“As companies cut employment dramatically in recent years, they were able to maintain relatively high levels of output, which was reflected in high productivity growth figures.
At this point, however, there is little latitude to expand profit margins through further payroll cuts, and labor tensions are increasing as well.
Government transfer payments are now substituting for wage income to the greatest extent ever observed in history. In fact, 22 cents of every dollar of U.S. personal consumption is now financed with transfer payments. It would be absurd to imagine that this does not fall to the bottom line of corporations.
Higher profit margins are predictably related to weak subsequent earnings growth over time.”
And here is the clincher.
“But ‘failing’ institutions can be restructured without any loss to depositors or counterparties. When banks become insolvent, my view is that receivership and restructuring is exactly what should happen, and swiftly.”
He states the BofA and Citi have enough assests to cover depositors, vendors and counterparties. The rest is comprised of stock and bondholders. So they are not too big to fail.
“To blame our economic problems on the free market is an insult to what has proved for centuries to be the most effective economic system for creating prosperity and raising living standards. We would be wise to stomp out the incessant policy of bailouts and monetary distortions if we hope for that to continue.”
Semms very logical, but then why are most like me not selling short the market here? Too panicked, or too Goldlilocked to move?
