Believe it or not, 22% of accumulated American wealth was destroyed in 2008.
According to John H. Makin at the American Enterprise institute, this massive destruction of wealth has resulted in a tepid recovery that has been marked by below-average recovery levels of saving, consumption and investment.
The problem is that Americans typically accumulate wealth in two ways: financial assets and owner-occupied housing. Policymakers have been sensitive to this phenomenon, supporting both in ways that Makin believes may have contributed to the bubbles in both sectors for the past 50 years.
History is instructive in this regard: When these bubbles burst, wealth accumulation is set back a very long way.
To counter the development of speculative bubbles, Makin argues the Federal Reserve needs to create a "bubble watch" program to keep speculative bubbles from destroying wealth accumulation. He believes it may be better policy to allow the pace of wealth accumulation in those sectors to slow somewhat to avoid the disruptions that inevitably accompany the bursting of these bubbles.
Identifying speculative bubbles before they burst is a good idea, The Motley Monk thinks. But, that assumes the Federal Reserve Bank should be involved in manipulating the nation's monetary system in the first place.
More importantly, what Makin doesn't discuss is the fact that the average American's wealth would have had to have grown at 4.5% annually since 2008 just to have lost nothing.
How's that hope and change feeling?
Let the discussion begin...
To read John Makin's article, click on the following link:
"The Global Financial Crisis and American Wealth Accumulation: The Fed Needs a Bubble Watch"