The Fiscal Cliff and Corporate Margin Mean Reversion

As I wrote yesterday, government deficits are the biggest driver of elevated corporate margins. This is significant in the US given the looming fiscal cliff and the already ongoing margin mean reversion. Using the financial sectoral balances approach, it is clear that larger government deficits allow for larger non-government surplus.
The question is how those surpluses are distributed amongst the four major non-governmental sectors which are households, non-financial business, financial institutions and the external sector. Because the US is a large continental economy and the government 'trades' mostly with domestic economic agents, large changes in the trade balance are not part and parcel of net government dissaving. Rather, the net surpluses are mostly split amongst domestic business...


As this site is now reader-supported via Patreon, the remainder of this article is only available to subscribers at a specific patronage level. Articles at patronage levels BRONZE, SILVER, and GOLD are denoted by the categories in blue capital letters above the post. Posts categorized DAILY are available to both SILVER and GOLD patrons.

Click here to join. Your readership is greatly appreciated!

Registered users can log in by entering details here or below.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More