In response to Top 1% Received 121% of Income Gains During the Recovery I received a couple of emails from readers that I would like to share. Reader "Gordon" wondered how it was possible for a group to get 121% of income gains. Here is the example I sent Gordon. Mary, Tom, and Joe work for the XYZ Corporation. They are the only three employees. Mary's salary rose from $100,000 to $200,000. Tom and Joe were informed of hardships in the corporation and their salaries fell from $100,000 to $80,000 each. In the above example, net salaries rose by $60,000. Mary's salary rose by $100,000 (more than 100% of the total). Quantifying Inequality Reader "Z" writes ... " Inequality in the US has been rising since the 80s. How do you justify your theory that inflation benefits the wealthy? Not qualitatively, quantitatively. " First, let's take a look at inflation as measured by the CPI (any alternative measure of inflation would suffice for this example). CPI Percent Change From Year Ago click on any chart for sharper image Except for a brief period in 2009, price inflation has been positive. The question is "Who Benefited?" I claim it is those with " first access to money " namely banks and the already wealthy. A few charts courtesy of Doug Short at Advisor Perspectives will prove my point. Nominal US Household Incomes From the above chart it appears the average and median households income has been growing nicely since 1967. If that's what you believe, think again. Real US Household Incomes In "real" (CPI-adjusted) terms, 50% of households are no better off than they were in 1988. Let's dig a litter deeper. Growth in Real Household Income by Quintile The above chart shows percentage income growth by quintile since 1967. Since 1988, the bottom, 4th and middle quintiles (a combined 60% of households) have negative real income growth. The next chart shows the same thing in a different way. Real Household Income by Quintile No matter what your timeframe, only the top quintile did well. And from 1980 until 2000 the top 5% got the lion's share of income gains. Ponder on that for a bit, then consider the following charts on total net worth. Nominal Total Net Worth Real Total Net Worth Total net worth includes stocks, bonds, real estate, pensions, etc. I cannot precise quantify quintiles but we all know (at least we should) who has the assets and who doesn't. The top 5 or 10% have most of the assets, the next 15% or so are OK and nearly everyone else is asset poor and high in debt. Millionaire Households The Wall Street Journal has some interesting stats on the Millionaire Population . According to the Chicago-based Spectrem group, there are now 8.6 million households in the U.S. with a total net worth (minus principal residence) of $1 million or more. There are now 1,078,000 households worth $5 million or more and about 107,000 people worth $25 million or more. The report also broke down today’s millionaires by occupation and former occupation if retired. Managers make up the largest group, with 17%, followed by educators (12%), corporate executives (7%), entrepreneur/business owners (6%) and attorneys and accounts. The $5 million-plus crowd, is dominated by senior corporate executives (17%) and entrepreneurs/owners (12%). Household Net Worth Chart from Spectrem Group There are about 114 million households. Of that number 8.6 million (7.5%) have a net worth of $1 million or more. 37 million households have a total net worth of $100,000 or more. Thus, 77 million households (67.5%) have a net worth less than $100,000. Counting underwater houses, I suspect most of them live paycheck to paycheck and have minimal if not negative net worth. So who did inflation benefit? The answer is those with assets and those with first access to money: the banks and the already wealthy. The poor do not have assets, they have debt. In spite of the often-heard mantra that "inflation wipes away debt", I suggest otherwise. Income typically does not keep up with expenses, and most have too few assets to inflate. The poor (last on the credit totem pole) overpay for their assets with cheap credit given to them at precisely the wrong times (as happened right before the housing bust). Inflation Clobbers Those on Fixed Income In case you missed it, please consider Hello Ben Bernanke, Meet "Stephanie" , my response to a reader on fixed income attempting to live on Social Security plus interest on a $16,000 CD. If routine price inflation did not benefit the banks and the wealthy at the expense of everyone else, we probably would not have it. The word that best describes the process is "theft". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More Thanks to Mish from globaleconomicanalysis.blogspot.com
I wasn't excited when I received "congrats" letter from GARP on June 28 2013 because I knew it means nothing without any work experience in financial risk management field. Also, the examination day was the same day as my graduation commencement day. So I missed a lot parties and fun during my preparation for the test. However, I never regret what I chose and, hopefully, one day my pain will gain. Anyway, let's get to the point. I just got my master degree of finance and I took one financial risk management related course during my undergraduate study. But it was elected course and I never paid much attention to it. So that's pretty much about my background. It took me less than one month to read through the NOTESvery quicklyfor two times. And I devoted a lot time to review practice tests after every chapter. What's more important is that you must take the full advantage of the last week before the test. By making full use of it, I mean taking recent mock exams and reviewing the problems that you did wrong very thoroughly. To be honest, I think there's much difference between mock exams and real test. But still, they are solid material and help you to customize your own pace, which is critical during your real test. That introduces my last piece of advice--- time management. You have to finish 25 Qs per hour to guarantee that you can complete the whole thing in scientific pace. Of course, you may need some time to adjust your mind at the first hour. Go ahead! But time limit is the key that you need to keep in mind. Hope my experience can give you guys some hints on how to prepare it. Good luck with you all!
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