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Jeff Nielson is the writer/editor of Bullion Bulls Canada. He came to the precious metals sector as an investor in the middle of last decade, and quickly decided this was where he wanted to focus his career. Jeff's background includes four years of Economics at the University of British Columbia, before he went on to earn his law degree from that same institution.

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U.S. Greater Depression Accelerates

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Originally posted at BullionBullsCanada.com

While the myopic U.S. propaganda machine and the “experts” who shill for it will use the word “surprise” to describe yet another dismal U.S. jobs report, the only people who could have been surprised by today’s news are those who have had their eyes closed for the past several months (years?).

The U.S. government has just completed its most massive fiscal “stimulus” in history – by several multiples. It continues the loosest, most-reckless monetary policy in the history of the world. And yet the data is clear. This unprecedented effort to attempt to breathe life into the dying U.S. economy has produced nothing more than a feeble, temporary “dead-cat bounce”.

On the employment front, as usual the real data has been sugar-coated with more fraud by the Bureau of Labor Statistics. While the BLS is pretending there was a paltry 18,000 (net) jobs created in the U.S. in June, that number has no basis in reality. Merely subtract the phantom jobs from the absurd “birth/death model” and the U.S. economy lost more than 100,000 jobs last month – and that is before we factor in any more of the BLS’s statistical perversions.

Naturally these heavily-doctored monthly jobs reports don’t begin to tell the story on U.S. (un)employment. To do that we need to look at more meaningful statistics, laid-out in long-term charts.

Looking first at the broadest measurement of U.S. unemployment (i.e. the statistic which actually counts most of the unemployed), the picture is clear: when the U.S. economy crashed, there was the largest spike in U.S. unemployment in 80 years. The most extravagant economic stimulus in history has done nothing more than put a tiny (and temporary) dent in that throng of unemployed.

The picture is even worse when we look at the “civilian participation rate” in the U.S. work-force. Here there hasn’t even been a dead-cat bounce. The number of workers “participating” in the U.S. economy continues to go lower and lower (while the number of people collecting some form of benefits are at all-time highs).

We see confirmation of the U.S.’s “Greater Depression” when we look at government tax receipts. We can do this in two ways. We can look back at what the U.S. state and federal governments have been taking in over the past few years, and we can look ahead via what is essentially a “leading indicator” for tax receipts: withholding taxes.

Looking at the chart of U.S. state taxes and total income taxes, we see the revenue crisis which I have been stressing in my own writing. Even pundits in the media who manage to get nothing else right in their writing have observed that it will never be possible to significantly reduce the massive structural deficits in the U.S. without substantial tax increases. Yet while the deadbeat charlatans in Washington continue their absurd “debt-ceiling” tango, almost all of the focus is on spending cuts.

Illustrating that the U.S. revenue crisis can only get worse going forward, “withholding taxes” in the U.S. have made a sudden U-turn (for the worse). These are the taxes which are deducted at the source from most U.S. payrolls, according to a specific formula. The current rate of pay is projected over the balance of the year, and deductions from paycheques are made accordingly.

These tax receipts surged markedly in March, at the tail-end of the dead-cat bounce created by U.S. economic stimulus. Then, as of May 17, receipts from “withholding” turned suddenly lower and have been falling ever since. This data is unequivocal, in that it is one of the few U.S. economic “statistics” which has not and cannot be “massaged” beyond recognition with the various statistical lies the U.S. relies upon in other calculations. Simply, the projection for the remainder of this year is for U.S. employment income to go down – and this is before the U.S. economy has even really begun the “stimulus withdrawal” it will experience as this massive fiscal crutch is pulled out from under the crippled U.S. economy. In other words, we should expect this statistic to deteriorate even further going forward.

As the U.S. dollar continues to teeter on the verge of an historic collapse versus other paper currencies, it’s important to totally dispel a myth which continues to be perpetuated by the U.S. propaganda-machine: that a falling U.S. dollar will “rescue” the U.S. economy through surging exports. In reality, the opposite is true.

Above, we see a long-term chart of the U.S. trade deficit, described as the “net exports of goods and services”. As we can see, historically it was when the U.S. had a “strong dollar” that the trade balance remained nearly neutral, while the collapse in the U.S. dollar has led to all-time record trade deficits – year after year.

To those engaging in simplistic/superficial analysis (i.e. the entire mainstream media), this may seem counter-intuitive. However, anyone viewing the U.S. economy in a more sophisticated manner would not be surprised in the slightest. To understand this we must identify several parameters.

First, the U.S. voluntarily destroyed its legendary manufacturing base, simply handing all of these (relatively) high-wage jobs and value-added production to Asia. It is this value-added manufacturing which (historically) has formed the basis of a solid trade balance for all nations. Simultaneously, the U.S. stopped exporting most of these goods and began importing them instead. On that basis alone, there was little hope for any “trade salvation” for the U.S. economy, but it gets worse.

Decades of gluttonous oil-consumption and oil price-suppression by the United States has combined to drain the world of all its easily accessible oil reserves – permanently ending the era of “cheap oil”. When we combine the massive quantities of (imported) oil needed to satisfy U.S. oil gluttony with the much higher prices which are now here to stay, the “equation” for U.S. trade becomes a simple one. For every penny, which the U.S. dollar declines versus other currencies the added cost of importing oil with that weaker dollar will always greatly exceed the rise in exports.

This conclusion is demonstrated clearly when we look at the most-recent data from the chart above. First we saw a massive plunge to the worst trade deficits in history. This occurred as the U.S. dollar was plummeting to new lows all through 2007 and most of 2008. Following the Crash of ’08 and the absurd/spectacular rise in the value of the U.S. dollar, we see the U.S. trade balance radically improve. However, the moment that the U.S. dollar resumed its downward trajectory, so did the U.S. trade balance.

This leaves the U.S. economy with a choice to two poisons – both of which are deadly. On the one hand, as I and many other commentators have written, there is no possibility that the U.S. can continue to service its mountains of debts and liabilities as things stand today.

The only way in which the U.S. could even pretend not to “default” on these debts would be to massively devalue the dollar versus other currencies – so that the dollars being “repaid” by the U.S. would cost (and be worth) much less than the dollars it borrowed. However, as we see with a chart of the U.S. trade balance, if it devalues the USD enough so that it is not bankrupted by making payments on its debts it will simply be bankrupted by massive trade deficits instead.

The final “nail in the coffin” of this consumer economy is that individual Americans are just as over-leveraged with debt as the government itself.

As can be seen above, U.S. individual debt-levels have soared to all-time extremes. There was a tiny reduction in the total mountain of personal debt for Americans following the Crash of ’08. However, this minor debt-reduction was not the result of Americans repaying debt, rather it was a combination of two other factors.

On the one hand, we had an explosion of personal bankruptcies, foreclosures, and other forms of personal debt-default – that lowered the total amount of personal credit. On the other hand, the same Wall Street banks which promised to “increase lending” (when they were mooching $15 trillion in hand-outs/loss-guarantees/tax-breaks) ruthlessly cut-off credit to Americans. Thus this minor fiscal “improvement” was both involuntary and unhealthy.

This leads us to another set of “no-win” parameters for the U.S. economy. On the one hand, if U.S. financial institutions extend more credit to Americans (to fuel its consumer-economy) then this can only lead to a further explosion in bankruptcies and foreclosures. As the employment data indicates, Americans lack the cash-flow to possibly be able to service any more debt.

On the other hand, if individual Americans rein-in their spending and attempt to restore solvency at the household level, this directly implies a collapse in consumption. That collapse will, in turn, only cause the all-time record levels of U.S. mall-vacancies and mall-bankruptcies to soar even higher. This would lead to millions more lost jobs (10’s of millions?), and a deflationary collapse very similar to that of the Soviet Union.

Going all the way back to 2008, I have maintained that as a matter of arithmetic it was impossible for there to be a U.S. economic recovery. The various (terminal) structural defects in the economy, and near-infinite debts have made net U.S. economic growth totally unattainable. The faked “recovery” trumpeted by the U.S. propaganda-machine was never plausible to anyone viewing long-term charts (like those contained here).

With the Obama regime’s shotgun-stimulus now exhausted, and with the Fed’s hyperinflationary money-printing (supposedly) about to wind-down, there are no more “smoke and mirrors” which can hide the magnitude of the U.S.’s economic collapse.

I give it no more than a month before B.S. Bernanke’s latest “exit strategy” once again morphs into just more money-printing. This won’t “fix” anything, anymore than all the other $trillions printed-up by “Helicopter Ben”. It will, however, allow the U.S. government to hide its total economic collapse for a few more weeks/months.

There Are 7 Responses So Far. »

  1. There is no “fix” for the U.S. economy. The economy only reflects a much larger set of problems and the fixes for these are not likely in the short term. They will become unavoidable, however, in the future and that is going to be very painful.

    The problems are as follows: The government spending is out of control. The government is not functioning to serve the people, but only to rule and control the people while growing itself in size to be unmanagable. The politicains, for the most part, are interested in their own power, certainly not your well being.

    The American people have been plundered by their own government, and are so brainwashed by the news propaganda, and the government controlled educational system, which has been doing nothing but to dumb them down and teach invalid philosophies, that they are incapable of seeing the truth which is right in front of their glazed over eyes.

    Criminal behavior is the norm. The private central bank is continuing the con job it started a century ago. It was started as a fraud, and has never done anything but continue the fraud causing a loss of prosparity of unimaginable proportions.

    The cheats who play with the stock market do not create anything of value, but engage in a game of money manipulation which is another agent of plunder. The executive branch of government has usurped power to the point of tyranical dictatorship. The legislative branch has been paid off to stop doing the job of making legislation but now is only a tool to be used by the mega corporate interests to maximize their profits at the expense of the very lives and livelyhood of the American people.

    And the judicial branch now supports criminal activity rather than protect the rights and freedoms of individuals.

    Our empirical war mongering foreign policies are not only bankrupting us, but commiting crimes against humanity.

    Peppering vast areas with depleated Uranium will continue to kill and deform generations unborn for millions of years, while vast majority the braindead American people are either to “busy” to notice or too corrupt to care.

    The is no “fix” for the economy from within a system which itself needs fixing. And it will not be able to be done internally.

    I would not look to the government or the leaders or the corporations or the banks to do anything but make matters progressively worse. No one will come to your rescue. The only one who can is looking back at you from your mirror.

  2. Both article and reply above by Robert are very good. The original article states that “Even pundits in the media who manage to get nothing else right in their writing have observed that it will never be possible to significantly reduce the massive structural deficits in the U.S. without substantial tax increases. Yet while the deadbeat charlatans in Washington continue their absurd “debt-ceiling” tango, almost all of the focus is on spending cuts.”
    It almost sounds like you are advocating that more taxes are the answer. If that is true then I disagree on that. Cutting spending can solve the problem. Yes, it will be painful. However, as has been said elsewhere; you don’t cure a heroin addict by giving them more heroin.

  3. Self-organized criticality. Boom.

  4. To both “Roberts”, the problem with the U.S. (and most Western economies) is they are experiencing REVENUE CRISES.

    The following chart proves this.


    Note that those numbers are NOT adjusted for inflation. Adjusted for the REAL rate of inflation, U.S. revenues have COLLAPSED – a collapse of proportions unprecedented in its entire history. The same thing is happening in other Western economies.

    Now consider this. The U.S. economy has roughly $60 trillion in total public/private debt (not counting any of the unfunded liabilities). The other Western economies aren’t too far behind.

    While some of that debt is offsetting, WHO is holding $10’s of TRILLIONS in “IOU’s”? Answer: the ultra-wealthy.

    It’s not the “millionaires” that have been blood-sucking Western economies dry, but the billionaires, near-billionaires, and mega-billionaires. This is done automatically, because income taxation is fundamentally flawed – and funnels ALL wealth to those at the VERY top, over time.

    The nice thing about this is that I don’t even need to “prove” this, merely institute a FAIR tax system: a flat wealth tax (one tax to replace all other taxes).

    Once we have a flat wealth tax in place, if I’m right and there are $10’s of TRILLIONS being hoarded by a small number of greedy misers, that wealth will slowly be disgorged over time.

    If I’m wrong, we simply end up with the fairest, most efficient system of taxation possible – and no one suffers.

    But if I’m WRONG, WHO is holding those $10’s of TRILLIONS in IOU’s???

  5. P.S. With a flat wealth tax, the tax-bill for the VAST majority would go down, not up (AND the system would still produce more revenues).

  6. I think if they brought the military home, and did quarterly budget reports to the public, we’d be closer to having that balanced budget. But first, politicians need to learn to say, ‘no’. And, the general public needs to learn to stop trying to squeeze more money out of government. And, real estate people and landlords need to learn how to down-scale their expectations. We’re at a point where maybe ‘less is more’. Government can print and disburse money all day long, but if the prices just rise to match, what’s been accomplished? Not much. So, economize, starting at the family/household level, and maybe suggest some good faith steps such as Congress voluntarily taking a 10% pay cut, instead of giving themselves an annual raise, that kind of thing. Philosophy, attitude, standards and practices. Now, as far as Wall St. goes, those institutions are all about making a buck, and they do it very well, and they keep their investors happy by doing so. But, is there more to life than the stock pages? I think so. People can cry their (crocodile?) tears and illustrate their philosophies about this stuff all day long, I say that for the most part in this country, the lights are on, there are opportunities, there are also problems, but again attitude is VERY important.

    Finally, I think that there should be an effort within the media and the blogospheres to do fact-checking. Just as you would not want to try to navigate your car based on 5-year-old GPS maps, you don’t necessarily want to base a lot of important financial decisions based on unverified inter-hype or the latest blather on the radio. Shrewdness, research, healthy skepticism, and good old critical thinking will help us sort out this economic mess. Economics is called ‘the dismal science’, but maybe if we really do our homework on this, and come to a point where we fully understand all the concepts in play, maybe we can play a happy tune, instead of the same old blues number.

  7. Bert, I totally understand your attitude, and the “optics” you describe. What you have to understand is that much of it is an illusion.

    Putting aside (for the moment) all of the wasted spending on the military and “Homeland Security”, let’s look at the “big picture”.

    I already provided a chart in a previous comment showing the COLLAPSE in U.S. government tax revenues (the largest revenue-collapse in history).

    On the spending side, adjusted for INFLATION (i.e. the REAL rate of inflation) U.S. government spending is roughly FLAT – even with all of the waste on wars, imperialism and the Homeland Security fascists.

    Take away THAT wasted spending, and what the government spends on PEOPLE (in real dollars) has been FALLING STEADILY for decades.

    Do you not SEE all of the homeless people? The crumbling infrastructure? The over-crowded prisons? The over-crowded (underfunded) schools? Are THESE symptoms of “over-spending”????

    We have been LIED to, and told that the worst REVENUE CRISIS in history is actually a “spending crisis” instead. And there is a VERY obvious reason for telling that lie: so that our stooges in government will SQUEEZE THE POOR (with MORE spending cuts) rather than TAX THE RICH.

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