A thousand millionaires a day. It sounds like a lot doesn't it? But this is how quickly America’s wealthy population has grown in recent
years, despite the financial crash. During Obama’s first 3 years in office the
US has added more than 1.1 million millionaires - an increase of 29%.
As of 2011 there are 5.1 million high net worth individuals (those
with net assets of US$1 million or more, excluding primary residences) in the
US, just 165,360 fewer than in 2007. Recent rises in stock markets and signs of
recovery in real estate should see the number of millionaires above
pre-recession levels by the end of 2012.
The recovery of the US economy post-recession continues to
be tepid as debt de-leveraging continues. The IMF forecasts growth of 2% for
2012, improving slightly to 2.3% in 2013. The performance of the economy is
unlikely to be significantly improved whoever
is elected, but it could be worse.
Ongoing political gridlock is blocking an agreement on
fiscal policy. If a compromise is not reached before January 1 2013, the
“fiscal cliff” would automatically follow: a combination of increased taxes and
decreased government spending equivalent to tightening of about 4% of GDP. This
would likely trigger a return to recession in 2013 and a decline in the HNWI population
of about 6% for the year.
On policy, President Obama favours a combination of tax
rises aimed at the wealthy and medium term fiscal consolidation; his challenger
is more inclined towards immediate tax and spending cuts to stimulate
investment activity. While Republican policies are more beneficial to the wealthy
at face-value, their fiscal proposals have so far lacked credibility, ranging
from improbable to dangerous, depending on your viewpoint.
Sidestepping the fiscal cliff will require whoever is
elected President to negotiate with a House controlled by Republicans and a
Senate with a narrow majority of Democrats or Republicans. It is not entirely
clear how either candidate would overcome the impasse, or how policies might be
altered post-election.
Monetary policy and the role of the US Federal Reserve might
offer a clearer contrast between the candidates impact on wealth. Since the
onset of the financial crisis, the Fed Chairman Ben Bernanke has aggressively
pursued an expansionary monetary policy, and controversially, successive rounds
of quantitative easing (QE).
The aim of QE, an unconventional form of monetary policy, is
to stimulate economic activity by pushing up asset prices. US stocks are up 12%
this year and by more than 100% since March 2009.
With the top 5% wealthy households owning 60% of the
county’s individually held financial assets, this has benefited HNWIs
directly. On average, American millionaires allocated over a quarter of their
investable assets to equities in 2011, more than compensating for lost income
caused by low-interest rates on savings.
This is backed up by
recent research from the Bank ofEngland which found that the value of UK shares and bonds had risen by about
£600 billion as a result of QE in Britain, and that 40% of the gains went to
the richest 5% of households.
Mitt Romney though, has voiced disapproval of Chairman
Bernanke, and publicly opposed the QE programme as inflationary. Bernanke's
second term expires in January 2014 and it is thought that Romney, if elected,
would seek more
hawkish appointments to the central bank. This move could hurt
equities if the Fed’s ultra-accommodative stance changes dramatically (though
any move towards more hawkish policy is likely to be gradual).
A second term for President Obama should see monetary policy
consistency, and could, ultimately, be better for America' millionaires.
