Greedflation spells the end of capitalism

When costs go up, so do profits. That’s not how capitalism is supposed to work, but that is the recent trend. For over a year now, consumers have struggled with inflation.

But these soaring costs haven’t prevented corporations from raking in record profits. The companies in last year’s Fortune 500 alone generated an all-time high $1.8 trillion in profit on $16.1 trillion in revenue. That's more than 10%!

Albert Edwards, a global strategist at Société Générale, just released a blistering note on the phenomenon that has come to be called Greedflation. Corporations, particularly in developed economies like the U.S. and U.K., have used rising raw material costs, amid the pandemic and the war in Ukraine, as an excuse to raise prices and expand profit margins to new heights, he said.

And the French investment bank isn’t just historic: It’s one of the select banks considered to be “systemically important” by the Financial Stability Board, the G20’s international body dedicated to safeguarding the global financial system.

Furthermore, Edwards wrote recently, after four decades of working in finance, he’s never seen anything like the “unprecedented” and “astonishing” levels of corporate Greedflation in this economic cycle.

A recent study from the Federal Reserve Bank of Kansas City found that markup growth (the increase in the ratio between the price a firm charges and its cost of production) was a far more important factor driving inflation in 2021 than it has been throughout economic history!

Edwards also says he fears “super-normal profit margins” of corporations in the U.S. and abroad could eventually “inflame social unrest” if consumers continue to struggle with inflation.

“The end of Greedflation must surely come. Otherwise, we may be looking at the end of capitalism,” Edwards warned. “This is a big issue for policymakers that simply cannot be ignored any longer.”

A debate over Greedflation broke out last month, during former Daily Show host Jon Stewart’s interview with Larry Summers on his new Apple TV show, The Problem, when Stewart said: “Why aren’t we attacking corporate profit in any way? Because that’s been estimated to be 30% of inflation, 40% of inflation?”

We have been warned, and I agree wholeheartedly!