More on macroeconomic imbalances and the current recession

As a follow up to our earlier entry in this blog, the US Federal Reserve released today the flow of funds accounts of the United States (you can find the release here). These data provide an overview of the assets and liabilities of both the private and public sector in the US. The data reveals that all the increase in wealth that households had experienced over the 2002-2006 period is gone. In fact, the ratio of household wealth to GDP has gone down to a level which is consistent to the historical average (somewhere around 350%), very far from the peak of 2007 of 450%. The (perceived) increase in wealth in the 2003-2006 period was one of the factors behind the increased in US spending, consumption in particular, that we have documented in our earlier entry. If you want to know more, the blog calculated risk has a detailed note on this issue. You can find their chart of household wealth to GDP here.

Antonio Fatás