Debt-fueled asset appreciation, not business profitability, has been behind the increases in “wealth” since the financial crisis of 2008-2009. From Simon Black at sovereignman.com:
The Federal Reserve in the United States just released a new report showing that “Total Household Wealth” in the United States has reached a record $94.8 trillion.
That’s an impressive figure.
Even more impressive is that Total Household Wealth has increased by $40 trillion since the lows of the Great Recession in 2009.
No doubt there’s probably a multitude of central bankers and bureaucrats toasting their success in having engineered such magnificent prosperity.
And it’s certainly an achievement worth celebrating. As long as you don’t look too closely at the data.
Total Household Wealth is exactly what it sounds like– the total net worth of every person in the United States, from Bill Gates down to the youngest newborn baby.
So when you add up all the 330+ million folks in the Land of the Free and tally up their combined net worth, the total is $94 trillion.
The thing is that the VAST majority of that wealth, especially the incredible growth over the last 8 years, has been from increases in just two asset classes: real estate and the stock market.
In fact, stocks and real estate alone account for roughly 2/3 of the wealth increase since 2009.
I’ll come back to that in a moment.
Now, simultaneously, we see plenty of other interesting data, also published by the Federal Reserve and US federal government.
Both the Fed and Census Bureau, for example, tell us that over 80% of businesses in the US are “nonemployer” companies, i.e. businesses which only employ one person (the owner), and often provide his/her primary source of income.
Yet according to the Federal Reserve, only 35% of these small businesses are profitable. Most are operating at a loss.
In other words, only 35% of the companies which make up 80% of American businesses are profitable.
You’re probably already doing the arithmetic– this means that a whopping 72% of all US businesses are NOT profitable.
That hardly sounds like record wealth to me.
To continue reading: Record “Wealth” in America: 72% of US businesses are NOT profitable