Quantifying the Collapse

For all those people who still have their homes, their health, and their jobs but still feel much poorer than they did a year ago, here's an explanation: You probably are much poorer than you were a year ago.

Figures out today from the Federal Reserve give an eye-popping quantification of just how far and how fast has the economy fallen in the last few months. Overall household net worth shrank by 9 percent in the last three months of 2008 alone. Fully $5.1 trillion of private wealth was atomized in that period -- more than $56 billion each day.

The drop -- the biggest ever since the Fed started measuring in 1952 -- pared the net worth of all American households to $51.5 trillion, the lowest in four years.

No surprise, then, that suddenly poorer people stopped borrowing. Household debt shrunk at a 2 percent annual rate, the first decline ever recorded. Excluding mortgage debt to focus on consumer spending, borrowing fell at a 3.2 percent rate.

The new era of thrift was driven in part by the collapsed housing market, which effectively cut off home equity loans. At the end of December, owners' equity in their homes fell to 43 percent of total value, a record low.

Not all borrowing decreased, however. Business debt rose at a 1.7 percent annual rate, though that is the slowest pace since the end of 2003.

Federal government debt grew at a more-than-robust rate of 37 percent. Hard to feel good about that, though.

by Mark Stein