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Daily Dispatch: Unemployment and Taxes - Dec 11, 2009
Published:
December 11, 2009
by GoldSpeculator
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| December 11, 2009 | www.CaseyResearch.com | Unemployment and Taxes
Dear Reader,
You’d think that by writing a daily missive such as this, one would run out of things to write about in relatively short order.
Not hardly.
There is so, sooo, soooo much going on in the world just now that everywhere I look, up pops something worth paying attention to.
And that’s just me and doesn’t include all the other folks here at Casey Research who spend the better part of each day – and often night – watching markets and economic developments on the behalf of the subscribers to our various services.
In today’s missive, I am going to move over a bit and let some other members of the team squeeze in, starting with something that Casey Research Chief Economist Bud Conrad just sent over on unemployment, a topic that is of no small importance in what has so far been labeled a “jobless recovery.”
As you’ll read in a moment, here at Casey Research we concur with the front end of that term but aren’t so sure about the back end.
Before we get to Bud’s contribution, however, I have some new music of the dramatic genre to share. It meets all of my personal criteria, with a slow start building to a strong middle and finish, and a powerful message. As icing on the cake, it was written by the child of a friend of mine, and a fellow subscriber of yours… and it has just been nominated for a Grammy. You’ll see why when you listen to
.
(Those of you whose musical preferences skew toward tamer fare will be tempted to turn the song off before you get to the best parts – but I would urge you to listen to the whole thing through. It’s worth it... it’s been stuck in my head ever since first listening to it.)
Now, to our own Mr. Hurricane, the tireless Bud Conrad.
Unemployment and Taxes
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.
If you want to stay in the loop on energy and profit from what’s on the horizon, this is the time to sign up for Casey’s Energy Report. For a very limited time, you can get a 1-year subscription for just $595… that’s $400 saved off the regular retail price. PLUS, as a special holiday gift, you’ll also get 12 issues of Casey’s Extraordinary Technology (a $995 value) FREE of charge. But hurry up, this offer is only good till December 18.
This is your chance to get in on the cheap and take advantage of the energy stock picks of our own Marin Katusa, a veritable investment wunderkind. I’m proud to say he has had 19 stock winners in a row in the past 11 months. Find out more about Number 20 by clicking here.]
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.
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.
Cool
From time to time, it’s worth casting an eye across the pond to the goings-on in Britain, a country that has special importance to our U.S. readers. For one, it was once home to our nation’s founding fathers and so is the source of strong cultural memes. For another, up until World War II, it held claim to the title of World’s Empire, until losing it to the U.S. As such, we can learn much from its descent into irrelevancy. And finally, the nation seems to have a national imperative to steadily remake itself into the world envisioned by its own George Orwell in 1984.
The first of today’s entries in our “Britain Watch” comes from regular correspondent and now British expat Mr. Watson, writing again from the sunnier climes of Portugal…Yesterday, Chancellor of the Exchequer Alistair Darling presented to the British Parliament his proposed budget for 2010. The ruling Labour Government must call a general election within the next six months, probably in May. So this was just as much an election budget as a financial one. Which is why he made no attempt to tackle the huge deficit and national debt. Government continues to grow ever larger and more expensive.
Here are some of the main items listed. In 2009, the economy shrank by 4.75%. The 2009 deficit swelled to £178 billion. This meant that the borrowing requirement was 12.6% of GDP. The national debt now stands at £1.4 trillion. VAT (national sales tax) was increased from 15% to 17.5% on nearly all goods and services. National Insurance (payroll tax) was increased up to 1% extra. There were also a range of vote-getting giveaways adding up to a few more billions on the deficit. The most frivolous was that the tax on bingo winnings was reduced from 22% to 20%. Hello, Grandma!!!
The British press today were nearly all critical of Darling's budget. The Sun, Britain's largest selling newspaper, ran a front page headline this morning, in big bold caps. It read "Darling Just Screwed More People Than Tiger Woods." (And I might add, he has not scored so many birdies!)
The worst hit were the bankers. Darling announced a new Bonus Windfall tax. This applies to all banks, whether they have borrowed from the government or not. The bonus tax rate is 50% and applies to all bonuses over £25,000, and is paid by the bank. The bank executive then has to pay 40% income tax on the remaining 50%. Many bankers are reported to be packing their bags and moving to Geneva to avoid British taxes. Darling also said that this new tax was temporary. Right… British income tax was first introduced at a low rate, and on a “temporary” basis to pay for the Napoleonic war!
I must dash, I’m off down to the bingo hall to make my fortune.
Then there were these headlines and article links from another correspondent who is still in the UK, but now thinking hard about relocating…Taxpayers face £2 trillion unfunded pensions liability
Taxpayers are facing a £2 trillion unfunded pensions liability, equivalent to more than £80,000 for every household in Britain, according to figures quietly released by the Government yesterday.
And this from the same article…The total public sector pensions bill is now £810bn, a figure confirmed later in the day in the pre-Budget report. The majority of the state employees are on generous final salary schemes unattainable elsewhere in the UK.
This bill for key public sector workers' pensions has rocketed by 20pc between 2006 and 2008.
[Full article here.]
On that last point, the British civil servants aren’t the only ones with their snouts deeply buried in the slop. Today the always useful Daily Crux pointed to an article in USA Today on the stunning increase in salaries for U.S. federal government workers. Some relevant quotes…The number of federal workers earning six-figure salaries has exploded during the recession, according to a USA TODAY analysis of federal salary data.
Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months — and that's before overtime pay and bonuses are counted.
Federal workers are enjoying an extraordinary boom time — in pay and hiring — during a recession that has cost 7.3 million jobs in the private sector.
The highest-paid federal employees are doing best of all on salary increases. Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, the most recent figure available.
When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000.
Outraged? You should be.
And speaking of outrage, we return to a just concluded court case in the UK that provides an important warning of what’s to come – is already coming to pass – in the U.S. and elsewhere. Here’s the headline and some relevant quotes…Condemned out of hand by the Inland Revenue
Forget the 50 per cent, the VAT, all that. Tax goes up, goes down, that’s life. For a minute, focus not on the rate of tax but on the behaviour — and the powers — of those who collect it; HM Revenue & Customs.
HMRC! If I were HM Queen, as inheritress of a proud and hard-won tradition of fair trials and presumption of innocence, I would want my initials taken off their title, pronto. This week a judge publicly wavered before sending a 60-year-old businessman to prison for tax fraud. Mr Justice King was understandably worried about banging up the accused, given late evidence suggesting that he never defrauded the Revenue at all, but that they actually owe him money.
I would also give a royal wince at the information that the report uncovering this was done, gratis, by an accountancy firm because once HMRC pounced on Philip Bowles, all his assets were frozen under David Blunkett’s “Proceeds of Crime Act”, so he couldn’t afford his own report. Nor could he get legal aid. He was condemned as soon as suspected.
Which suits the Revenue just fine. Once work has begun, they like to get a “result”, and cast a net of impossible questions and coercive powers over even the smallest cases. This will be familiar to anybody having a random “tax inspection”. It rapidly becomes clear that they won’t give in, even if there is no reason to suspect you; their productivity rules mean that they have to deploy penalties. So you get accused of “culpable bankings” if you can’t remember what caused a £90 deposit four years ago (could have been the insurance for the broken window or a friend who borrowed in cash and repaid by cheque). Crazy questionnaires arrive, demanding to know what your house, personal effects, cash in the wallet and property of minor children were worth on a random date years back.
Read the full article here…
That article brings to mind a fax I received after I had been living outside of the country for going on three years. At the time I received it, I was living in a remote town in Argentina. The note was from my former accountant, relating that he had received notice that I owed taxes to the state of New York, and that if I didn’t respond to their needs, they were going to start freezing assets of mine.
So I called the gentleman from the NY State tax department who had signed the threatening notices, a Mr. Kwame, and mentioned that I had heard he was looking for me. Yes, he confirmed, going on to say that, due to my past residency in the Empire State, I owed the state of New York past-due income taxes and penalties amounting to about $15,000.
“But,” I chuckled, “you must have me confused for someone else, as I have never lived in the fine state of New York.” To which he responded, “That’s up to you to prove.”
“You’re kidding, right?” I retorted. “Surely you can tap into your computers and discover that I have never had an address in New York, never paid a utility bill, received a driver’s license – in other words, there is no record of me having ever lived in New York.”
“No, I am not kidding,” he replied. “It is entirely up to you to prove that you have never lived here, not us.”
Over the next month, as my new accountant straightened things out, Mr. Kwame and I struck up something of a rapport. He was from Kenya and had a strong accent, and, as he put it, was “just doing his job.” No matter how friendly our chats, though – mine usually tinted with various derisive remarks about how stupid his employers were – he was resolute that he couldn’t close the file until I proved I had never lived there.
The story, I am happy to report, had a happy ending. The New York partnership I had invested in, which had triggered Mr. Kwame’s blind grab for my money, had actually overpaid on my behalf, and so not only did I not have to pay the state taxes, but they had to pay me a sizable refund.
The moral of the story is that when the tax man cometh, you better have a good accountant and deep enough pockets to be able to fend the buggers off.
And with that, it’s time for a laugh…
Friday Funnies
I’ll Drink to That
A cowboy who just moved to Wyoming from Texas walks into a bar and orders three mugs of Bud. He sits in the back of the room, drinking a sip out of each one in turn. When he finishes them, he comes back to the bar and orders three more.
The bartender approaches and tells the cowboy, "You know, a mug goes flat after I draw it. It would taste better if you bought one at a time."
The cowboy replies, "Well, you see, I have two brothers. One is in Arizona , the other is in Colorado . When we all left our home in Texas , we promised that we'd drink this way to remember the days when we drank together. So I'm drinking one beer for each of my brothers and one for myself."
The bartender admits that this is a nice custom and leaves it there.
The cowboy becomes a regular in the bar and always drinks the same way. He orders three mugs and drinks them in turn.
One day, he comes in and only orders two mugs. All the regulars take notice and fall silent. When he comes back to the bar for the second round, the bartender says, "I don't want to intrude on your grief, but I wanted to offer my condolences on your loss."
The cowboy looks quite puzzled for a moment, then a light dawns in his eyes and he laughs.
"Oh, no, everybody's just fine," he explains. "It's just that my wife and I joined the Baptist Church and I had to quit drinking."
"Hasn't affected my brothers, though."
Remember When
Remember when Ronald Reagan was president,
We also had Bob Hope and Johnny Cash still with us…
Now we have Obama and no hope and no cash.
Miscellany
Niagara Falls through a fire hose. Today I received the following message from one of my U.S. discount brokers, announcing that they…“…will be transitioning to a new system that allows you to trade foreign securities online from more than 20 countries including Canada, the United Kingdom, Japan and Australia. Most of the foreign securities available will be traded in the U.S. as American Depository Receipts (ADRs) and Ordinary Shares (ORDs).
As those of you who subscribe to our Casey’s International Speculator already know, the Canadian junior resource markets are thinly traded, which is why even a little buying pressure can have wonderful results for early shareholders. The trend toward making it easier for U.S. investors to buy and sell foreign securities is now well entrenched. When that trend meets the buying mania we expect to see before this bull has run its course, the results should be nothing less than spectacular. (For more on our year-end offer for Casey’s International Speculator, click here.)
See you in Argentina, March 25 – 28. If you have been thinking of taking a look at Doug Casey’s version of Galt’s Gulch, La Estancia de Cafayate in Argentina, mark your calendar for the Harvest Celebration, March 25 – 28. The festivities, held in conjunction with the town’s annual grape harvest, will feature a number of special activities, including a half-day investment seminar featuring Doug Casey and friends. For more details, click here. See you there!
New Casey Phyles. There are two new Casey phyles starting up, in Edmonton, Alberta, and in Romania. If you live in those areas and would like to connect with other subscribers, drop us a note at phyles@CaseyResearch.com and we’ll make the necessary introductions.
And that, dear reader, is that for today.
As I sign off, I see that the U.S. stock market isn’t doing much of anything, but that gold, silver, and oil remain under pressure. Will gold break $1,000? Silver $17? Oil $70?
I don’t know, but I’ll be interested to see what happens next. I’m surprised they’ve fallen this far, but not particularly unhappy, as I just got filled on a stink bid for GDX, the large-cap gold producers ETF.
All that really counts is to ask yourself if the bull market in tangible stuff is over. In order for that to be the case, the fiat currencies will have to have won the day, despite being soundly abused – the latest evidence of which is the certainty that the U.S. Congress will approve raising the debt ceiling by another $1.9 trillion next week – an increase of 15.7%.
Despite the abuse, the dollar is rallying again. No market goes straight up or straight down. And short-term moves are impossible to predict. The long-term trend, however, seems well intact… more spending, more debt, more currency debasement.
Until next week, thanks for reading and for being a Casey Research subscriber.
David Galland
Managing Director
Casey Research
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