’s How You Can Profit From the Coming
Devaluation through Nassim Taleb’s recession
appetizer The Black Swan, people still love to curl
up with dead-tree visions of hell in a handbasket.
So here’s my dire print prediction: By the time you read this,
Americans will be feeling poorer than ever. And they won’t be
wrong.