“Capitalism Has A Crisis” – Deutsche Sees No Light At The End Of The Tunnel “Until There Is A Recession”

Monday, May 9, 2016
By Paul Martin

by Tyler Durden
ZeroHedge.com
05/09/2016

In recent months unexpected calls have emerged from unexpected sources questioning whether capitalism is even working any more in a world in which corporate profits refuse to drop leading to paltry wage gains and thus, lack of the all-important wage inflation. Most recently it was none other than Goldman who wrote in February that “we are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism.”

Maybe Goldman should ask the Fed about its thoughts on mean reverting “capitalism” in a world in which creative destruction is no longer possible.

Over the weekend, it was Deutsche Bank’s rather outspoken credit strategist Dominic Konstam who, in a post-script to a note in which he ominously warned that
the “worst kind of recession” may have already started (based on Friday’s nonfarm payrolls report), goes on to conclude that the crisis facing the “developed” world is a far deeper one than just that of profits and demographics. It is a crisis of capitalism itself.

This is what he said.

The reason that inflation is the historical exception rather than the rule is because of the over-supply issue. Say’s Law says that supply creates its own demand, but only until it doesn’t! This truism created Keynes’ theory to work off deficient demand. It also includes the logic of negative rates to reduce the attractiveness of profits into cash that is superior to “goods” that will lose their value if hoarded, i.e. profits not being reinvested in the business.

Capitalism can be successful for long periods when it can identify new sources of demand that run in tandem with the production possibilities frontier. Demographics and globalization have heretofore been key: a billion Chinese consumers need cars; a baby boomer generation became consumers in the ‘90s. However, now the developed world is old and getting older. China has grown too quickly and needs its own time out.

The Rest…HERE

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