Q3 Was Not a Good Quarter for American Wealth – Worst Since Dark Days of 2008

Remember the reason for QE2… that whole “wealth effect” thing?  Well the problem with temporary manipulation of asset prices is just that… it’s temporary.  Blow $600B through the hole, and while it creates temporary “happy happy time” (for a narrowing portion of our society), eventually market forces come back.  As The Bernank would say … it’s transitory.  And Q3 was another quarter of “giving back”.  That said with the one of the greatest months ever in October 2012…. barring a disaster in these last 3 weeks, Q4 should again take us to a happy place…. and if the ECB can do their thing in 2012…. we can all party like it’s 1999 (NASDAQ).

Until we pay for it down the road…..

Via Bloomberg:

• Household wealth in the U.S. fell from July through September for a second straight quarter as the European debt crisis depressed stocks and home values decreased.  Net worth for households and non-profit groups decreased by $2.45 trillion to $57.4 trillion (-4%), the Federal Reserve said today in its flow of funds report from Washington.
• Americans reduced debt in the third quarter, extending a string of declines dating back three years.  (much of this is through mortgage default, but hey – beggers can’t be choosers)
• A 14 percent slump in the Standard & Poor’s 500 Index, the worst quarter since 2008, combined with another decrease in households’ real estate values in the third quarter.
• The value of household real estate decreased by $98.3 billion in the third quarter after dropping by $37 billion in the previous three months.  Owners’ equity as a share of total household real-estate holdings was little changed at 38.7 percent last quarter, today’s report showed.
• The volume of outstanding home mortgages was $9.93 trillion at the end of the second quarter, the lowest since the end of 2006, according to separate Federal Reserve data. That means U.S. mortgage debt, a driver of consumer spending during the real estate boom, may be about to enter its fourth year of decline as foreclosures wipe out home loans and housing purchases fall.
• The value of financial assets, including stocks and pension fund holdings, held by American households decreased by $2.78 trillion in the third quarter, according to the flow of funds data.
• Household debt dropped at a 1.2 percent annual rate last quarter. Mortgage borrowing decreased at a 1.8 percent pace. Other forms of consumer credit, including auto and student loans, increased at a 1.2 percent pace.
• Stock portfolios make up about 15% of Americans’ wealth. That’s less than housing but ahead of bank deposits. Most stock wealth is owned by the richest Americans, who also account for a disproportionate amount of consumer spending. Eighty percent of stocks belong to the richest 10% of Americans.

Also….

• Today’s report also showed the balance sheets of businesses are faring better relative to households. Companies had $2.11 trillion in cash and other liquid assets at the end of the third quarter, up from $2.07 trillion in the prior three months.
• Total non-financial debt last quarter rose at a 4.3 percent annual pace, led by a 14.1 percent increase by the federal government and a 3.5 percent gain among businesses. State and local government borrowing was little changed.