After the wealth binge - what next for the US?

The US economy has just gone through an extraordinary period of wealth creation. But now the binge is over, and in the meantime the US has stored up plenty of problems, says Morgan Stanley economist Stephen Roach.

The modern-day US economy has just gone through its most extraordinary period of wealth creation on record. First equities, then housing - over the past decade American households have added to net worth as never before. That binge is over. With the property market now cooling and equities settling in for an era of single-digit returns, wealth creation is likely to be subdued, for the foreseeable future. There can be no mistaking the profound implications of this development for the American consumer, the global economy, and world financial markets.

1997 was a year of great symbolic importance for the US economy. It was the first time in 30 years that household sector net worth moved back above its longer-term trend. And, of course, it was only the beginning of what we now know to have been the greatest surge of US wealth creation in the post-World War II era. There have been two major legs to this explosive surge in net worth. Reflecting a powerful equity bubble, real household sector net worth surged nearly 28% above trend by early 2000.

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