US Corporate Profits and Political-Economic Case Studies

[Joe Leote]

Article

What’s Driving the Surge in U.S. Corporate Profits? | St. Louis Fed

Video presentation of corporate profits, geopolitical shocks, and business cycle analysis:

What The Iran War Actually Means For The US Economy

Firms have a high wage bill in the cost structure. Debt service is part of the firm cost structure. Household payments to service consumer debt, including home mortgages, car loans, and other consumer debt, tend to be repaid from the aggregate wage bill. When firms lay-off workers to control costs it can trigger rising debt default on consumer loans. Tighter credit terms, falling asset prices, rising unemployment, and cascading debt default can form a positive feedback loop during deflationary episodes. The video shows corporate profits as a buffer tending to support the aggregate wage bill. 

MMT and Post-Keynesian economists understand that price floors under the wage bill are necessary to validate nominal debt. The need to validate systemic debt levels with fixed or rising nominal payments (some sort of price floor in the economic system) can be viewed as a rationale for Central Bank policy targets with mild inflation in the range of 2-4%. Asset price bubbles trading pre-existing assets, produced in prior economic periods, very likely distort the cash flow patterns. This injects cash flows caused by asset price speculation operating in parallel to the Monetary Production Circuit for production of GDP.

Joe