Household Wealth Still Down 14 Percent Since Recession

Household Wealth Still Down 14 Percent Since Recession Phys.org February 28, 2014 Household wealth for Americans still has not recovered from the recession, despite last summer's optimistic report from the U.S. Federal Reserve, a new study suggests.

Economists at The Ohio State University found that the mean net worth of American households in mid-2013 was still about 14 percent below the pre-recession peak in 2006. Their analysis suggested that middle-aged people took the biggest hit.

In a report last June, the Federal Reserve said that net worth of Americans – which includes the value of homes, stocks and other assets minus debts – had essentially recovered since the recession of 2007 to 2009. In fact, the Fed claimed wealth was the highest it had been in nominal terms since records began in 1945.

But the Fed's analysis included four data issues that gave a significant boost to its optimistic reading of the economy, said Randy Olsen, co-author of the study and a professor of economics at Ohio State.

The four problems with the data: It didn't adjust for inflation or population growth; it included accounts held by foreigners living outside of the United States; and it included wealth held by nonprofits and not just households.

"All four of these issues with the Fed report pointed in the same direction, leading toward a conclusion that was far rosier than what exists in the real world," Olsen said.

Olsen conducted the study with Lucia Dunn, also a professor of economics at Ohio State. Their results appear in the February 2014 issue of the journal Economics Letters.

Olsen and Dunn used data from the Consumer Finance Monthly, a monthly telephone survey of U.S. households conducted by Ohio State's Center for Human Resource Research. Olsen is director of CHRR. The CFM was run monthly from 2005 to 2013 and does not have any of the four issues associated with the Fed report, Olsen said. To date, more than 25,000 households have been surveyed on their assets and debts.

"The CFM dataset fills in some key gaps in the history of the Great Recession and allows us to have a much clearer picture of what happened to American households during this economic downturn," Olsen said.

The results of the new study showed that the mean real net worth of American households peaked in 2006 at $398,620. At the bottom of the recession in 2009, it fell to $217,687. It recovered to $333,859 in 2012, still 16 percent below its pre-recession high.

Additional improvements in the first half of 2013 brought household wealth to 14 percent below the 2006 high.

But the recession and the recovery didn't affect all American households the same way. Results showed that less wealthy people and younger people lost more during the recession in percentage terms, but also recovered more since then.

American households in the 25th percentile in terms of net worth (meaning that 75 percent of households had more wealth than they did) had by 2012 essentially recovered the wealth they lost during the recession.

But that is because they had very little to lose and to recover, Olsen said.

"Many may have already lost their homes and had their credit cards taken away," Olsen said. "If they can't borrow, they can't go into debt. Some may have paid off their old car loans, which gives them a small asset."

Meanwhile, those households at the 75th and 90th percentile in terms of net worth were still 19 and 23 percent below their 2006 wealth levels, respectively, in 2012.

As far as age groups go, it was the young who have recovered best from the recession. Those under 35 were 4 percent below their 2006 net worth by 2012. Those over 55 were 13 percent below.

Those who suffered the most were people aged 35 to 54, Olsen said. In 2012, they were 27 percent below their peak net worth recorded in 2006.

"What we're seeing in these middle-aged people is very disheartening, because they are in what should be their peak earning years, when they should be accumulating assets before retirement," he said.

"We might be seeing people who have lost their jobs and are forced to spend their assets because they can't find work. Some of them may have given up looking."

Olsen said much of the recovery in net worth that has occurred since the recession can be attributed to the rise in value of financial assets, such as stocks. This tends to help those who are already wealthy, he noted.

This increase has occurred because of the Federal Reserve's policy of quantitative easing, which means the Fed has bought large amounts of longer-term bonds and other financial assets, boosting their prices.

"Without quantitative easing, we probably would show even lower levels of household net worth," Olsen said.

"As much as the Federal Reserve might want people to believe we have recovered from the recession, the bottom line is that we haven't."

Survey: Yuan To Supersede Dollar As Top Reserve Currency Ansuya Harjani CNBC February 28, 2014

The tightly controlled Chinese yuan will eventually supersede the dollar as the top international reserve currency, according to a new poll of institutional investors.

The survey of 200 institutional investors - 100 headquartered in mainland China and 100 outside of it published by State Street and the Economist Intelligence Unit on Thursday found 53 percent of investors think the renminbi will surpass the U.S. dollar as the world's major reserve currency.

Optimism was higher within China, where 62 percent said they saw a redback world on the horizon, compared with 43 percent outside China.

"As China's economic influence grows, the global importance of the renminbi will become magnified. Indeed, while for decades it has been a 'greenback world', dominated by the U.S. dollar as the world's primary reserve currency, many think a 'redback world', in which the renminbi enjoys premier status, is increasingly a possibility," the report accompanying the survey said.

(Read more: Yuan takesanother step forward as a world currency) This view was shared by European Central Bank Executive Board member Yves Mersch, who said on Wednesday that China's yuan is gaining importance in international trade and investment and might ultimately challenge the U.S. dollar.

However, skeptics of yuan internationalization argued that the renminbi will never be liquid enough across all asset classes to serve as a viable reserve currency, and that people will not trust the renminbi as a store of value.

Despite being a closely-managed currency, the renminbi's global clout has been rising steadily. By the

end of 2013, the renminbi had become the second most used trade financing currency and ninth most used currency for payments globally.

(Read more: Yuan overtakes euro as 2nd most used currency in trade finance) Recent moves in the yuan have triggered speculation that the People's Bank of China is getting ready to widen its trading band - which would be a step towards liberalizing the Chinese currency. The yuan is currently allowed to rise or fall by 1 percent in either direction from a level fixed against the dollar each day by the country's central bank.

Ultimately, a greater role for the yuan would require China to liberalize its financial policies, including decreasing exchange-rate intervention, liberalizing interest rates and relaxing restrictions on capital flows. wo-thirds of the respondents of the survey expect Beijing to complete its financial liberalization within ten years, with a majority expecting major reforms within five.

(Read more: Is China getting ready to widen the yuan's band?)

Financial liberalization in the mainland began in earnest after 2009, with the government's decision to allow cross-border trade settlement in renminbi, ease the process of listing offshore bonds and introduce the renminbi qualified institutional investors (RQFII) program.

The reforms, however, are still limited in scope, with strict quotas for how much currency can move across the border.

Last year, the government launched the Shanghai free-trade zone as a testing ground for financial reforms, including full yuan convertibility.

Survey: Yuan to supersede dollar as top reserve currency VIDEO BELOW http://www.cnbc.com/id/101450365

EPA Moves Against Major Alaska Gold Mine Fox News February 28, 2014

The Environmental Protection Agency on Friday moved against a massive mine project in Alaska which supporters say could contain billions of dollars in gold and copper, delivering a win for environmentalists who claimed the mine could endanger sockeye salmon populations.

The decision on Pebble Mine was highly anticipated, and comes after an EPA report in January found large-scale mining in the Bristol Bay watershed posed significant risk to salmon and could adversely affect Alaska Natives in the region, whose culture is built around salmon.

The agency will now examine whether to block or otherwise restrict the mine project. But that decision alone promises to significantly delay the project; whether the EPA decides to bar construction entirely remains to be seen.

The action, announced Friday, is what supporters of the proposed Pebble Mine have feared. Backers have claimed the project could yield more than 100 million ounces of gold, 80 billion pounds of copper and other precious minerals. Companies have spent millions researching and monitoring the area in an effort to assure the EPA the mine would not cause ecological damage.

But opponents of the mine have urged EPA to take steps to protect the region.

EPA Administrator Gina McCarthy said in a release that scientific study has provided "ample reason to believe that the Pebble Mine would likely have significant and irreversible negative impacts" on the watershed and its salmon. The watershed produces nearly half the world's wild sockeye salmon, a fish that is important for two groups of Alaska Natives in the region, Yup'ik Eskimos and the Dena'ina.

McCarthy said the agency is exercising its authority under the Clean Water Act "to ensure protection

for the world's most productive salmon fishery from the risks it faces from what could be one of the largest open pit mines on earth."

However, the company behind the mine defended the project Friday, and said the EPA decision was premature and unprecedented. “We remain confident in our project and our position," Tom Collier, CEO of the Pebble Limited Partnership, said in a statement. "We will continue to state our case with the EPA as we work through their process. The EPA’s actions today are an unprecedented federal action and reflect a major overreach onto an asset of the State of Alaska. There is a prescribed, science based process for evaluating projects such as Pebble and the EPA has initiated a step that turns this process on its head."

The EPA has rarely used this specific authority, which it can exercise before a permit is applied for. The agency says it has only done so 29 times in the past, and in 13 of those cases the EPA decided to take steps to limit or prohibit activity.

Regional administrator Dennis McLerran said information provided by the Pebble Limited Partnership and Northern Dynasty Minerals Ltd., which are working to develop the Pebble deposit, showed excavation for the mine "completely destroying" an area as large as 7 square miles and that disposal of waste material would require building three impoundments covering another 19 square miles.

In a letter being sent to officials with the state, Pebble Limited Partnership and U.S. Army Corps of Engineers, McLerran also said the EPA's report estimated that discharges of dredged or fill material associated with the footprint of the mine would likely cause "irreversible loss of significant reaches" of salmon- and other fish-supporting streams, as well as extensive areas of wetlands, ponds and lakes.

Tribes and others petitioned the EPA in 2010 to protect Bristol Bay, a request that gave rise to the watershed assessment released in January and Friday's planned announcement.

Friday's action means the corps, state and those behind the mine project will be allowed to submit information to the EPA to show no "unacceptable adverse effects" to aquatic resources would result from mining-related discharges or that actions could be taken to prevent unacceptable effects to waters, according to the letter.

If McLerran is not satisfied with their response, the agency will publish proposed restrictions or prohibitions on mining at the Pebble deposit and gather public comment. There will be a second round of consultation before a final decision is made.

The entire review process could take about a year. McLerran noted that the agency, at any point, could decide further action on its part is unnecessary.

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