By Bud Conrad
The big news last week was that the unemployment did not get worse. Only 11,000 jobs were lost. But as many of us look around and see stores going out of business and friends that can't find jobs, we question whether this somewhat positive news can be backed up by other measures… measures that are subject to much less manipulation by the government reporting agencies.
One such measure is how much taxes are being collected by the government.
When businesses are cutting back and employees are earning less, tax revenue drops. So to get a perspective, I've overlaid the total number of jobs with the total amount of federal government taxes. The basic idea is that tax revenues come from people who are working in businesses that are successful, so there should be a close correlation, and there is.
In this perspective, the small improvement in the jobs number is barely perceptible as a small tweak at the end of the line. If, in fact, there are more jobs, one might look to see if the taxes had started to improve as well.
But the result shows no rise in the tax revenues. And my conclusion is that the economy is still very weak.
I compiled the above chart using Thursday’s Monthly Treasury Statement, which, in addition to receipts, also shows spending and deficit that results when the former falls short of the latter. I thought it might be useful to plot all three on the same chart, just to confirm what we all know – that the government deficit is much bigger than anything we have seen for decades. The data is through November.
You can see the gap between receipts versus spending outlays has widened to the point where the difference between the two becomes a deficit of almost one and a half trillion dollars.
President Obama has said that he wants to continue spending us out of deficit. In talking to Republicans, he said that he didn't know of any economist that thought we should cut government spending at this time. I am an economist, and I think we should cut government deficits because the long-term result of too much spending will be damage to our dollar.
It is already happening, as can be seen in the long-term decline of the dollar against other currencies, and more powerfully in the rise of the price of gold. There are people who agree that the deficits are a serious problem, like Peter Schiff and Mark Faber, who spoke at recent Casey Research Summits. Their views are challenged by the academic Keynesians like Paul Krugman and Nouriel Roubini who think that the economy can be grown by the government printing up new money and spending it. They might even argue that the typical inefficiencies of government spending are justified if the economy somehow miraculously recovers.
But in fact, it matters greatly what the government spends its money on: in the current scenario several trillions of dollars of direct subsidies, loans, and guarantees were directed at the large financial institutions, and guess what? They have been doing well. But for the common man who has lost his job and may lose his house, there has been very little immediate relief.
Protect yourself from the slow economy and large government spending that will lead to inflation by investing in gold, energy, and higher interest rates.
[Ed. Note: Speaking of past Casey Summits, you may remember that our latest one was on the topic of energy – a sector that, though important already, will gain even more significance in 2010. All the accredited experts at our summit agreed, for example, that $200/bbl oil is in our near future. And you don’t need me to tell you what that means for oil and renewable energy companies.
Since We’re Talking Unemployment
David again.
Last Friday I ran a chart showing U.S. part-time employment, which has a strong correlation to recessions. Out of curiosity, we overlaid the unemployment rate over the same chart. As you can see, there is, again, a pretty tight connection between a turndown in part-time employment and an improvement in the national unemployment rate.
So far, what the data are telling us – besides how serious the unemployment situation is – is that, one-month blips aside, the economy isn’t out of the woods yet.
So far, what the data are telling us – besides how serious the unemployment situation is – is that, one-month blips aside, the economy isn’t out of the woods yet.
And given the sheer number of unemployed, the pressure on the economy – and on the government to continue running deficits – will be with us for some time to come.
And that, dear reader, is that for this week. See you on Monday!
David Galland
Managing Director
Casey Research
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