Brief

The State of Working America’s Wealth, 2011: Through volatility and turmoil, the gap widens

The deflation of the housing bubble which started in 2006 pushed the U.S. economy into recession by the end of 2007. As house prices fell and already low equity (due to second mortgages) vanished, foreclosures and “upside down” mortgages, in which homeowners owe more on their mortgages than their homes are worth, became a vicious cycle. Given the reliance of typical families on housing as a source of wealth, the housing debacle has devastated the net worth of millions of American households.

The Great Recession officially lasted from December 2007 through June 2009—the longest span of recession since the Great Depression. The recovery since then has proceeded on two tracks: one for typical families and workers, who continue to struggle against high rates of unemployment and continued foreclosures, and another track for the investor class and the wealthy, who have enjoyed significant gains in the stock market and benefited from record corporate profits.

The Main Street–Wall Street divide remains as big as ever in the aftermath. This brief takes a historical view of wealth and its components, and places a special emphasis on the bursting of the housing bubble, which thus far has resulted in $6 trillion of lost wealth; an additional $2 trillion is expected. Why is wealth important? Like wages and income, overall wealth is central to a family’s standard of living. Wealth—particularly liquid assets such as savings and checking account balances and direct holding of stocks and bonds—can help families cope with financial emergencies that arise due to unemployment or illness. Wealth also makes it easier for families to invest in education and training, start a small business, or fund retirement. More tangible forms of wealth such as cars, computers, and homes can directly affect a family’s ability to participate fully in work, school, and community life