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What The Fed Has Wrought
Submitted by Jim Quinn via The Burning Platform blog,
The chart below might be the most powerful indictment of the Federal Reserve and our corporate fascist empire of debt ever created. Some people don’t get charts. Charts tell a story. This chart tells the story of elitist bankers supporting the agenda of a corporate fascist state, resulting in the gutting of the middle class. Anyone who views this chart in a positive manner is either a Federal Reserve banker or their paycheck is dependent upon the continuation of the pillaging of the working class. Corporate profits are at all-time highs. Profit margins have always reverted to the mean throughout modern history. If they remain at all-time highs then something is terribly wrong.
“Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly.” – Jeremy Grantham, Barron’s

Here is the story I see in that chart. Corporate profits as a percentage of GNP have averaged 6.5% over the last 67 years. As you can see, it is a volatile figure. Corporate profits rise during expansions and fall during recessions. That has been a given over time. The reason corporate profits have always reverted to the mean was due to the basic tenets of free market capitalism. When a company is generating outsized profits, that industry will then attract new competitors, resulting in price competition and lower profits. From 1950 through 1971, corporate profits as a percentage of GNP fluctuated in a narrow range between 5% and 7%. This was a reflection of a market driven by competition, a non-interventionist Federal Reserve, and a government not captured by corporate interests.
It is no coincidence since Nixon closed the gold window in 1971 and unleashed greedy bankers, feckless politicians, and self serving corporate executives to utilize easy money and prodigious amounts of debt to financialize our economic system and deform capitalism, corporate profits have boomed and busted. The Fed created booms and busts are clearly evident on the chart. Nixon toady Arthur Burns created an inflationary boom in corporate profits to 8% of GNP in the late 70’s followed by the collapse to 3% caused by Volcker having to raise rates to extreme levels to crush the Burns created runaway inflation.
You can see exactly when the Maestro assumed command at the Fed and proceeded to introduce the Greenspan Put, encouraging speculation, borrowing and mal-investment. His easy money boom led to the dot com bubble that doubled corporate profits from their 1987 low. Of course the profits vaporized in an instant and plunged to 4% of GNP in 2001. Greenspan and then Bernanke proceeded to drive interest rates to record lows creating a prodigious housing bubble resulting in the greatest level of mal-investment and financial fraud in world history. Corporate profits as a percentage of GNP skyrocketed from 4% to 10% in the space of six years. The banking cabal had captured the system.
The Fed orchestra kept the music playing and Wall Street kept dancing the rumba with their corporate CEO dates. The Keynesian acolytes were ecstatic. The Austrians warned of the impending bust. No one listened. The collapse of the worldwide financial system was portrayed by the corporate mainstream media, bankers like Dimon, corporate CEOs like Immelt, billionaires like Buffet, captured government bureaucrats like Paulson, and politicians like McCain and Obama, as a systematic risk that required a taxpayer rescue of criminals.
The $800 billion gift to bankers and mega-corporations by the Washington DC Party of captured politicians was chicken feed compared to the $3.5 trillion of newly printed fiat handed to Wall Street and corporate America by Bernanke and Yellen. Five years of 0% interest rates have impoverished senior citizens and savers, but they have done wonders for Wall Street and mega-corporation profits, along with executive bonuses. Corporate profits soared from 4.5% of GNP to an all-time high of 10.5% in the space of three years and have remained at this elevated level.
Who Needs Wage Earners Anyway?
Is it a coincidence that corporate profits as a percentage of GNP are at record highs while employee compensation as a percentage of GNP is at record lows? Is it a coincidence that employee compensation as a percentage of GNP peaked at 51% in 1971? That year certainly seems to be a turning point in U.S. economic history. Gold’s purpose as a check on statists, Keynesians, politicians, bankers, and the military industrial complex couldn’t be any clearer. The decline has multiple causes, but the storyline about technology being the major cause is patently false. My observations are as follows:
- From the end of World War II until the mid-1970s employee compensation as a percentage of GNP was consistently between 49% and 51%. The middle class saw their standard of living rise as wages outpaced inflation, savings rates were high and led to capital investment, debt was used for long term purchases like a home or automobile, and bankers accepted deposits and made safe loans. Technological progress over the thirty years was constant, but did not result in declining wages.
- From the moment Nixon closed the gold window, employee compensation as percentage of GNP relentlessly declined for the next quarter of a century from 51% to 44%. Over this time frame our economy deformed from a goods producing system driven by savings and capital investment into a service/financial economy built upon consumer debt, conspicuous consumption and market gambling. Our iconic mega-corporations fired Americans and hired Chinese slave laborers, lobbied for tax breaks, invested in their own stock, kept wage increases below the level of true inflation, and paid extravagant compensation packages to their Harvard MBA executives.
- The brief upturn created by Greenspan’s irrational exuberance 90’s boom was short lived. The relentless decline resumed after the dot com collapse, even as Greenspan and Bernanke blew their epic bubble. Their financial engineering machinations on behalf of Wall Street did nothing for the average worker on Main Street. Employee compensation as a percentage of GNP declined from 47% to 44% BEFORE the financial collapse.
- Unequivocal proof that Bernanke’s sole purpose of QE and ZIRP was to benefit his Wall Street owners can be seen in the continued decline from 44% to 42% since 2008. There has been no recovery for the average American. Wall Street is rolling in dough. Corporate America is rolling in dough. Politicians are rolling in dough. The average American worker is rolling in dog shit.
The mouthpieces for the Deep State insist corporate profits have reached a permanently high plateau. It’s another new paradigm. Just like 1929, 1999, and 2007. Jeremy Grantham is right. The system is broken. The inmates are running the asylum. But financial engineering will not work permanently. Baijnath Ramraika and Prashant Trivedi in their outstanding article Why Jeremy Grantham is Right about Corporate Profit Margins prove that corporate gross margins have not grown, technological advancement has not been a major factor, innovation and capital investment are non-existent, and corporate CEOs have utilized one time schemes to boost profits.
There are a few major reasons for record corporate profits. The Fed’s gift to banks and mega-corporations of zero interest rates have allowed S&P 500 corporations to refinance their existing debt and take on new debt at below market interest rates. The avereage interest rate paid by S&P 500 companies is now at all-time lows. Any normalization of interest rates would crush corporate profits.

Even though you hear constant propaganda from the corporate MSM, corporate CEOs, and captured politicians about the dreadful level of corporate taxes, the truth is that mega-corporations are paying record low levels of actual taxes. When profits are at record highs and tax payments at record lows you know they have captured the system. “Creative” tax avoidance and the FASB allowing banks to mark their assets to fantasy have played an enormous role in record profits.

The short term oriented casino mentality of corporate CEOs can be plainly seen in the fact depreciation expense as a percentage of revenue is at 25 year lows, resulting in short term profits but long-term decline. Instead of investing in capital to increase efficiency or expand their business, greedy myopic CEOs have chosen to buy back their own stocks at all-time high prices. They did the same thing in 2005 – 2007. Driving up quarterly earnings per share to boost their own stock option compensation is how it rolls in corporate America today. Investing in their workers through higher wages isn’t even a consideration. They don’t teach that in Ivy League MBA programs. SG&A expenses as a percentage of revenue have been driven to all time lows, as outsourcing, downsizing, and working people to death have done wonders for corporate profits.
Ramraika and Trivedi reach damning conclusions of corporate America, based on their detailed unbiased research:
As the world moved increasingly towards the idea of shareholder-value maximization, time horizons for management and the shareholders have shortened. As Montier shows, the average lifespan of a company in the S&P 500 in the 1970s was about 27 years and is down to about 15 years now. In tandem, the average tenure of CEOs is down from about 10 years in the 1970s to about 6 years now. Combine this with the incentive systems prevalent today (think stock options), and it is only logical that a CEO who is going to be around for as few as six years and is going to get a large chunk of her rewards in stock options will want to see higher stock prices.
Cutting SGA expenses and postponing capital investments — actions that carry positive short-term earnings impact at the expense of a business’ competitiveness in the long-term — look promising to managers whose payoffs depend on stock prices in the short-term. Not surprisingly, the renters (there are hardly any owners any more) clamor for just such actions. The problem with this thinking is that the long-term eventually shows up. And when it does, profit margins will have no choice but to remember their long forgotten tendency to revert to mean.
Are interest rates going to be driven lower for corporations? Are taxes going to be driven lower? How many more people can corporations fire? Have economic downturns been eliminated by the Federal Reserve? Will record profits not result in increased competition and price wars? Can wages be driven even lower?
The financial, economic and political system has been captured by corporate fascist psychopaths. The Federal Reserve has aided and abetted this takeover. Their monetary manipulations have resulted in this deformity. Psychopaths always go too far. The American middle class has been murdered. Decades of declining real wages have left them virtually penniless, in debt up to their eyeballs, angry, frustrated, and unable to jump start our moribund economy by buying more Chinese produced crap. Yellen, her Wall Street puppeteers, and the corporate titans should enjoy those record profits and record stock market highs. It won’t last. Short-term profits will be wiped out, as long-term consequences always arrive when you least expect it. The artificial boom will lead to a real depression. Luckily for the oligarchs, most middle class Americans are already experiencing a depression and won’t notice the difference.
“True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.” - Ludwig von Mises
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"There is no such thing as too much compensation." - Corporate CEO
"Let them eat cake." - Corporate CFO
"You want moar? Of course, whatever you want." - Corporate Board of Directors to CEO and CFO
"Just doin' God's work." - Vampire Squid
"The financial, economic and political system has been captured by corporate fascist psychopaths. The Federal Reserve has aided and abetted this takeover."
No. The Federal Reserve and the counterfeiting clan who CONTROL it are the psychopaths. The extension to the corruption on Wall Street is merely a symptom - not the cause. Nothing will change until we physically remove the usurers and their entrenched criminal system for the cancer that it is.
i don't know ... pretty much all the same
revolving door between Wall Street and FR/Treasury
take hank paulson ... former head of Goldman Sachs became Sec of Treas ... knocked out rival lehman before they saved the system (allowing investment banks to use discount window at FR ... if they instituted this 2 months earlier lehman would still be among the living)
the "best" part of paulson short reign at Treasury ... owned $700 million of GS stock (cost basis $100 million) ... had to sell before accepting job at Treasury ... and DID NOT HAVE TO PAY CAPITAL GAINS ... pocketed a cool $90 million for "public service"
Get on that Bat Phone....we need help
without retribution and clawing back that wealth and assets nothing will change.
This is a pretty good article.
I did not know the "Depreciation metric".
MBAs and their schools really have something to apologize for. Not that I am holding my breath.
Hang the fuckers till 5 minutes after they stop twitching...
Funny thing; My bet is that these high-flying CEO's and CFO's, in reality, if pressed, could not run a successful lemonaide stand on the beach on the equator. Harvard does not teach such real life skills....
NAFTA will make the whole world more competetive
Wage haven't kept pace plus, don't forget, there was a transfer of income from savers/bond holders to the debt issuers (corporations and governments).
Why the US and Japan, in economies that are 70% and 60% consumer driven, respectively, think that 1.) destroying the consumer's purchasing power via no wage growth, 2.) hitting it again with zero unearned interest income and 3.) purposefully creating inflation in the cost of living beyond wage growth is anything but detrimental is astonishing, especially after 6 years worth of evidence against them.
Bingo! Now thats what a Harvard MBA will teach you!
Hey CD:
How are you my friend? How is the family too? Someone in the office brought to my attention your new website. Great work - I'm happy for you as it provides an outlet for the frustration we've felt over the years.
Anyway, keep up your health, and take care of those most precious to you. You be well. Nice seeing you're still as logical and practical as ever. Us old goats have to stick together.
Sincerely, AR
' what has the Fed wrought? '
Iron for gold.
The USA Central Bank, after the total failure of Banking's Business models in 2008, decided to force an entire class of American to pay for the Banker's Failed Business Models. The class of American who worked, spent less than he earned and turned his excess capital into bank deposits and other interest rate sensitive savings vehicles, like bonds and even US savings bonds. He was a conservative capitalist minded sort of chap. One who believed to always spend less than you make and turn that excess capital to work in the broader economy by putting these savings to work in bank deposits and bonds. This core of capitalism, working and saving was declared to be responsible for Banker's Failures. The Federal Reserve stepped in and stole tens of millions of people'e due interest on savings and bond holdings. 00% was to be their return on deposits, .001% for bonds. By this act, the hundreds of billions in interest due to be paid, by market interest rates, to savers, was, in one swoop, captured and given to the Banks, who now held deposits at no cost, and also gotmoney from the Fed at zirp.
Result was the wholesale rape of all of America's worker and saver class. And a complete bailout of bankers and speculators, who continue to prosper in ways never before seenn in the USA.
A+
Sounds a lot like moral hazard to me.
Spot on, it's retribution time...
roll the motherfucking guillotines, nothing changes otherwise. Follow the money, start by executing all banking CEOs and their political puppets. Then move on to the speculators who profitted, trust me, once you start down this path the motherfuckers will be singing in order to save themselves soon enough. This is the only legitimate response to such "let them eat cake" monetary experiments.
What had happened in 1997? In the 90s the USSR disappeared cheered by the middle class all over the Western world. In 1997 the Partition Treaty on the Status and Conditions of the Black Sea Fleet was signed between Russia and Ukraine. In 2012 and 2013 the US gov procurement office posted multiple bid offers to build and run NATO Navy bases in Crimea. In February 2014, Ukraine's the West paid new junta government canceled the Partition Treaty along with banning the Russian language and declaring the Russian speaking population as non-citizens.
Why is this important? The US "middle class" was invented and propagated to the world as the only proof of superiority of capitalism over socialism. With the collapse of the socialist or workers owned compensation system, there's no need to maintain expensive middle class. The middle class capital is being expropriated back to its rightful owners - oligarchs, monarchs, deep state. Whatchamacallit...
Guess the only way out of this mess is to once again have a really big ass war.
But wait ..... 2 out of 3 youts are unfit to be drafted . Lord have mercy !
http://townhall.com/tipsheet/christinerousselle/2014/06/29/two-out-of-three-american-youth-unfit-for-military-n1856972
a lot of reasons why profit has boomed the past few years
but 2 drivers are coming to an end. Low rates have forced investors to reach for yield (hello subprime lending) that is beginning to sour which will cut back consumption. And King Dollar ... which will do a number on exports and fx treatment on overseas earnings.
profit reversion to mean on tap
elitist bankers...unleashed greedy bankers, feckless politicians...inmates are running the asylum...rescue of criminals..Psychopaths always go too far...Wall Street puppeteers
hey, those are fellow murikans you're talking about.
what does this make us?
'those are fellow murikans you're talking about'
Maybe. But when the SHTF you might see they have another passport as well.
and a helicopter to take them to their yacht, which then proceeds to their private island paradise.
complete, no doubt, with Blackwater (V or whatever it is now) security.
I keep waiting on a pitchfork party at the Washington DC Mall, but it never seems to materialize. Guess we gotta wait on the EBT cards to be turned off and Satellite TV to be zapped by the Sun, then folks will really be mad.
Why did it take a couple of research guys in India (literally that is where they are) to put forward the information we all knew...its a made up narrative of bullshit to keep the Ponzi going. Still no one believes it, unless you are on ZH and then you are called a finge lunatic, tin foil hat wearing mother fucker.
One more:
http://failedevolution.blogspot.gr/2014/11/us-debt-held-by-fed-just-anot...
FEMA - BLACK PATH TOWARDS MARTIAL LAW
Emergency is the trigger word in the FEMA title.
"The Director of FEMA shall, on behalf of the President:
Coordinate all mobilization activities of the Executive Branch, including production .procurement, manpower, stabilization and transport. FEMA will be able to alter any existing contract.
The FRS (Federal Reserve System), with all its branches will become "fiscal agent to the United States" with dictatorial power over the economy of the nation.
The Treasury and the Export-Import Bank will be authorized to make loans under the direction of FEMA and the FRS.
During a "National Emergency" the President, an "Elected Official" would be stripped of all his Presidential functions.
Set-up an Executive Branch of the government and a National Defense Executive Reserve ("NDER") composed of persons selected (not elected) from various segments of the civilian economy and from government for training for employment in executive positions in the event of a "National Emergency"
http://www.bibliotecapleyades.net/sociopolitica/esp_sociopol_un10b.htm
http://www.silverdoctors.com/jim-willie-chinese-have-acquired-a-majority...
Jim Willie: Chinese Have Acquired a Majority Controlling Interest in the Federal Reserve!”the Fed is a tool, only a fool looks at the tool instead of looking into the eyes of he that holds it.
That dying soldier said it very eloquently in his letter to GWB.
We establish a functioning society for one reason and ONE REASON ONLY - to protect the vulnerable.
The bankers at the top of this Ponzi scheme are sentencing the very old, the very weak, the ill and young, the most beautiful and most talented amongst us to predators who, in a collapsed society, rule the underground economy.
Kidnapping/child abductions, rape/prostitution, gambling, illegal drugs, dog fights, cock fights, elderly abuse/theft of possessions IS WHAT THE FEDERAL RESERVE HAS BROUGHT AMERICA. yes, i meant that.
All I know is that I don't have to work so much if I don't have debt. Because I don't work like a serf I am lazy, right? Gives me more time on tin foil hat design. It's harder than you may think to make a stylish tin topper. Keeps out those negative bankster vibes.