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Americans' Net Worth Tanked In Second Quarter, Erasing This Year's Gains

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Americans' net worth plunged in the second quarter of this year, new data from the Federal Reserve show, erasing the gains of the previous two quarters and adding evidence to the argument that the economy has entered a double-dip recession.

The net worth of households and non-profit organizations dropped $1.52 trillion during the period from April 1 to June 30 of this year, according to the report released Friday. The new figure, $53.50 trillion, represents a 2.8 percent decline from the previous quarter.

The net quarterly loss, the data suggests, came from Americans' losses in the sagging stock market. Equity shares owned by households and non-profits tanked in the second quarter, dropping $1.88 trillion or 11.2 percent to $14.87 trillion from the previous quarter. The second quarter figure went down past the territory of 2009's third quarter ($15.32 trillion), almost to the range of the 2009 second quarter ($13.06 trillion), when equity was just starting to rise from its low of $10.94 trillion in the first quarter of that year.

The Dow rose 4.1 percent in the first quarter of this year and fell 10.0 percent in the second quarter.

Total household wealth showed a 5.9 percent increase over the same period last year, which isn't saying much, since at that point the economy was only just beginning to improve. More significantly, Americans' net worth has approached levels not seen since the third quarter of 2009, when the total was $53.03 trillion, and when it was steadily increasing.

The overall value of assets owned by households and non-profits dropped as well, sliding $1.56 trillion or 2.3 percent, to $67.41 trillion from $68.97 trillion in the first quarter of this year. Again, the figure entered territory not seen since the third quarter of last year.

The economy has been in the slow process of deleveraging. Overall household debt dropped in the second quarter by a seasonally adjusted annual rate of 2.3 percent, with both mortgage debt and consumer credit debt falling. For households and non-profits combined, the values of mortgage debt and credit debt in the second quarter (respectively $10.15 trillion and $2.40 trillion) fell from the first quarter figures of $10.20 trillion and $2.42 trillion, respectively.

Mortgage debt for households and nonprofits has been steadily falling since the most recent peak of $10.50 trillion in the first quarter of 2009. And banks charged off 2.9 percent of all loans in the second quarter, according to data compiled by the Federal Reserve Bank of St. Louis. The charge-off rate this year is higher than any other year since at least 1988.

"Households are unable to pay off debt," Elizabeth Warren, President Barack Obama's newest top adviser on consumer and economic issues, said Friday during a conference call with reporters. "There's a substantial amount of debt written off."

In a tentative, and potentially outdated, cause for hope, the value of real estate assets owned by households in the quarter went up, a 0.3 percent increase over the previous quarter. Moreover, total tangible assets owned by households and non-profits increased in value 0.6 percent to $23.68 trillion. But the current housing situation, which has worsened since the end of June, suggests trouble.

"Looking ahead, the household net worth will move sideways as minor improvements on the financial side are likely to be offset by lower real estate asset values," Gregory Daco, an economist with IHS Global Insight, said in a release. "With employment recovering very gradually and housing prices remaining low, household wealth will make a very slow recovery."

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