Federal Reserve researchers have just delivered up a data dump that offers a cautionary tale — on inequality — that average families everywhere ought never forget.

By Sam Pizzigati

Every three years, researchers from the Federal Reserve Board fan out all across the United States to figure out just how well America’s families are doing financially. The researchers knock on about 4,500 doors — and conduct incredibly detailed interviews that probe every facet of what families make and what families own.

Eventually, the data from these interviews go public as the Federal Reserve’s Survey of Consumer Finances, the nation’s best statistical snapshot — by far — of economic life as families actually live it.

The latest edition of this always fascinating Fed survey, released just over a week ago, covers 2007. A great deal, of course, has changed economically since 2007, the last full year before the U.S. economy plunged over the cliff. Has this nose-dive left the Fed’s new 2007 data hopelessly outdated? Should we just stick this new Fed survey release up on a shelf someplace and forget it?

Not so fast. We now have an economy that desperately needs fixing. But we can’t fix anything if we don’t understand what went wrong. The Fed numbers from 2007 can help in that understanding.

So what can we learn from the new Fed data? Simply this: In a deeply unequal society, with income and wealth concentrating ever more furiously at the top, debts will mount and speculative bubbles will inflate. In the end, the bubbles will pop. The inequality will always pop them.

The United States, the Fed data make exhaustively plain, entered the 21st century as an undeniably unequal place and proceeded to become even more unequal.

In 2007, families in the exact middle of the U.S. income distribution — households taking home between $36,500 and $59,600 — averaged $400 less in income, after inflation, than they collected in 2004.

Families on the upper rung of America’s economic ladder, by contrast, realized a significant income uptick over that same time span. The nation’s most affluent 10 percent — families making over $140,900 —  saw their incomes jump $65,800, on average, to $397,700.

The Fed’s new figures on family wealth don’t appear, at first glance, to tell the same story.

The Fed, to be sure, did find a substantial increase in net worth — that’s the sum total of assets minus debts — among America’s most affluent. In 2007, the top 10 percent of U.S. families held nearly double, after inflation, the wealth they held in 1998. Over nine years, these high-income families saw their median net worth jump 94 percent to $1.2 million.

The net worths of average American families didn’t come close to matching that increase. But middle class net worths did jump, and significantly so. In 2007, the typical American middle-class family had a net worth of $88,100, 30 percent more, after inflation, than that family’s net worth in 1998 and 12 percent more than that family’s net worth in 2004.

And that raises an obvious question. How could average family net worth be rising at the same time income — for average families — was stagnating? No mystery here. Net worths were rising because the assets average families owned, most notably homes and stocks, were bubbling up in value.

Share price, by one key measure, rose 41.7 percent from 2004 to 2007. Home prices, in these three years, did drop in some states — Michigan homes, for instance, lost 8 percent of their value in 2007 — but, on a national basis, home values were still sprinting along.

Thanks especially to this bubble in home prices, nearly three-quarters of U.S. families, 72.4 percent to be exact, ended 2007 sitting on “unrealized capital gains” that added, for the typical family in this bubbling cohort, $75,000 to family net worth.

These tens of thousands masked a far more significant economic reality: Average American families may have been becoming “richer” on paper. But numbers on paper don’t pay the bills. Only real dollars pay bills, and average families, their incomes stagnating, didn’t have them.

So average families borrowed, the new Fed data show, at record rates. Between 2004 and 2007, the average unpaid balance for families with credit card liability soared 30.4 percent, to $7,300.

Economists have a yardstick they use to identify at what level debt becomes dangerous. If your debt payments total over 40 percent of your income, they posit, you’re risking big-time trouble. In 2007, over one in four households in the nation’s poorest fifth of families — households making less than $20,600 — faced debt payments that equaled over 40 percent of income.

Fed researchers, in 2007, found dangerously high debt levels even among presumably “comfortable” families. Among families making between $59,600 and $98,200, over one in eight, 12.7 percent, were devoting over 40 percent of their incomes to paying off debt.

We now know how the rest of this debt story played out. Crushing debt burdens would go on to overwhelm American families by the millions. Their subsequent defaults on mortgage payments knocked down Wall Street’s highly leveraged house of securitized cards — and crashed the economy.

The average net worth of American families, the Fed estimates, has dropped 22.7 percent since 2007, more than enough to erase virtually every dollar in net worth gain average families have registered over the last decade.

And families at the top, how are they faring? We won’t have a Fed perspective on how America’s truly rich are doing until later this winter. Survey of Consumer Finances researchers typically don’t release any analysis that goes into top 1 percent family fortunes until weeks after their initial report appears.

This year, even more than most, that top-end analysis will be eagerly awaited.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.