Negative ‘wealth effect’: $100 trillion+ and counting

As pointed out by Zerohedge today and shown in their chart below, the equity market rout over the past 6 months has so far evaporated over $16 trillion in paper wealth and returned global equity market values to 10% below the November 2007 peak–8 long years ago.

Equity market wealth since 2006







This means that the rebound in stocks–that was purchased through the sacrifice of prudent fair value accounting standards (FASB 157 was set aside in March 2009) and trillions in tax dollars via bailouts, preferential treatment, and Central Bank injections since 2007– has been but a fleeting mirage.  A mirage that diverted money to financial markets rather than other critical needs like infrastructure, health, education, savings and long-term investment for the future.

In exchange the world has been left with trillions more in debt at every level from households, to corporations and governments.  A good deal of this debt will not be repaid and has yet to be marked down or written off to reflect this reality.

And that is to say nothing of the tens of trillions of dollars in commodity assets that have yet to be discounted on balance sheets all over the world.  As pointed out by John Mauldin this week, the world’s oil reserves in the ground have declined in market value by more than $100 trillion in just the past 18 months— See:  $100 Trillion up in smoke.

And that is not counting similar declines in other hard assets from copper to nickel, silver, coal, iron ore and more–all yet to be marked down.

The world is full of finance promoters who talked endlessly about the positive ‘wealth effect’ they expected from all the money flowing into financial markets over the past decade.  The same crowd is now conspicuously quiet about what the mean reversion of asset prices suggests in terms of negative ‘wealth effects’ for the world.

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