As of the end of 2Q 2015, the global net worth of households in the U.S., Euro Area, Japan, U.K., Canada, Australia, and New Zealand (representing approximately 1/2 of gross world product) was $183.563 billion. This is down 5.29% from a record high reached one year earlier at the end of 2Q 2014 of $193.815 billion.
NIA considers this to be a very strong sign that the U.S. Dollar Index is already at or near a peak that will never be seen again. The total net worth of households in these seven countries, representing 1/2 of the global economy, has a very strong correlation to an inverse of the U.S. Dollar Index. The last time a rally in the U.S. dollar played such a significant role in pressuring down global household net worth was in 2008, which forced the Fed into launching its first round of quantitative easing (QE). The Fed purposely drove the U.S. dollar down for the next 2 1/2 years, causing gold prices to rise 166% from an October 2008 low of $712.50 per oz to a September 2011 high of $1,895 per oz, as the global net worth of households rebounded to its 1Q 2008 peak.
The Fed’s primary unstated role is to create enough monetary inflation so that U.S. tax receipts continuously rise at a rate fast enough to avoid a U.S. debt default. With a larger than ever percentage of U.S. corporations relying on overseas earnings as their primary driver of growth, the Federal Reserve will soon need to dramatically weaken the U.S. dollar like it did in 2009-2011.
If the U.S. dollar strengthens too much like it did in 2008, there is major risk of it triggering a financial crisis similar to the one that began in late-2008, which resulted in U.S. Government Debt held by the public as a % of GDP rising by a record 1,437 basis points in 12 months vs. the 1970-2015 average of 107 basis points. It is very disturbing that even during the post-crisis “recovery”, the publicly held debt as a % of GDP has continued to grow at well above the long-term average, including growth over the last twelve months of 181 basis points or 69.2% above average.
U.S. household net worth as a % of GDP is currently 478.47% up 5,302 basis points from its 2001-2015 median of 425.45%. This makes the U.S. economy the third largest overall bubble economy after Australia and Canada – two countries with enormous Real Estate bubbles that never deflated. Australia household net worth as a % of GDP is currently 522.11% up 6,042 basis points from its 2001-2015 median of 461.69%. Canada household net worth as a % of GDP is currently 433.15% up 5,525 basis points from its 2001-2015 median of 377.90%. Only the Euro Area has a healthy household net worth/GDP percentage of 425.54% that is slightly below its 2001-2015 median of 425.83%.
Global (U.S., Euro Area, Japan, U.K., Canada, Australia, and New Zealand) household net worth as a % of GDP is currently 466.77%. In 1Q 2015 it hit a new all-time high of 469.63%, 1,229 basis points above its previous all-time high reached in 2Q 2007 of 457.34% and nearly two standard deviations above the 2001-2015 average of 431.07%.
U.S. household net worth as a % of GDP reached a new all-time high in 1Q 2015 of 481.7% vs. the rest of the world (Euro Area, Japan, U.K., Canada, Australia, and New Zealand) simultaneously reaching a new all-time high of 459.38%. Since 2001, both the U.S. household net worth/GDP ratio and rest of the world household net worth/GDP ratio have averaged 431%, which is also equal to the global average. However, the U.S. economy has gone through much larger booms and busts than the rest of the world – and therefore experiences much more volatile upward and downward swings in its household net worth/GDP ratio.
In 1Q 2014, the household net worth/GDP ratio of the U.S. as a % difference from the rest of the world peaked at a new 7+ year high of 6.8%, which was one standard deviation above the 2001-2015 average of 0%. Currently, the U.S. household net worth/GDP ratio remains 4.7% higher than the rest of the world.
During the last U.S. economic bubble, its household net worth/GDP ratio as a % difference from the rest of the world peaked in 1Q 2005 at 8.32% – eight quarters prior to the U.S. household net worth/GDP ratio peaking in 1Q 2007 at 473.38%. We are about to enter 1Q 2016, which will be exactly eight quarters since the U.S. household net worth/GDP ratio % difference from the rest of the world peaked in 1Q 2014 at 6.8%. This is a very strong sign that the current U.S. economic bubble is getting ready to burst in 2016.
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