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The American Dream Shrinks: Avg. Net Worth Falls 40% From 2007-2010

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The slow death of the American dream for middle class families has continued in the last couple years in the wake of the financial crisis.

A new survey by the Federal Reserve shows a shocking decline in the average net worth of U.S. households from 2007 to 2010. According to the report, which adjusted figures for inflation, the average American family saw their net worth drop 40% in that three-year time period from $126,400 to $77,300.

Three-quarters of the loss, not surprisingly, is due in large part to falling home prices, which have seen no reprieve since the housing bubble began to burst in 2007. The average homeowner saw their net worth fall more than $70,000 from roughly $250,000 in 2007 to $175,000 in 2010.

But what is surprising is the fact that overall net worth has fallen to levels not seen since the early 1990's, long before the housing bubble even began.

In three years, 18 years of savings have been wiped away for the majority of the country and at the same time wages have fallen. The average income fell from about $50,00 in 2010 to $46,000 in 2007.

But this negative trend does not stop there. As average families become poorer, rich Americans are growing richer. The Fed survey showed the wealthiest 10% of families actually saw their net worth rise from 2007 to 2010. Over that time period, their net worth increased from $1.17 million to $1.19 million.

As Aaron and Henry discuss in the accompanying clip, the continued decline of the American middle class and the ascent of the rich has resulted in income inequality at levels not seen since the Great Depression. Many economists agree, including Nobel Prize-winner Joseph Stiglitz who recently joined The Daily Ticker to discuss why growing wage and income disparity endangers the future of our country. (SEE: The 'American Dream' Is a Myth: Joseph Stiglitz on 'The Price of Inequality')

While the bulk of consumer spending has historically come from the middle class, if the majority of Americans continue to suffer from falling wages and income, eventually something has got to give. There is no possible way for the super-rich to buy enough stuff to float the entire U.S. economy.

It's growing increasingly clear that we live in drastic times and drastic measures must be taken to save the country's middle class. One drastic measure is that more Americans are putting off retirement because they simply can't afford it.

But with Americans living longer and putting increased strain on programs like Social Security and Medicare, the retirement age is going to have be raised for one reason or another.