The Corp-ernment Symbiosis: How Corporations Became A Bloated Government's Best Friend

Corporate profits have been boosted unusually in recent years by fiscal support to the economy, the very heart of the risk posed by 'the cliff.' The national savings rate fell while private savings rebounded during the recession and 'recovery' to date.


The incremental demand created by large budget deficits came with very limited business costs, unusually boosting profit margins - as is eminently clear from the chart below...


...and crushing wages and labor costs (as we noted previously).


With earnings surprises relative to the beginning of quarter estimates now negative for the sixth quarter in a row...


...and expectations for an 11.9% YoY rise in S&P 500 EPS next year (after this year's +5.3%)...


Molehill, slide, or cliff, we simply do not see these expectations being met from further fiscal support.

Critically though, despite all the political rhetoric, jawboning and pre-election bluster, corporations may or may not be people, but what they have turned out to be is the government's best friend as without corporations firing millions, the government would be unable to enslave everyone via a habituation to the government's "transfer payment" generosity. Since government has no 'choice' but to do its rightful duty and bail out those poor citizens crushed by the "evil" corporations, it allows the US Treasury to spend, spend, spend under the guise of another false conflict. The corporations (knowingly or unknowingly) are doing the government's bidding (and receiving the quid pro quo) even as the tentacles of uber-government reach everywhere and more than half the US population would exist in a state of learned helplessness if its weren't for Uncle Sam's weekly check, modest as it may be.

To summarize: crony Capitalism for the richest, socialism for the poorest; and the middle class goes the way of the Twinkie Dodo.


Charts: Citi