Media says U.S. household wealth increased more than a trillion in 2007. The truth is that wealth increase is an illusion. Just because few people agree to buy and sell a few financial assets does not mean that all of them has increased in value.
Yes, DOW can be 20,000 tomorrow and it won't make a difference in the economy. Just because some people agree that stocks are worth this much or that much does not mean much. At the end, the stock market does not create wealth. It only shuffles it. Those who time the market, like Goldman Sachs, run away with the profits at other participants expense. Markets are a zero sum game. For every winner, there are losers who lost the amount that the other gained.
For example you buy at DOW 10,000 from Mary. It goes to 20,000. You sell to Joe. You made 10,000. Then the market falls back to 10,000. Joe panics and sells to Mary at 10,000. We are back at where we were, except that Joe lost 10,000 dollars to you. Mary remains the same. It is a form of casino since dividends are negligible.
This wealth illusion is the mistake that banks made when they valued homes while giving out loans. Just because few homes sold for X amount does not mean that all homes are valued that much. Thus banks should not have given out loans based on hypothetical home values. Deflation is inevitable after credit inflation runs it's course.
Deflation is the reason why foreclosures happen, people, companies go bankrupt. Unemployment, housing are all due to deflation. The monetary system is prone to inflation and deflation. Interest based monetary system coupled with fractional reserve banking is destined for a deflationary collapse. The bestseller, "Conquer the Crash" explained it perfectly.