Americans Face A New Financial Reality

The Wall Street Journal reports that the wealth of American families plunged nearly 18% in 2008. The Fed said that U.S. households’ net worth tumbled by $11 trillion, a decline in a single year that equals the combined annual output of Germany, Japan and the U.K.

Past downturns have been mere blips compared with the losses Americans faced last year, which set them back to below 2004 levels. The decline in Americans’ net worth, which was the first in six years, follows an extraordinary boom. Not accounting for inflation, household wealth more than doubled from 1990 to 2000, and then, after a pause, rose nearly 50% before the bust of 2008.

While the value of their assets was falling, Americans’ total debt remained roughly flat. Total household debt increased by half a percentage point in 2008 as families faced tighter lending standards and many have started trying harder to live within their means.