Americans aren't as rich as they feel

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A much-welcomed ray of sunshine descended on the news recently by way of a new report from the Federal Reserve Board. It seems that important measures of the net worth of U.S. households — our total assets minus total liabilities — rose markedly following the 2019 COVID pandemic. But before popping corks and celebrating, we should look a bit closer and recognize that the source of some of those gains may come back to haunt us.

First, let's look at the good news. According to the Fed's report, the median American's household's net worth, which is the level that evenly splits the income distribution of the nation, rose a whopping 37% from 2019 to 2022. This was more than double the largest increase recorded since the report was first published in 1989. Not only that, but there was hardly any increase in debt, whether for mortgages, credit cards or student loans.

The increase in net worth was not only large, but widely spread among the relatively rich and poor. In a real sense, the rising tide managed to lift most boats. In fact, the percentage growth was highest for poorer families and increases were tallied across races and ethnicities.

Make no mistake, there is a lot of genuinely good news in there — but the extent of it is almost too good to be true. Now, let's take a second look.

If you've paid close attention, you might not be completely surprised by this surge of well-being. After all, across 2020 and 2021, some 476 million payments totaling $814 billion in federal financial relief went to households impacted by the pandemic. When that much money is spread around, some of it has to show up somewhere.

Though the Fed report mentioned pandemic stimulus payments in passing, it gave no accounting for the increases in federal debt that funded them. Nor did it mention how this $814 billion must eventually be paid off by the same American households who received it. In fairness, no one that I know of makes an allowance for government debt when calculating personal net worth. From an individual standpoint, it's a debt no one takes into account.

Let's avoid that oversight. Consider that between 2019 and 2022, when household wealth was rising by 37%, the federal debt rose from $22.7 trillion to $30.8 trillion — a 35.6% increase. Some might say not to worry. After all, isn't this debt we owe to ourselves? Well, most of it. Of that amount, $7.2 trillion was owed to foreign sources. (I should add that total federal debt now is $33.6 trillion.)

All of this suggests we might want to turn down the volume a bit when celebrating a suspiciously rapid rise in family net worth. After all, our government can print money by issuing new debt and shipping the resulting dollars to our bank accounts, creating what some call "helicopter money," without accounting for the fact that somebody will have to pay it off. This can't go on forever.

Eventually, maybe very soon, we must confront the debt we owe and begin to pay it off with some combination of higher taxes, fewer government services, or more inflation. The annual interest cost of the national debt alone is now $659 billion, following Social Security, Medicare and the military as the fourth-largest item in the federal budget.

Like recent college graduates told by their parents that, from now on, they will be responsible for paying off their own credit card purchases, we high-net-worth people may eventually find out what happens when the buck stops with us.