Corporations Love Deficits - Links Between Profit And Recession

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Posted on: 10/28/2012

Description: 'You've probably seen this famous chart of Corporate Profits as a share of GDP. It's a pretty rough approximation of corporate profit margins, and it shows that margins are very close to an all-time high. Not only are they at an all-time high, but they're way out of line with recent decades. In a brilliant piece written this past march, James Montier explained why margins were so high. In his analysis he includes the chart below, which is what every investor needs to see. It shows the various drivers and drags on corporate profitability. So for example, household savings are always a drag on profitability, since that's money not spent to buy goods. Net investment helps boost corporate profitability, since that investment will flow to the profit line of another corporation. When the government is in a surplus, that reduces corporate profitability, since that means the government is taking in more than it pays out. When the government is in deficit, that boosts profitability.' Cenk Uygur breaks down the chart linking corporate profit and deficits, explaining why Republican leaders tend to do little to fix the budget