The election sniping is heating up both inside and between the parties. The Tea Party has lost the spot light to OWS but look for a bounce back. Here's the hard truth: the stimulus plan worked. In fact, it worked to historical proportion. The massive hoard of corporate profits is the result. My friend Gerard Minack at MS Asia has shown that transfer payments are running high enough to bring disposable income back to peak, while ex TP only 50% has been recovered. The implications are huge.
First, the global anti-deficit shift will be a significant headwind to growth, not a supply side positive. The second, and more complicated, aspect is do corporate profits matter? Extreme cost cutting during the crisis set the foundation for bottom up benefits that accelerated in the recovery, now what? The profits have not morphed into a self sustaining expansion and heavier cost cutting in a stall will be difficult. Only government is up for cutting.
OWS has yet to realize the paradox in their message. Likewise, the neo-free marketers have not come to terms with who (what) actually made them profitable. After spending the majority of the year tossing around with international headlines, the US capital markets will wind down 2011 contemplating their own navel. Corporate profits have been driven by the stimulus. The stimulus has been vilified as a mistake and a failure. Corporate profits will be the consequence in 2012.