Financial crisis cost households $17 trillion, Treasury official says

Treasury Department chief economist Alan Krueger on Monday said that household net wealth fell by approximately $17 trillion between 2007 and 2009 because of the financial crisis. Tumbling home and stock prices contributed mightily to the fall, but things are improving. 

"Rising stock prices and stabilizing home prices have helped lift household net worth," he told the Treasury Borrowing Advisory Committee on the Securities Industry and Financial Markets Association. 

Household debt has also fallen steadily for nearly two years as homeowners tightened belts to better survive the financial crisis. Debt as a share of disposable income has declined from a record high of 131 percent in the first quarter of 2008 to 123 percent in the fourth quarter of 2009, Krueger said. 

Unemployment remains a persistent problem, however. Krueger said about 44 percent of jobless workers have been out of work for 27 weeks or more, which is a new record. 

"Economic conditions continue to improve, but challenges remain, including the high unemployment rate and large government budget deficit," Krueger said. "Nevertheless, the outlook for the economy is positive." 

The Obama administration sees real GDP rising to 3 percent this year, with faster growth in 2011. Unemployment is also expected to abate as the economy strengthens. However, the unemployment rate normally declines slowly as jobs are usually a lagging indicator when determining the health of the economy. 

"Improvement in the economy will also lead to smaller near-term government budget deficits, but significant policy changes will be required to move the budget to a fiscal sustainable path in the medium and long run," Krueger said.