You saw the startling headline from the Federal Reserve, that the median net worth of      U.S. households is now back at 1992 levels, with almost two decades of accumulated prosperity vaporized.

Ok, the reality check has clearly bounced here. The doom and gloom media is not telling you the whole story behind these surveys.

The Fed does this survey every three years. It surveyed 4,421 households in 2007, then 6,492 households in 2010, whereby Americans voluntarily answer questions about their net worth, meaning, their house values, bank accounts and retirement accounts.

And self-reporting is key here -- Americans are notoriously downbeat lately. Plus they  don’t like staying in interviews for more than, say, a half hour to give the data to NORC, a research organization at the University of Chicago that does the survey for the Fed. For more, read this: http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf

The Fed then uses IRS tax returns for the upper brackets, as it has found it difficult to get these individuals to cooperate. But taxpayers don’t have to report 401K accounts on their tax returns, so the central bank has to supplement that missing information, always a somewhat dicey venture.

The Fed survey finds that the latest net worth of $77,300 for U.S. households was close to levels not seen since the central bank’s 1992 survey, or $77,244, adjusted for inflation.

And that the median net family worth dropped from $126,400 in 2007 to $77,300 in 2010.

This feels really bad. A nearly 40% drop in net worth delivers a huge psychological impact, it can change public consciousness and change people’s attitudes.

But missing here is this: the plunge in American net worth is the result of back-to-back bubbles in the economy. The U.S. has careened from the dotcom to the housing, and credit bubble. All started blowing in the mid-90s. As one pundit rightfully said, it’s as if the American economy has been on platform shoes this whole time.

So U.S. government policy has been linked to lots of spending to keep the bubble mentality going, because consumer spending is inextricably tied to the good feelings about family net worth.

Three-quarters of the reported drop in net worth is due to the housing crash.

The numbers, too, were dragged down by overbuilding in the West, which saw a steep 55%+ drop.

The data show it is dangerous to solve income inequality through government housing policies that try to get houses to people not ready to buy or own.

Yes, middle-class families are really hurting, they sustained the largest percentage losses in both wealth and income during the crisis, limiting their ability and willingness to spend.

But the Fed data is old, from 18 months ago.

Fresher data show most households have since seen modest increases in wealth and income. The data show that American net worth is now at $62.9 trillion, which is about 5% below the net worth of $66 trillion just before the recession, not so bad.

Still, U.S. net worth has improved since 1950s, but the trend is problematic.

So now, it’s back to reality time, without the land of bubbles foaming.

And that reality is still a really good one. The U.S. economy is still a powerhouse leader in the services sector, in information technology, healthcare services, and legal services, among others.

Plus the U.S. is still a world leader and global center in manufacturing, for the auto, computer, banking, and aerospace industries.  

The U.S. can get its spending mojo back from nurturing jobs growth here, which means it should quit tossing banana peels in front of these companies so they can employ more workers.

In the end, American families are rethinking everything. They’re leasing versus buying cars. They’re sending kids to cheaper colleges for the first two years, then sending them to blue chip universities to grab the pennant to show on their kids’ resumes

They’re buying Mcdonald’s coffee over Starbucks coffee.

They’re browsing Best Buy stores as show rooms, then buying cheaper on the Internet. They’re cutting back on credit cards and debt, and saving more.

And it’s working; household balance sheets are improving, Fed data show.

Which is the government should follow the lead of American households in restructuring and downsizing. 

Just look at Estonia. See link here: http://reason.com/blog/2012/06/07/estonian-president-defends-his-countrys

And here: http://news.investors.com/article/614335/201206081834/estonia-teaches-paul-krugman-a-lesson.htm

Elizabeth MacDonald joined FOX Business Network (FBN) as stocks editor in September 2007.
Follow Elizabeth MacDonald on Twitter @LizMacDonaldFOX.