Deficits, Unemployment and the National Sturm and Drang

In yesterday’s edition of The Daily Reckoning we observed, “Confident citizens do not usually buy record amounts of guns and gold.” We speculated that the simultaneous booms in gold-buying and gun-buying were probably not portents of smooth sailing ahead.

Both purchases, in their own way, are extreme responses to “everyday life.” Beaver Cleaver never bought a Colt 45.  Ozzie and Harriet never stashed gold under their mattress.

So why are Americans buying guns and gold? Why the national sturm und drang?…Why the coast-to-coast Sturm Rugers? We can’t say with specificity, but we can guess with generalities.

One significant generality is the stubbornly high national unemployment rate. We’re talking about the “U-6” series from the Bureau of Labor Statistics. What is U-6? It is both a rare, sushi-grade scallop and a data series that includes unemployed workers, as well as “underemployed” and “discouraged” workers. The stubbornly high U-6 unemployment number shows quite clearly that jobs have become as rare as…well…a U-6 scallop.

As the chart below illustrates, the U-6 rate has been hovering in the 16% to 17% range for most of the last two years, despite massive, trillion-dollar “stimulus measures” by both the federal government (directly) and by the Federal Reserve (indirectly).

Under-Employment Rate vs. Federal Reserve Assets

Bernanke’s unprecedented, trillion-dollar money printing schemes – which have ballooned the Fed balance sheet from about $800 billion to nearly $2.5 trillion – have failed to stimulate anything other than bad press. The Chairmen continues to insist that he is working some kind of macro-economic miracle by printing dollars and buying Treasury bonds. He insists this scheme is contributing to an economic recovery.

But the U-6 number, to name just one of the many dismal economic data points floating around, suggests that Bernanke’s dollar-printing is no miracle. It is a fraud, wrapped in a PhD thesis.

“Once they get a taste for it,” Bill Bonner observed in his essay “Tomorrow Happened Yesterday”, “few economies can resist spending money they didn’t earn. First, they borrow from the future. Then, they steal from it, by simply printing money. Finally, you get déjà vu, as yesterday’s greatest financial disasters happen, once again.”

There’s plenty of fraud to go around. Ben Bernanke isn’t the only con man. The Legislative and Executive branches of the US government are also in on the game.

So what’s your role in all of this, dear reader? You’re the patsy. As Warren Buffet once remarked, “If you’ve been in a poker game for 30 minutes and you don’t know who the patsy is, you’re the patsy.”

“Consider this,” our colleague, Porter Stansberry, observed recently, “Even if the US government collected 100% of the income of all the people who make more than $250,000 a year, it would have still run a deficit last year. Even if you doubled the entire amount of income taxes collected, the Federal government would have run a deficit last year. There is no way to balance our budget, no way to prevent the literal bankruptcy of our country and the runaway hyperinflation that would result, unless we dramatically cut the government’s budget.”

What is the government’s response to this grim state of affairs? Austerity? No way! The government’s initial response to its trillion-dollar deficits is to conduct billion-dollar witch-hunts.

As Bob Bauman, our colleague over at the Sovereign Society, explains, “The Government Accountability Office, at the request of Congress, released a study examining how the government could leverage the US passport process to recover unpaid taxes. The GAO found that in fiscal 2008, Americans who received passports owed a collective $5.8 billion to the IRS and could owe much more, since that estimate only factored in one year’s worth of passport recipients.”

On the one hand, the tactic seems fair. Why let dead-beat taxpayers roam around the globe on an American passport? On the other hand, this tactic feels like another sign that a quasi-police state may be taking shape in America.

“The real frustration,” our friends at the Sovereign Society relate, “is the GAO’s conclusion that, ‘As federal deficits continue to mount, the federal government has a vital interest in efficiently and effectively collecting the billions of dollars of taxes owed under current law.’ What about the vital interest all Americans have in a budget and financial system unburdened by punishing debt and imprudent spending?”

Good question.

Eric Fry
for The Daily Reckoning