The combination that is weakening the US economy to a dangerous extent: Household insolvency and companies’ quest for huge profits

- "In the aftermath of the crisis, many US households are insolvent; overall, households continue to deleverage, and their demand is therefore weak."
- "At the same time, companies are seeking to generate huge profits, hence the downward pressure on wages and the drive to increase productivity. This is weakening employment and wage incomes at the worst possible time, since household demand is already sluggish, and it is generating profits that exceed the investment requirements (which have been reduced by the sluggishness of household demand). These profits are being hoarded."
- "This perverse dynamics is self-sustaining: the weakness of the economy worsens the labour market and maintains the problem of household solvency; against a backdrop of sluggish growth, the only way for companies to meet their profit targets is to distort income sharing at the expense of wage earners. A stimulus via wages - even though it is very unlikely - would be the only method to pull out of this trap, which resembles that seen in Japan in the late 1990s."

Natixis Flash Economics 398 20100818

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