On The Reality Of Depressions; Bernanke's Folly

11-02-2010 • Market-ticker.denninger.org/

What if the bottom line is that margin collapse that is forced through currency devaluation, along with the destruction of purchasing power of those who are older and have either saved much through their lives and/or are retired makes margin compression inevitable - and that so long as that continues, you cannot exit the malaise? Improbable? I don't think so. Without margins business does not hire. You don't pay people out of the gross - you pay them from net profit. Without net profit you don't hire anyone. False profits - that is, claims of profit which are due to balance sheet games - eventually nail you. They nail you because ultimately the cash flow statement always wins. Not sometimes - always. Propping up failed businesses - those which cannot operate competitively in the current environment - no matter what they are, whether they be auto companies, banks or others - simply exacerbates the problem. The more government tries to provide "help" the higher the tax burden or the more devaluation of the currency must take place. But both have the same result - devaluation of the currency causes input prices to ramp, which in turn is passed through, which again compresses margins and destroys hiring! Bernanke never ran a business. I have. So have millions of others. Business - especially small business - is not hiring, and there's only one reason why - sales and margin prospects make it impossible to earn a fair return on the marginal cost of that next employee. We got out of the Depression after WWII because we had destroyed the entire industrial capacity of Western Europe. It was literally bombed to smithereens. We were thus the only man standing with industrial capacity, and that meant pricing power - in other words, margins. We also killed off an awful lot of competition for jobs, which meant labor had wage power. Between those two we had a monstrous ramp in both industrial output and general prosperity; with wide margins business could (and did) hire, and with a relatively tight labor market wages were firm. Technology also helped - The War brought many technological advances which filtered down to the common man.