Deterioration of Household Wealth in USA

I just bumped into an article that cites a study showing how the babyboomers in USA have little wealth outside of their homes and 401(k) savings plans. The average 401(k) plan savings are about $50000 which cannot count a lot to generate retirement income. The nest egg tied to home is now questionable due to deep meltdown in home mortgage and housing market.

The engine of global economic growth has been American household borrowing on their inflated home values. Bankers throughout the world had windfalls because they could borrow massively from BOJ and Federal Reserve Board at very low rates of interest (particularly during 2001-2003) to lend to American households on inflated home values at exorbitantly high rates or at adjustible rates that have gone up ever since.

Now even the lenders (banks and mortgage companies) cannot repay their loans! This is straining the banking sector and threatening to blow the financial markets. But the executives in the banking sector have looted the windfalls to financial institutions in heavy bonuses and pays as outlined in my paper "Safe Banking" published in 2003. The about-to-fail Countrywide Finance's CEO took $48 million in pays and benefits annually, according to a report in Bloomberg.

The residual risks due to shenanigans of greedy banking sector executives have piled up on the vast majority of hard working people people, directly in the form of household debt and, indirectly, due to taxes imposed by new money through inflation. The new money created by Central Banks amount to hefty taxes on the vast majority because of the price rise that follows such monetary injections. The newly created money always flows back to the fringe that produces little except to cook up schemes to transfer wealth from the multitude, thanks to the Central Banks.

May God bless America because the rest of the world's economic growth depends on the money created in USA in a Ponzi Scheme.

Sankarshan Acharya

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Your House: Breaking the Bank

CNNMoney.com
By Amanda Gengler

If you've been reading Money Magazine for any length of time, you surely get that saving for retirement should be your top financial priority. Even so, the past decade's easy appreciation in home values has made such fundamental advice seem, well, a lot less urgent.

Or so suggests a National Bureau of Economic Research paper recently published in the Journal of Monetary Economics. Comparing results from the biennial University of Michigan Health and Retirement study, researchers found that, excluding home and business equity, 51- to 56-year- olds hold less wealth than the same age group did in 1992.

"These boomers look richer, but a lot of that wealth is because one asset [their house] revalued," says co-author Annamaria Lusardi, a professor of economics at Dartmouth. "Excluding housing, people have very little in other wealth components."

The study did leave out 401(k) savings, but the median balance for those accounts for a similar age group is only $50,000, while fewer fifty can look forward to guaranteed income from pensions today than could in 1992.

Myth: My home is a sure investment

The results call for a reality check: Are you banking too much on your house?

Truth: Your home value may have more than doubled during the boom, but real estate markets have also been known to suffer prolonged stagnation, even downturns (see the 8 percent drop in median prices this past year in some areas). If there's a bust on the cusp of your retirement, your pot of gold could turn up half empty. Besides, the past 10 years aside, history suggests that homes don't give much long-term return compared with other investments: A dollar invested in residential real estate in 1963 has barely outperformed a low-risk T-bill, according to a 2007 Fidelity Research Institute report.

Myth: Downsizing will leave me flush with cash

Truth: Even if the market is up when you're ready to exit the work force, you're unlikely to ever see the appreciation in cold hard cash. Prices on smaller homes jumped too during the boom. In Baltimore the median price of a single family home is $278,800; a condo is $239,300. Savings: less than $40,000.

Unless you move to a less pricey area - think San Francisco to Omaha - "you're unlikely to greatly improve your financial picture," says financial planner Jim Sonneborn of Chatham, N.J.

Myth: I can always tap my equity and invest it for even better returns

Truth: Interest rates are up, with average home-equity loans and lines of credit topping 8 percent. So the hurdle is higher. Earning average stock-market returns above 8 percent will require years of riding market ups and downs, time you probably don't have.

As for reinvesting the funds in your home, the days of making it all back are over. A kitchen redo recouped 80 percent on average in 2006, according to Remodeling magazine.

The bottom line: Saving for retirement is still Job No. 1. Your home may provide a roof over your head in retirement, but you'll need cash if you want to eat.

Retirement