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What's The Source Of Soaring Corporate Profits? Stagnant Wages

Tyler Durden's picture


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

What if all the low-hanging fruit of outsourcing jobs and financialization have already been plucked by Corporate America?

The connection between soaring corporate profits and stagnant wages is both common sense and inflammatory: common sense because less for you, more for me and inflammatory because this harkens back to the core problem with the bad old capitalism Marx critiqued: that capital dominates labor and thus can extract profits even as the purchasing power of wages declines.

(What Marx missed because he was early in the cycle was capital's dominance over the central state's political machinery--a topic covered here in The Purchase of Our Republic.)
New good capitalism generates wealth for everyone via soaring profits which drives the valuations of stocks ever-higher, enriching workers' pension funds and boosting spending, some of which trickles down to those who don't own any stocks, either directly or indirectly.
Bad old capitalism trumps new good capitalism if the soaring profits are basically wages diverted to the few who own most of the financial capital. In Marx's analysis, this gradual impoverishment of labor eventually erodes capital's ability to sell products, undermining capital's ability to reap profits.
The endgame of this is obvious: once capital can no longer make profits selling goods and services and wage-earners can no longer afford to buy goods and services, the system disintegrates.
The magic "solution" of the past 40 years is to enable labor's continuing consumption with debt. And when labor is over-indebted and can no longer service more debt, then the central state (government) borrows and spends trillions of dollars to replace sagging private consumption.
This reliance on debt doesn't void Marx's endgame, it simply give it another twist:the system collapses in a credit/currency crisis rather than a labor/capital confrontation.
Longtime correspondent David P. recently submitted two charts which reflect the diversion of wages to corporate profits. Here are David's commentary and charts:

John Hussman said something interesting a while back - he was talking about whether or not the current level of corporate profits was sustainable, and he pointed out that in order to have those profits rise as a % of GDP, they had to be snatched from somewhere else. I was intrigued and asked myself, where might they be snatched from? 

Here’s a chart that appears to show at least a chunk of where they came from. Wages & Salaries/GDP dropped from about 47% of GDP in 2001 down to 42.7% of GDP today. At the same time, (non-financial) corporate profits rose from about 2% to 6% of GDP. So wage earners lost 4.3%, while non-financial companies gained 4%. 

There was a very steep climb in corporate profitability from 2001-2008, during the height of the housing bubble, and a brisk drop off in the chunk of the economy provided to wage earners. Perhaps - globalization? Jobs lost to China? That’s the period where China started to really become a powerhouse. Yet after a brief drop during the recession, it's now back up to its peak levels.


And here’s one more chart, aligning corporate profits (total) as a % of GDP - includes financial companies too. Notice how the S&P 500 (SPX) tends to follow (more or less) the profits skim off the economy. The linkage isn’t there during the 1995-2000 period, but it sure is for the rest of the period. So - unless and until the corporate skim drops as a % of GDP, I think our S&P 500 (SPX) is going to remain elevated. 

Can this Corporate Profits/GDP series grow to the sky? I don’t know. But it is certainly doing pretty well right now. A combination of outsourcing and low rates = a great corporate environment for profits, taken from savers and wage-earners. 

Who do we blame? Debt constructed from the housing bubble (which went to increase financial corp profits) as well as outsourcing, which allowed companies to snatch that % of GDP from workers (increasing non financial corp profits).
So to Hussman’s point - is this sustainable? As long as work continues being outsourced, unemployment is relatively high (i.e. wage pressures are low) and as long as the debt remains intact, I think it is.

Thank you, David, for the charts and commentary. I think David's conclusion raises two further questions:
1. What if all the low-hanging fruit of outsourcing jobs and financialization have already been plucked by Corporate America?
2. What happens when wage-earners can no longer substitute debt for earned income to sustain their consumption?
If these two conditions are running out steam, then the endgame of corporate profit growth is closer than we might imagine.

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Mon, 06/09/2014 - 11:10 | 4837074 JRobby
JRobby's picture

Price Increase

Stagnant wages

Part timers, Job "sharers" 1099ers = no benefits

Who will they sell to? 

Ad's and promotions currently slanting toward capturing a larger piece of a shrinking pie by employing claims and pricing that can never be substantiated or sustained.

Mon, 06/09/2014 - 11:12 | 4837093 Relentless101
Relentless101's picture

Bingo. Its easy to see when you compare profits agains profits at companies with high operating leverage, such as IBM.

Mon, 06/09/2014 - 11:27 | 4837132 dryam
dryam's picture

Don't click on this Hilliary link if you are susceptible to vomiting.  I saw this on Drudge this morning.....

Mon, 06/09/2014 - 11:37 | 4837166 CCanuck
CCanuck's picture

Take dryam's advice, I have a strong tolerance for disgusting information...I gagged, and even threw-up alittle.

What a vile piece of shit that lying cunt is!

Mon, 06/09/2014 - 11:57 | 4837244 dryam
dryam's picture

Surprised the Tyler's haven't given this a dedicated article.

Mon, 06/09/2014 - 11:40 | 4837185 Relentless101
Relentless101's picture

Holy shit...

Mon, 06/09/2014 - 15:18 | 4838053 Miggy
Miggy's picture

These articles always get it wrong for whatever reason. It's simple supply and demand. Less jobs due to NAFTA-GATT, favored nation status to China. More labor due to open borders.


If a business can get a solid employee at 8 bucks an hour with no benefits they will do so. Also, because of the health care fiasco businesses are more and more looking toward emloyment agencies who get a cut of the wage.

Mon, 06/09/2014 - 11:40 | 4837189 JRobby
JRobby's picture

Wow! Power spew.

Such a model couple sticking it out like they have. Bill had to go out and earn double because.............. I lost conciousness from the convulsions at that point.

Mon, 06/09/2014 - 11:41 | 4837198 Relentless101
Relentless101's picture

because..... blow jobs aint cheap anymore.

Mon, 06/09/2014 - 11:44 | 4837203 Joe Davola
Joe Davola's picture

She was such a whiz with cattle futures after reading Barrons, why didn't she just make that her career?

Mon, 06/09/2014 - 11:53 | 4837225 RaceToTheBottom
RaceToTheBottom's picture

OK, regardless of the trueness of the link, don't steal someones VALID and INFORMATIVE post to push your unrelated agenda.

There is common civility even in fight club...

Mon, 06/09/2014 - 12:22 | 4837300 dryam
dryam's picture

"Stealing"?  It was clearly stated where that link came from.  Agenda?  I have no agenda.  The point of that information is the extent of the dishonesty in our political system/elites....

a millionaire many times over with great earning power ahead of them who is portraying themselves as someone who is simply struggling along the likes of most hard working Americans.  It's actual video with those words coming out of the own person's mouth.  There's no editing, twisting, or manipulation of what the person said.  People with agendas manipulate the facts.  I ask, what was manipulated in this posting?

I had no intent to distract from Charles Hugh Smith's article.  He commented on common wage earners.  My post related to common wage earners and how Hilliary was trying to make herself sound as though she was one of them.  I doubt Charles Hugh Smith would frown on me shedding light on the elites being dishonest.

Mon, 06/09/2014 - 12:36 | 4837369 RaceToTheBottom
RaceToTheBottom's picture

I did not say you stole the link, I said you stole value from the previous persons post by adding your unrelated post to the end of it.

You very much have an agenda, hense your post.  Everyone has an agenda, at least be honest to yourself about yours.


Mon, 06/09/2014 - 13:13 | 4837482 dryam
dryam's picture

It would have been more correct for me to say that I have no *hidden* agenda.  My agenda is for truth whatever that may be, period.

Mon, 06/09/2014 - 12:45 | 4837373 RaceToTheBottom
RaceToTheBottom's picture


Mon, 06/09/2014 - 14:31 | 4837857 boogerbently
boogerbently's picture


I'm getting all misty.

These valiant, public servants !

Mon, 06/09/2014 - 11:13 | 4837098 Occident Mortal
Occident Mortal's picture

Trickle down doesn't work because by the time the money has trickled down inflation has already devalued it.

Mon, 06/09/2014 - 11:40 | 4837183 Ignatius
Ignatius's picture

The parasite consumes the host.

Corporations, due to their extraordinary political power ($), can and do exclude competition and control the process (ObummerCare, etc.).

The latest I read this morning was that the FDA was outlawing the use of wood as a base for aging heritage/craft cheese because it's "unsanitary".

Mon, 06/09/2014 - 11:48 | 4837212 BLOTTO
BLOTTO's picture

Don't worry gang, 'their' dysfunction will be their downfall one day, it is inevitable.


Evil is dysfunctional...


Mon, 06/09/2014 - 23:34 | 4839503 boogerbently
boogerbently's picture

True, that.

At some point, we (Americans) will be in the "news" behaving like other 3rd world nations, throwing off their tyrannical rulers.

.....and in Cincinnati, USA, today.....

(film of rebels throwing rocks at "police" from behind a wall of burning tires.)

Mon, 06/09/2014 - 12:23 | 4837313 overmedicatedun...
overmedicatedundersexed's picture

back to the land thats the answer?? LOL after you get thru paying your taxes, like most small farmers you get a job in town to try to make ends meet, and end up working hours more than a robbery now there's an option that could pay off. the robin hood fable was for times like these..if you ain't in crime, your not happening bro..

Mon, 06/09/2014 - 13:26 | 4837543 11b40
11b40's picture

Same for small businesses throughout the land.  Work, work, and more work for ever shrinking returns.  Meanwhile, I work with some very large retail accounts, and they have NEVER been more margin greedy.  It really is amazing to see how they have expanded margins over the past 10-15 years, while driving down margins for suppliers.  Unless you have a dominant brand name they really need, they will beat you to death to drive down your prices, all the while raising their own.

And, it's not just prices.  Everyone wants you to do more for them, too, and do it faster.

Mon, 06/09/2014 - 13:39 | 4837592 Stuck on Zero
Stuck on Zero's picture

Ignatius you are right,  The only thing that can drive corporate profits above wages is lack of competition.  All the government would need to do is break up the Fortune 500 companies and creat a little competition.


Mon, 06/09/2014 - 12:22 | 4837312 silentboom
silentboom's picture

So what you're actually saying is that inflation doesn't work and I would agree with that.

Mon, 06/09/2014 - 11:16 | 4837102 Stuck on Zero
Stuck on Zero's picture

Who will they sell to?

Billionaires.  The 0.01%.  The elite.  The rest are useless eaters.


Mon, 06/09/2014 - 11:29 | 4837115 JRobby
JRobby's picture

Wow! What a day I am having! A billionaire just called and ordered 42,000 of these:

Mon, 06/09/2014 - 12:37 | 4837375 Shizzmoney
Shizzmoney's picture

Hey guys, help is on the way as "Wall St worries about the common man"

These assholes have no idea whats coming to them.

Mon, 06/09/2014 - 16:34 | 4838401 Jumbotron
Jumbotron's picture
What's The Source Of Soaring Corporate Profits? Stagnant Wages


No.....Fucking.......SHIT  !!!!!!!!

Mon, 06/09/2014 - 11:07 | 4837079 Sick
Sick's picture

What we have been witnessing is total destruction.  As consumption declines, production declines, fixed costs must be absorbed by fewer produced goods and costs rise, prices rise, profits is a cycle that then gets repeated until we all go down the drain.

Mon, 06/09/2014 - 11:48 | 4837213 101 years and c...
101 years and counting's picture

it shouldve been noted that is non GAAP earnings.  which simply means corp balance sheets are being filled up with piles of shit.  which all get released during recessions....which drops profits 30-40% because of all these "1 time charges".

Mon, 06/09/2014 - 11:11 | 4837085 buzzsaw99
buzzsaw99's picture

where is the pious commentary that states: crony crapitalism at work ??

Mon, 06/09/2014 - 11:22 | 4837120 zaphod42
zaphod42's picture

I guess you're it, Buzz.



Mon, 06/09/2014 - 11:15 | 4837100 OC Sure
OC Sure's picture

The reasoning set forth in this article is unreasonable.

"The endgame of this is obvious: once capital can no longer make profits selling goods and services and wage-earners can no longer afford to buy goods and services, the system disintegrates."

Instead of pitting employers against workers, why not ask the question, "What is the reason capital can no longer make profits and wage-earners can no longer afford goods?" The answer is that there is a 3rd party on a multi-generational tyranny of modern economics which decreases the purchasing power of the currency. The tyranny steals from both the employer and the worker.

Mon, 06/09/2014 - 11:22 | 4837116 Headbanger
Headbanger's picture

No it's not unreasonable.  It's a valid question to ask what will happen when debt serfs can't afford to buy much anymore.

And it doesn't matter what the reason is as you're asking because it's going to happen and the whole system collapses into a pile of shit.

Mon, 06/09/2014 - 11:35 | 4837128 OC Sure
OC Sure's picture

What is the reason they are becoming serfs to debt? Is the employer to blame or the central banks?

It matters very much what the cause is. It is the politicians, bureacrats and business quislings who are to blame and not honest hard working employers whose peripheral effect of pursuing their own happiness is to offer someone else a job.

Who creates productive work and who steals from it?

Mon, 06/09/2014 - 11:37 | 4837173 ebworthen
ebworthen's picture

"...honest hard working employers..."

Well, there are a few left, here and there.

Too bad the small business person is being crucified by the New Rome.

Mon, 06/09/2014 - 11:40 | 4837188 OC Sure
OC Sure's picture

One drop of poison anywhere dilutes into the system everywhere.

Mon, 06/09/2014 - 13:43 | 4837615 Seer
Seer's picture

"It matters very much what the cause is."

Correct.  BUT... your assessment is totally WRONG (refer to my reply above; also, Headbanger's answer/reply is also inline with mine).

Mon, 06/09/2014 - 14:27 | 4837838 OC Sure
OC Sure's picture

I found your reply below if that is the one you mean...

Decreasing the purchasing power of the currency is not growth. It is theft. There is no growth in the purchasing power of wage earners because the power to purchase is stolen from them by the counterfeiting. This counterfeiting steals from the employer too.

Resources are not scarce. It is about 4000 miles to the center of the earth; the deepest oil well is only about 7 miles. Instead of going inward, then outward the resources are unlimited.

Mon, 06/09/2014 - 11:33 | 4837159 JRobby
JRobby's picture

Of course the definition of insanity will pop up. It always does.

Lower borrowing standards again. inflate, explode. Repeat process. I thought they would at least wait until the TBTF's had completed "balance sheet repairs"

Demand NOW!!!!


How about serenity now instead?

Mon, 06/09/2014 - 11:34 | 4837161 ebworthen
ebworthen's picture

You could have just said "Gold backed currency and the end of central banking" and not dissed the Author or pushed your blog.

Mon, 06/09/2014 - 11:57 | 4837242 RaceToTheBottom
RaceToTheBottom's picture

"Instead of pitting employers against workers, "

The marketplace action of employers to employees is fundamental to capitalism.  It is an extremely valid question.

Mon, 06/09/2014 - 12:22 | 4837310 ejmoosa
ejmoosa's picture

With government forcing itself so forcefully into the equation between employers and employees, it's easy to conclude that the issue us employers versus employees.

It's really Employers vs. Government vs. Employess 

If you are in a union it's Employers vs. Government and Employees


Government is the single largest impediment to getting this economy going, which benefits Employers AND Employess.


Mon, 06/09/2014 - 13:50 | 4837641 Seer
Seer's picture

"Government is the single largest impediment to getting this economy going, which benefits Employers AND Employess."

Here's a dose of reality:

How is the Queensland govt impeding employers and employees?  Even if it [govt] totally disolved that wouldn't force the Chinese to ramp back up their wild growth orgy.

Mon, 06/09/2014 - 12:28 | 4837337 silentboom
silentboom's picture

That's a mutually beneficial relationship not a confrontational one.

Mon, 06/09/2014 - 13:22 | 4837519 ejmoosa
ejmoosa's picture

You cannot even sell your own labor for a value below minimum wage legally.  The government would rather have you unemployed.  


Tell me how that is beneficial to you.

Mon, 06/09/2014 - 13:41 | 4837602 Seer
Seer's picture

Do you understand the dynamics of growth?  Do you understand that all that you see around you is based on the notion of perpetual growth?  And, do you understand that without growth none of this works?

Everyone runs around pointing fingers at everyone else, but the PREMISE is NEVER QUESTIONED!  The premise being that we're running on a model of perpetual growth on a finite planet, meaning that it's mathematically certain that growth ends.  All the pressures of added control are occurring not because folks wish to stick-it-to-the-little-guy (when TPTB know very well what happens when a population goes unstable), but because of the need to more closely manage ever-scarcer resources: and eventually the control is lost (when nothing is available to substitute for the scarce resrouce).

We went on a global growth binge and the hockey-stick ramp-up is faultering.

"multi-generational tyranny of modern economics which decreases the purchasing power of the currency."

It's got more to do with the PREMISE than the players.  Exponential growth will ALWAYS force this outcome: exception would be that folks in power acknowledge that it's a failed premise, but I highly doubt that people will accept it (people are conditioned to see things as "others'" fault, and any suchj statements will be viewed as being some sort of trick).

Mon, 06/09/2014 - 14:26 | 4837824 OC Sure
OC Sure's picture

 * Duplicate



Mon, 06/09/2014 - 11:16 | 4837103 disabledvet
disabledvet's picture

Well...I have said from the Getco "there is a natural gas thesis at play" (since 2008 I've been saying this) and I've been also saying such transitions are "once in a century events" and are deflationary.

So far I've been spot on as natural gas prices utterly collapsed two years ago and now coal prices have collapsed as well.

For all you dip shits out there the USA produces One BILLION metric short tons of coal a year.

Don't even get me started on how stout the US energy grid is.

In other words it's not the collapse of labor but energy prices...while pricing power is being maintained.

This is absolutely NOT sustainable. There are truly massive shortages of dollars right now, interest rates are falling again and debt levels are at truly stupendous levels.

Profits must fall...defaults are right around the corner.

Mon, 06/09/2014 - 14:09 | 4837747 Seer
Seer's picture

It's "economies of scale in reverse."  With a collapse in volume* you end up with less employment, which then increases downward pressure on volume, which causes a squeeze on profit margins (the article below has mines in Australia operating at a loss).

* This is a great look in to the microcosm of economic decline that we're facing:

Mon, 06/09/2014 - 14:13 | 4837760 Frilton Miedman
Frilton Miedman's picture



DisabledVet, I agree.

Would add, though you're right, profits must fall, wage growth is the other possibility. (don't flame me, had to mention it as a "possibility")

As Judy Tenuta once said - "It could happen".

Also, you're right about price manipulatiuon, the CFMA allows this to continue via futures to control input costs affecting regular stock's earnings, TBTF's can play with input costs of anything to position themselves in regular equities ahead of time, positions are hidden from the public as "proprietary" information.

This explains TBTF prop desks 100% daily trading records.

This is what happened to oil in 2008 @ $145, supply was high, demand was down and oil "mysteriously" spiked right in time to push sub-prime defaults to the benefit of short positions in MBS assets.

Remember Goldman Sachs paying record breaking bonuses in 2009 while millions were getting eviction notices?...Turns out Goldman's was one of the largest holders of oil futures in 2008, at the same time they were short the garbage CDO's they'd been selling to pension funds.





Mon, 06/09/2014 - 11:18 | 4837109 tired_of_manipu...
tired_of_manipulation's picture

It used to be that you could either work, or starve.  Now you don't have to starve if you don't work.  Unemployment isn't that high but a lot of people are dropping out of the workforce because it is no longer worth their time to labor at a crap job. That is already setting a floor on how low wages will go.

Mon, 06/09/2014 - 12:41 | 4837386 vie
vie's picture

Right up until the point the EBT cards stop working.

Mon, 06/09/2014 - 11:30 | 4837133 ebworthen
ebworthen's picture

And this is where demands for $15/hour minimum wage come from.

Oh, the poor corporations can't possibly afford it! 

And then it devolves into a political discussion.

Mon, 06/09/2014 - 11:42 | 4837200 chunga
chunga's picture

"When my grandparents moved to this country they took jobs as low hanging fruit and were damn proud of it."

Rush Limbaugh

Mon, 06/09/2014 - 12:01 | 4837251 ebworthen
ebworthen's picture

Back when America was worth moving to, versus escaping from ;-)

Mon, 06/09/2014 - 19:36 | 4837271 RaceToTheBottom
RaceToTheBottom's picture

I wonder if eating all that low hanging fruit contributed to Rush's obesity and his drug habits?

Mon, 06/09/2014 - 12:21 | 4837306 JRobby
JRobby's picture

They worked at percocet and condom manufacturing plants?

Mon, 06/09/2014 - 12:34 | 4837360 chunga
chunga's picture

That fat hypocrite does a lot to keep the sheep in the "we need moar republicans/democrats game".

Nobody wins that game, except them. I'd be happy just to break even.


Mon, 06/09/2014 - 14:20 | 4837804 Seer
Seer's picture

And those jobs allowed one to actually buy fruit...  And now it's devolved into folks "talking" about shit rather than doing...

Mon, 06/09/2014 - 14:34 | 4837865 Frilton Miedman
Frilton Miedman's picture




Rush Limbaugh makes $50 million a year and makes a full time career of brainwashing his listeners to vote for the political party that'll keep his taxes low.

I laugh my ass off anytime I hear he invokes the phrase "productive capital" or "job creators".




Mon, 06/09/2014 - 11:57 | 4837207 foodstampbarry
foodstampbarry's picture

It's absolutely about politics, when you look at Barry's desire for a socialist state.

Rules For Radicals

Rule #2 Poverty – Increase the Poverty level as high as possible, poor people are easier to control and will not fight back if you are providing everything for them to live.

Rule #8 Class Warfare – Divide the people into the wealthy and the poor.  This will cause more discontent and it will be easier to take (Tax) the wealthy with the support of the poor.

It's ALWAYS about politics.

Mon, 06/09/2014 - 11:59 | 4837249 ebworthen
ebworthen's picture

"And then it devolves into a political discussion."

Mon, 06/09/2014 - 12:31 | 4837353 silentboom
silentboom's picture

True, whether or not they can afford it is irrelevant.  I might be able to afford to pay my neighbors mortgage as well as my own but I don't plan on doing it.

Mon, 06/09/2014 - 17:22 | 4838574 ebworthen
ebworthen's picture

You are, every time you pay taxes; banks get it though, not your neighbor.

Mon, 06/09/2014 - 11:37 | 4837176 foodstampbarry
foodstampbarry's picture

Rules for Radicals.

Barry's playbook is playing out perfectly.

Mon, 06/09/2014 - 11:42 | 4837201 JRobby
JRobby's picture

He has no play book.

He is a tool carrying out directives. Disobedience is not tolerated.


Mon, 06/09/2014 - 11:56 | 4837234 foodstampbarry
foodstampbarry's picture

So, it's just a coincidence that Obama is following all 8 rules of Rules for Radicals? The man is hellbent of the destruction of this country and I don't give a fuck how many down votes I get for saying it. And yes, the repugs are pos also.


Mon, 06/09/2014 - 12:51 | 4837406 JRobby
JRobby's picture

Impossible to reset and see what a Romney presidency would have been like. But "they" know that. So the  game proceeds with O a Dem in there instead of R a Rep. The game plan and events that unfold are written for each scenario and will have the same outcomes. More wealth and power for the oligarchs.

I knew it would be BAU, when O picked his cabinet, it was confirmed. Would it have been any different if Hillary had gotten the nomination? No.

Mon, 06/09/2014 - 14:26 | 4837830 Seer
Seer's picture

It's got NOTHING to do with ideologies.  This is ALL based on responses to declining growth (it's a finite planet).  Nothing lasts forever, and ALL empires collapse.

Here, learn something useful:

Mon, 06/09/2014 - 12:35 | 4837195 silentboom
silentboom's picture

These wage earners are earning the best wage that they can get unfortunately.  They're not chained to their desks and forcefed starbucks.  Shrinking wages are a result of a glut of labor being available and our government driving business out of the country.  It doesn't help that the universities are living off student loans and running a production line for marxist idiots who think they are owed a job even though their only skill is chugging a beer in 4 seconds and their background is liberal arts.  It's time to stop pointing our fingers at the monopoly man.  In addition, businesses are choosing to outsource because the costs of hiring Americans and then providing them with everything short of pillows and hourly naps, osha approved toilet paper, stress managment classes, and whatever other ridiculous nonsense is mandated is leading employers to reduce their staff.  The Federal Reserve is the true source of the problem and enables the banks and the government to grow out of control and now we have a nation run by government and banks, the two institutions that the founders explicitly tried to chain down permanently with enumerated powers and hard money.

Mon, 06/09/2014 - 14:40 | 4837899 Seer
Seer's picture

"The Federal Reserve is the true source of the problem"

As much as I have no love loss for the Federal Reserve, IT is NOT "the source" of the "problem."  The Federal Reserve has only become a natural extention of the bad premise of perpetual growth on a finite planet.  Yes, it ADDS to the problem, but it is not the cause OF it.  Principal and interest can never really both be paid off, in which case the only way to hide this reality is by promoting growth; and when growth is no longer possible?

The "founders" had no special tricks that would/could overcome the eventuality of the end of what would become an empire.  The abundance of natural resources appeared unlimited, but ultimately exponential growth would encounter the limits.

It's a Growth Ponzi, and humas have been engaged in this practice WAY before the Federal Reserve was ever a thought...

Mon, 06/09/2014 - 14:48 | 4837920 Frilton Miedman
Frilton Miedman's picture





One simple point in your complicated topic on globalization.

China tariff's on U.S. imports are 25%.

U.S. tariff's on Chinese imports are 2.5%.

Over 60% of Chinese imports (at 2.5%) are U.S. multinationals using cheap Chinese labor.

Meanwhile, D.C. politicians who fight for those big money interests continue pummeling the public with lower corporates taxes for "job creators".

Just one of countless examples of how our government serves the interests of the highest campaign bribers over the interests of the people.



Mon, 06/09/2014 - 11:49 | 4837202 ejmoosa
ejmoosa's picture

Soaring corporate profits?


Are you smoking crack?


The rate of year over year corporate profit growth has plummetted.  We are now at 3.34% year over year growth, down from 4,43 % after the first quarter of 2013, 9.54% after the first quarter of 2012, and 18.24% after the first quarter of 18.24%.

3.34% is the lowest in 6 years.  That does not equate to soaring.  Gliding to less than zero would be more appropriate.

Your conclusion based on your faulty interpretation of the data is not just worthless, it's dangerous.  You are repeating a statement that socialists love and embrace that is just wrong.

It takes year over year corporate profit growth of 7% or higher to grow the economy and add REAL jobs.

It's the lack of real, overall profit growth that is the problem here.

Mon, 06/09/2014 - 11:53 | 4837226 I Write Code
I Write Code's picture

When the bubble collapsed in 2007-2008, it left companies with overstocked goods and overcapacity in production.  They shut down production, stopped buying replacement equipment, and just sold inventory for a year.  Profits skyrocketed even as revenues plummeted!

But it's all an artifact of the collapse, and it should be about over by now.

Mon, 06/09/2014 - 12:11 | 4837284 ejmoosa
ejmoosa's picture

Another error is to be looking at the SP500 as your standard bearer for the US economy.  They are borrowing money, buying back shares and creating the illusion of profit growth.

The mom and pop businesses that the US economy is built upon, are not doing this.

THe BEA report on corporate profits bears this out.  

Dig deeper and you will see just how weak things are.  

And at the level of corporate profits we are at today?

Every time for the past 60 years we have hit this level of year over year growth, a recession follows.

There is no re-acceleration into double digit growth levels.



Mon, 06/09/2014 - 14:45 | 4837929 Seer
Seer's picture

"It takes year over year corporate profit growth of 7% or higher to grow the economy and add REAL jobs."

And therein lies the crux of the problem.  7% growth means a doubling in only 10 years.  This kind of growth works fine in the early stages, but as time marches forward that hockey-stick is going to come down as a good skull-cracking...

"It's the lack of real, overall profit growth that is the problem here."

In retrospect we'll see that THE problem was "growth."  A conundrum if ever there was one...

Mon, 06/09/2014 - 14:51 | 4837944 Frilton Miedman
Frilton Miedman's picture



" ...The rate of year over year corporate profit growth has plummetted.  We are now at 3.34% year over year growth ..."

Now, compare that to median wage growth.


Mon, 06/09/2014 - 11:44 | 4837205 FreeNewEnergy
FreeNewEnergy's picture

After having a $38 breakfast with two friends (yeah, $38, at a diner kind of place), I began thinking about how fruitless it is to be working in this environment.

All it is is a transfer of money from one corporate entity to other corporate entities and, of course, uncle Sugar, aka the "government," in its various forms in between most of the transactions.

It simply does not make sense to work, pay bills, eat, sleep and repeat the process over and over and over until you die. Unless you can save, and unless your savings are not eaten alive by inflation.

There are two alternatives in my mind:

1. Just fucking die now.

2. Get off the treadmill, work for yourself, stop spending money on things like clothes for work, gas to and from work, lunch at work, cell phone for work, everything else related to WORK. In fact, working for yourself should be rephrased as "living" for yourself.

So, how does one accomplish this? Scrimp and save until you can afford some land, tools, alt energy (solar, wind, small hydro, fire, etc.), and start growing vegetables, not that hard if you have decent land, good seed and good land. Then, you turn off the cable, the cell phone, maybe keep the internet (because that provides what the other two do - entertainment and communications) and go for it. You may not make it after the first six weeks or six months, but I think if you last a year, you might just survive, and, you might just prosper.

Of course, this lifestyle isn't grand or particularly comfortable. But it is cheap. And efficient. And honest. And, ever work land in order to survive? It's also very healthy.

Back to the land, folks. It's the only way.

Unless your longing is to be a debt slave in an unsustainable system which will kill you anyway, slowly, somewhat painlessly, but then, all at once, and very painfully.

Mon, 06/09/2014 - 12:01 | 4837256 disabledvet
disabledvet's picture

Dunkin donuts. Five bucks. There will be a production boom as well in eggs and milk.

"The first to 99 cents wins."

Has the military fired more than a thousand rounds in this war?

Certainly not the Navy.
The stockpiling of rounds of ammo to keep production lines move is truly incredible.

We now gonna start pumping out two Virginia class submarines a year starting this year. The Air Force barely has a scratch.

The Army has been shot to doubt...but my understanding is that it's a helicopter problem...which is being solved.

The problem is with the economics of recovery...simply put a debt binge with nothing to show for it but more debt and a crisis in pensions and liabilities.

The reason why I think these defaults are gonna hit like a ton of bricks is because you have a huge energy boom underway inside the USA...but that this energy boom is highly "site specific" separating the boom from the bust is easy...making the bust all that more dramatic even under a mild equity correction scenario.

Mon, 06/09/2014 - 12:42 | 4837385 zerocash
zerocash's picture

There's not enough land to enable everyone to live a self sufficient life. There are way too many people now. This is a solution for an individual but not for the society at large (unless you kill 90% of the people).

Mon, 06/09/2014 - 14:11 | 4837762 silentboom
silentboom's picture

The entire world's population could fit in the state of Texas.


According to the U.N. Population Database, the world's population in 2010 will be 6,908,688,000. The landmass of Texas is 268,820 sq mi (7,494,271,488,000 sq ft).

So, divide 7,494,271,488,000 sq ft by 6,908,688,000 people, and you get 1084.76 sq ft/person. That's approximately a 33' x 33' plot of land for every person on the planet, enough space for a town house.

Mon, 06/09/2014 - 14:59 | 4837984 Seer
Seer's picture

You point out how it's just not a very sustainable paradigm.

"Back to the land, folks. It's the only way."

It's how most of humanity has always existed.

"ever work land in order to survive? It's also very healthy."

I don't think that there are many who can operate totally self-sufficiently.  As far as being "very healthy," well, it's a tradeoff, I don't think that it's so much as being physically more healthy (the injuries that I encounter I wouldn't state as necessarily as being "healthy") as it is being "mentally" more healthy; and, everything really ought to start with the "mental."

"Unless your longing is to be a debt slave in an unsustainable system which will kill you anyway, slowly, somewhat painlessly, but then, all at once, and very painfully."

People will become less and less able to be "debt slaves" because there will be less and less crap for them to become indebted to, other than the necessities that is (Food, Shelter and Water).  In the final analysis we are ALL "renters" on this earth: I view my position as being a "custodian" of my property.

Mon, 06/09/2014 - 11:47 | 4837211 I Write Code
I Write Code's picture

you said:

What if all the low-hanging fruit of outsourcing jobs and financialization have already been plucked by Corporate America?

Then they chop down the tree and sell the wood.

Mon, 06/09/2014 - 13:08 | 4837462 Cthonic
Cthonic's picture

And poison the stump. No coppicing for you, 'merica.

Mon, 06/09/2014 - 14:59 | 4837992 Seer
Seer's picture

Up-arrow for knowing "coppicing!"

Mon, 06/09/2014 - 15:00 | 4837995 Seer
Seer's picture

LOTS of BTUs in fruit wood!

Mon, 06/09/2014 - 11:54 | 4837232 rosiescenario
rosiescenario's picture

As we are seeing in earnings reports, those companies which sell to the top 5% are doing very well (Porsche, for example, Nordstrom, etc.) while those selling to the remainder struggle.


That fits quite nicely with the CEO's and top corp. management making more than ever while the other 95% of their employees fall  behind.

Mon, 06/09/2014 - 12:08 | 4837272 disabledvet
disabledvet's picture

Again..."obliterated taxbase." Only way forward is with more borrowing.

No cash flow.

M2 has been stuck on zero for five years now.

Bitcoin is soaring again as people simply "go hashtag" to stop paying sales taxes....or all taxes and fees period.

Suddemly that 300 million dollar road project becomes a 300 billion dollar road project.

With no traffic either.

Mon, 06/09/2014 - 15:04 | 4837999 Frilton Miedman
Frilton Miedman's picture



I think you meant to say "M2 velocity".

Money supply is at record highs while velocity at record lows, which makes your point....a "miser effect" where the rich won't invest in those who have nothing to return.

Fed policy, low rates, is effectively a "better than nothing" approach until government gets their noses out of the asses of their corporate pimps.

The SCOTUS just made that an all-but-impossible task by enabling big money to hire and fire whichever politicians suit them.



Mon, 06/09/2014 - 15:04 | 4838010 Seer
Seer's picture

"Suddemly that 300 million dollar road project becomes a 300 billion dollar road project.

With no traffic either."

Yup, it's a volume issue.  Kind of like USPS postal rates being propped up by junk mail- junk mail volume drops and then postal rates have nowhere to go but UP, which then only decreases the volume further...  Economies of scale in reverse...

Mon, 06/09/2014 - 16:13 | 4838290 RKDS
RKDS's picture

It's amazing to me that so many people want the rich to take all of the money and make all of the decisions (by, among other methods, buying government) while paying none of the taxes.  I have often wondered why, in times past, the peasants put up with a greedy, cruel, and parasitical monarchy as if it really were ordained by God.  Depressing that I can find a firsthand answer to that question right here in 21st century America of all places.

Mon, 06/09/2014 - 12:07 | 4837262 Shizzmoney
Shizzmoney's picture

The last two companies I have worked at, have had YOY "profits" and their stock has risen.  Yet my wage, in those 4 years, has only gone up 5% of so (and I make under 35k to begin with).  No bonus, and workload constantly increasing, along with my rent/food/transport prices.

So either:  

A) The "profits" and the stock market gains exist, and workers are getting the (government protected) shaft 


B) The "profits" are as fake as the gods who the CEOs worship to.

I am going to have much glee when this thing tanks starting around summer 2015.

Mon, 06/09/2014 - 15:09 | 4838033 Seer
Seer's picture

"I am going to have much glee when this thing tanks starting around summer 2015."

Best hope that you're going to be prepared for it because it's not going to be pretty.

I take no joy in knowing/seeing that it's going to collapse, as it's not some sort of wagering that I'm basing my forecasts on, it's just fundamental mathematical certainty, one of which people will most likely fail to understand, and, as such, will just look to embark on once again...

The "fake god" being worshipped is "growth."

Mon, 06/09/2014 - 12:05 | 4837264 messymerry
messymerry's picture

WalMart is a TLA.  Walmart (WMT) is the government agency tasked with keeping the proles from rising up.  Keep thier bellies full and their eyes glued to the kardashians with super cheap crappy TVs.  Follwing the philosophy, "know thy enemy", I make it a point to shop WMT at least once a month to guage the temperament of the proles and the quality of the goods the central party is thrusting on them. 

With this first hand knowledge, I can confidently assert that the goods that not ten years ago were destined exclusively for marginal third world countries are now filling the shelves in Cincinatti. I don't really buy much there any more, I just walk the store, people watch, and scan prices and quality.  Quality is as low as it can get and downsizing is almost there as well.  Prices have to start rising in ernest now. 

The corporations have turned evil and you can mark the genesis of this disgrace by when the Corpsters bifurcated their client base into "Customers", and "consumers".  Captalization here was done by design.

Time is getting very short now.  Please start finalizing your preps...



Mon, 06/09/2014 - 12:10 | 4837280 Shizzmoney
Shizzmoney's picture


Walmart (WMT) is the government agency tasked with keeping the proles from rising up.  Keep thier bellies full and their eyes glued to the kardashians with super cheap crappy TVs.  Follwing the philosophy, "know thy enemy", I make it a point to shop WMT at least once a month to guage the temperament of the proles and the quality of the goods the central party is thrusting on them. 

This is an excellent way to put it.  It's a "company store", akin to what medevil serfs were "forced" to shop at by their sharecropper land owners.  We live in a Consumptiontration Camp

WMT cannot exist without the government.  They just had a shareholder meeting, where Pharell sung his new hit, "Happy", to the folks in the audience.  

Cognitive dissonance.  Scary shit indeed. 

Mon, 06/09/2014 - 15:00 | 4837962 messymerry
messymerry's picture

HA! consumptiontration camp...  +10 4 U  ;-)

This is only the tip of the iceturd.  We are in for a shit storm...

Gird your loins, grab your gauntlets, and prepare to make hay,,,


Mon, 06/09/2014 - 13:22 | 4837521 WillyGroper
WillyGroper's picture

"The corporations have turned evil and you can mark the genesis of this disgrace by when the Corpsters bifurcated their client base into "Customers", and "consumers".  Captalization here was done by design."

Very spot on. +17T

Mon, 06/09/2014 - 14:50 | 4837946 messymerry
messymerry's picture

Khee, ;-D

Mon, 06/09/2014 - 15:21 | 4838076 Seer
Seer's picture

Interesting hobby you have there!

When I venture into Wal-Mart it's usually for something like grease for my tractor.  Years ago I'd tell the anti-Wal-Mart folks that it would all run its course as fuel became less affordable- and this is playing out exactly as I'd foreseen (when you understand the REAL fundamentals it's pretty easy to see how this all plays out).

"Please start finalizing your preps..."

I don't believe that there's any "final" anywhere (well, when you die).  Even I cannot foresee the details of the events to come, in which case I'd be dishonest in suggesting that I have "answers" in the form of "preps."  Best one can do is to tie everything to one of: Food, Shelter and Water.  There are but two primary paths to take: Fight, or Fllight.  Decide which one you're best adapted to and go with that.  If it's "flight" then hone things toward the mobility side- learn how to scavange.  If it's "fight" then it's best to center around something you're willing to fight for, create/plant things that provide.

Mon, 06/09/2014 - 16:28 | 4838380 messymerry
messymerry's picture

I don't see flight as an option. There will be nowhere to flee to that is not affected. People will gang up... There will be good gangs and there will be bad gangs. I'm living in a small community in Texas with about 3500 people. Paid $18,000.00 for my house (1600 sq. ft. 2 car garage with workshop on a corner lot. ;-) My property taxes are less than $300.00/yr. The nearest WMT is 25 miles away. If necessary, I can walk away and not look back. As far as I'm concerned, this is the second best place to be for what I believe is coming. The best place to be is 50 people in the middle of a long dirt road with "dead end" signs at both ends.


Mon, 06/09/2014 - 12:10 | 4837278 I Write Code
I Write Code's picture

So what is this, ZH going orthodox Marxist?

To make a long story short yes it's outsourcing, what we're seeing is vulture capital arbitraging the sale of American's economic base to China.  This stuff ain't in Das Kapital, even if comes to the same bad end.  Marx isn't right nor Picketty.

The problem is Ricardo was wrong, too, at the limit.  Krugman is wrong.  I'm sick of all these holdovers from nineteenth and early twentieth century economics.  Look at TODAY'S evidence folks, not what some sailing ships and coal-burning locomotives guys thought a hundred or two hundred years ago.

But yes, as a symptom, wages are down and corporate profits are up, and outside of the CEO all of the company's employers are overseas (or are illegal immigrants here).

Mon, 06/09/2014 - 12:37 | 4837374 paulbain
paulbain's picture








I just do not get it.  Typically, I see about one of these news stories (about declining US wages) on ZH per week, but almost NO ONE points out the reason for declining US wages:  unrestricted immigration.  The problem is not merely illegal immigration, but LEGAL immigration, too.  The politicians are flooding the USA with cheap, immigrant labor (CIL) in order to suppress our wages, and that policy has been VERY effective.  The politicians are using these work visas to effect their goal:  H-1B visa, L-1 visa, B-1 visa, B-2 visa, TN-1 visa, etc.

-- Paul D. Bain








Mon, 06/09/2014 - 15:37 | 4838164 Seer
Seer's picture

"I just do not get it."

Yup, that's pretty clear.

Here's something that might be of help (a study of 3,000 years of empires):

Immigration is a symptom, not a cause.  The Ponzi needs new suckers: immigrants are generally readily gullable.  And if the "problem" were immigration then one would think that Japan would be doing much better than it is, given that only 2% of it's population is comprised of immigrants (

Yeah, you're not getting it because you're asking the wrong questions- but don't despair, this is pretty common error.

"The chief cause of problems is solutions." - Eric Sevareid

Mon, 06/09/2014 - 13:51 | 4837620 novictim
novictim's picture

We all know this.  Squeezing the consumer with low wages in order to maintain profits is unsustainable.

It is cannibalism.  It is killing the Golden goose.  It is short sighted.  

Why are corporate boards not more interested in long term, sustainable outcomes?  The reasons are universal and slightly complex.  It is the way they function:

Short Term Thinking is successful on the timeline of individual high-executive careers. 

-- The CEO answers to the board of directors who answers to the investors.  Investors are interested in how their stock is doing in the 3 month or less quarterly profit statements.  The time timeline is short.  There is no "loyalty" to the long term except when marketing the company to new investors who then switch to short term considerations/goals of quarterly profits.  This is a systems problem.

The short term is the timeline for corporate business.  

The long term is supposed to be the Government's concern...except that now the Government is owned by wealthy investors.  See the problem now? 

Mon, 06/09/2014 - 15:45 | 4838198 Seer
Seer's picture

I don't know what is necessarily right, I don't want to prescribe "solutions" as I don't believe in "solutions," but, clearly one could say that nature's "thinking" is based on the short-term- survival.  If there's anything "wrong" it's that we have a failure to understand the problems of growth, we tend to view growth as only being good, we ignore the bad of it, in which case it's always the "solution" to push growth, and, well, forward Ponzi!

"The secret plan is that we're going to keep doing exactly what we've been doing, for as long as we can."

- Daniel Quinn, in, "What a Way To Go"

Mon, 06/09/2014 - 16:06 | 4838268 Frilton Miedman
Frilton Miedman's picture




Brings us full circle to the topic of greed.

A boxing match has rules, judges and referees to keep brass knuckles from degrading it to a contest of cheats.

To pretend boxers will do the right thing on their own, especially when the stakes are so high, is stupid.

The same for Capitalism, without rules it's no longer the Capitalist competition of more efficient goods and services, but a contest of tax cheats and monopolist suppression.

The corporate lobby has done a STELLAR job conflating taxes, rules and regulations as "Socialism".


"If you repeat a lie aften enough, it becomes the truth" - Joseph Goebbels


Mon, 06/09/2014 - 17:36 | 4838608 Seer
Seer's picture

You've described the conundrum of enforcement and contol AND a "freely operating" system.

"The same for Capitalism, without rules it's no longer the Capitalist competition of more efficient goods and services, but a contest of tax cheats and monopolist suppression."

"Eventually things attain such scale that they become their own powers, able to push back on any enforcement or regulations."

Exponential growth would always lead to ever-greater concentration of power.  With TBTF entities competition, no matter how much better if might be, could not be allowed as it would be too disrupting.  Status Quo has staying power...

Mon, 06/09/2014 - 19:13 | 4838873 Frilton Miedman
Frilton Miedman's picture



Right Seer, true.

While TBTF's can no longer compete, but instead we get the steady flow of scandals like LIBOR, futures manipulation, money laundering and muni lending scams, they also suppress smaller regionals from expansion & real job creating activity.

The paradox of Classic Liberalism, Austrian economics, is the assumption that any and all regulatory intervention is "Communism", assuming that unregulated, lawless capitalism of it's own volition will always suit Democracy.

While I understand the connection to Fed and government bailouts in 2008 to the government disallowing "natural" forces kill TBTF's, that evolution would have rendered us 3rd world - hunger, homelessness, dysentary, cholera...etc..

(Actually, NOW is a good time to dismantle them)

The original sin, in 1999, was ignoring a century of previously learned painful lessons by removing Glass-Steagall, & a return to the 1910's "bucket shop" era via the CFMA to recreate a pre-Great depression regulatory environment.

We went backwards 80 years, and go figure, we got the same results.



Mon, 06/09/2014 - 16:11 | 4838311 malek
malek's picture

The "low-hanging fruit" analogy is being overused.
Which is especially laughable as it was a pointless one from the beginning: everything in life is at least in some scale aligned with the "low-hanging fruit" analogy.

Can we now please stop using it, Charles.

Mon, 06/09/2014 - 16:12 | 4838313 malek
malek's picture

dupe - I swear I only clicked once!

Mon, 06/09/2014 - 17:39 | 4838621 DFCtomm
DFCtomm's picture

There are many who swear by the free market and believe that allowing market forces to shape the economy is a good thing. Right up to the point where market forces turn in the favor of the employee, but when that happens it's time to bring in cheap labor, whether legal or illegal, and thwart those same market forces they so love, when it favors the employer.

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