2 thoughts on “Federal Reserve Z1 Data for 2020: The King of Debt Went Out With A Bang, and Our Children and Grandchildren Will Be Poorer for the Rest of Their Lives to Pay For It

  1. larrylittlefield Post author

    Higher asset prices, lower future returns. By propping up asset prices, the federal government redistributes income from poor to rich and from young to old. But the young can always accept that they are screwed and live poorer if they know this. That, however, would require earlier-born generations to admit it.

    https://www.economist.com/graphic-detail/2021/03/15/young-people-stand-to-make-dismal-returns-on-their-investments

    “On top of an inherited climate crisis, the young will have to suffer the economic consequences of a pandemic. For “Generation Z”, those born after 1997, this could mean higher rates of unemployment, lower earnings and higher taxes to pay off pandemic-era debts. Add to this unhappy list a less-noticed but no less serious problem: Generation Z’s dismal financial prospects. According to Credit Suisse’s latest global investment returns yearbook, Generation Z’s earnings from stocks and bonds will be significantly lower than those of previous generations.”

    “All of this adds up to annualised returns for Gen Z of a mere 2% on a 70:30 portfolio of stocks and bonds—not even a third of the historical return of the baby boomers (see chart). These guesses could prove too pessimistic, but perhaps not dramatically so. The authors concede that a serious bout of deflation could drive up bond returns. But currently inflation, not deflation, is the worry.”

    Were the stock, bond and real estate markets to crash and allow a lower buying in point, these calculations would change. But so would the nominal wealth of existing asset holders.

  2. larrylittlefield Post author

    And sure enough, Johnny at Granola Shotgun has a post up about the housing price aspect.

    https://www.granolashotgun.com/granolashotguncom/la-la-la-la-la-la

    “I have a weird theory. I don’t think homes are more expensive because of supply and demand. I don’t think it’s exclusively because of restrictive zoning regulations and building codes. I don’t think it’s about suburban sprawl or urban crowding. There’s definitely aspects of all that with plenty of blame to go around. But I’m beginning to think the value of homes isn’t rising so much as the worth of the dollar is rapidly declining. You get the same old house, but you need a whole lot more dollars to pay for it. Just a random thought…”

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