Where did all the wealth go? To our kids.

http://business.theatlantic.com/2009/03/where_did_all_the_wealth_go_to_our_kids.php

by robg • 17 years ago

31 39 17 years ago

business.theatlantic.com

bkbagel• 17 years ago

I appreciate the rosy outlook, but this is sheer absurdity. Sure, assets like homes and stocks can be purchased at a lower price for roughly the same actual value as before. But that assumes that a) people still have the money or the fortitude to buy those things and b) that the economy will rebound entirely. Sure the latter is likely true, and the author makes some good points. But as a young investor myself with parents who have lost much, I'm not inclined to be so optimistic about the future.

If nothing else, hopefully this all teaches us to be accountable for our own money and know what we're doing with it.

tyn• 17 years ago

"Because the future earnings of GE, and for that matter most U.S. corporations, are essentially the same today as they were two years ago.."

Are they?

cameldrv2• 17 years ago

Certainly not. The current earnings of the S&P 500 are down about 70% from 18 months ago. Obviously the market expects earnings to bounce back, since on a current basis, with the P/E of the S&P 500 about 28, stocks are a bad investment if you think things will continue. A dollar of earnings today is worth more than any future earnings, and near-term (five years or so), I think we can expect earnings to be less than they were eighteen months ago, so I don't think that the children have necessarily made out -- it's some combination of wealth destruction and wealth that was never really there.

rationalbeaver• 17 years ago

I suppose that 'future earnings' holds a pretty nebulous value. Still, to the writer's point, how long do you think today's children will be working/investing? My bet is that it's more than 5 years. IMO, now would be a good time to start a child's college fund.

defen• 17 years ago

Exactly. Significant amounts of wealth were never there (e.g Madoff, Stanford), and significant amounts of wealth were destroyed due to the fact that people/businesses made plans & investments that were based on a perception of reality that is now known to have been wildly off the mark. Think of all the half-done construction projects that are now sitting idle because they were intended to satisfy demand that no longer exists.

dant• 17 years ago

The amount of wealth in the world is roughly the same, but the perceived value of cash has risen relative to everything else. The "wealth" has gone to the people who happen to be sitting on a lot of cash at the moment while people with lots of Plasma TVs in storage (for example) are finding they're not as wealthy as they thought they were.

I expect our kids are still going to have to work as hard as we did in order to buy those Plasma TVs. Even if they cost less, they'll probably be getting paid less too.

josefresco• 17 years ago

I don't understand how the wealth is being passed to the kids of baby boomers? I'm a child of a baby boomer, 28 years old and on my second home that was purchased at the height of the real estate bubble (first in 2004, second in 2007). Both homes I purchased were owned by baby boomers.

Looks like it's the kids who are passing the wealth on to the boomers to me.

If your kids are lucky, they either held off on purchasing a home or were too young to buy in. Otherwise they're probably like me, young and with a mountain of debt and while we're a long way from retirement, most likely there will be no SS benefits for us. Enjoy your retirement boomers!

sdurkin• 17 years ago

WHAT? This from the generation that just borrowed a trillion dollars from us?!

furburger• 17 years ago

don't forget the fifty trillion or so to pay their entitlements til (avg) age of death. or the extra three trillion they'll peel off of the stock market when they are forced by law to start liquidating their 401ks faster than we can make contributions to ours.

tarmac• 17 years ago

It's hard to believe this article when some UN groups are pitching out the Dollar is the world's prime currency.

If future generations are indeed richer, the value of what they hold isn't going to be the same.

Darmani• 17 years ago

A lot of this is just wishful optimism, but he's right to point out that deflation is not necessarily bad. I've been quite perplexed at Bernanke's efforts to stop the deflation that brought gas prices around here below $2 for the first time in seemingly forever.

bprater• 17 years ago

It's the deflationary spiral that's bad. A little drop in price is nice, but when a feedback cycle occurs, it becomes very dangerous.

nazgulnarsil11• 17 years ago

explain how. has deflation ever destroyed a country? no, not once in history. Inflation has destroyed MANY countries.

miked2• 17 years ago

Deflation didn't bring gas prices down, a decline in economic activity did. A smallish drop there drove a huge drop in oil prices, since auction markets are very sensitive to small changes in supply and demand.

neilo• 17 years ago

"Where's my money, Lebowski?"

That was inappropriate, I'm sorry. The author gave me an impression of attempted optimism, something to help people see good coming of all this crap, but perhaps he focused to much on that and not enough on more dark realities.

nazgulnarsil11• 17 years ago

articles like this are written by people who are still ideologically stuck in the pre-2000 crash world. That wealth didn't go to someone. It is just gone because it was an illusion in the first place. The fed pumped our system full of credit. Now we act surprised when bad credit starts getting washed out.

Every empire that has tried fiat currency has failed for this very reason. The people in power simply can't keep their sticky mitts off the printing press. It's just too tempting.

miloshh• 17 years ago

Perhaps there was too much currency in the system, but I think the actual, real wealth of many people did decrease too. They were better off than they are now, their wealth physically went down. They don't have things now that they did before. The output of the economy decreased, while the resources stayed roughly the same, so less wealth is being created. This is true even if you completely forget about the existence of money.

nazgulnarsil11• 17 years ago

right, but by necessity most of the wealth that disappeared was involved in non-productive economic activity. The wealth lost that actually was involved in productivity is a side effect of the massive fluctuations in imaginary wealth.

If it didn't effect the productive portion of the economy we wouldn't even have to worry about the shenanigans of the fed in the first place.

The real effect of this fluctuation is reflected in the fact that america has had an aggregate negative savings rate for the last 10 years. The imaginary wealth made people think that they could spend the real wealth, get returns in imaginary wealth (home valuations for example) and be net ahead.

miked2• 17 years ago

The Social Security and Medicare systems are simply a means of making a younger generation pay for an older generation's retirement, since both of those systems are pay-as-you-go. Obama amd Congress have signed us, and especially young people, up for the largest debt burden in US history, both in absolute and relative terms. The debt accumulated in World War II doesn't even come close to what's being signed into law these days.

Still, we of the 60's generation are thinking of you. And we when head out to the golf course while you're heading to work to pay for our benefits, I swear we'll wave to you.

kubrick• 17 years ago

It is grossly irresponsible for the baby boom generation to expect Generations X and Y to be saddled with our national debt, our trade debt, and our infrastructure debt -- and the retirement debt created by baby boomers enjoying long retirements supported by future tax increases on their children.

That's one of the most responsible things I've ever heard a member of that generation say.

Where did all the wealth go? To our kids.

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