U.S. Government Is Hiding the Depression

Exposed: How the U.S. Government Is Hiding the Depression

December 29, 2010

Financial Sense - The real US unemployment rate is not 9.8% but between 25% and 30%. That is a depression level of job losses -- so why doesn't it look like a depression for many people? How can so large of a statistical discrepancy exist, and how is it that holiday shopping malls are so crowded in a depression?

The true devastation is hidden by essentially placing the job losses inside three different "boxes": the official unemployment box, the true full unemployment box, and most importantly, the staggering and persistent private sector job loss box that has been temporarily covered over by a fantastic level of governmental deficit spending. The "recovering and out of the recession" cover story is only plausible when nobody connects the dots and adds all the boxes together.

We will add together the three boxes herein -- using US government statistics for all three -- and convincingly show that the US economy is in far worse condition than what is presented by the government or by the mainstream media. No, we have not emerged from "recession" and there will be no "double dip" -- because the first "dip" was straight down to a depression-level economy in 2008/2009, and we haven't come back up.

Creating artificial "free money" on a massive scale that artificially boosts short-term employment is how you segment depression level unemployment into the separate boxes and hide what is really happening. It is this radical strategy that most distinguishes the current downturn from the 1970s and 1930s. The ultimate source of most of the current "free money" that hides the depression is the government risking the impoverishment of US savers and investors for potentially decades to come, with the worst of the damage concentrated on retirees and Boomers.

To have a chance of defending your hoped-for future lifestyle, there is simply no substitute for seeing the truth clearly. For it is only when we see through the lies with clarity that we can distinguish the false opportunity of manipulated markets from the real opportunities that can be found in unexpected places.

Headline Unemployment (Box 1)

The graph above is our starting point and first "box". It is the "headline" rate of unemployment in the US that is featured in newspaper articles and discussed on the cable business news. As of November 2010 the official US unemployment rate was 9.8%. While that's deeply painful, and unemployment rates since 2008 have been the highest seen since the end of the Great Depression (with the exception of the 10.8% peak in 1982), 9.8% is not a depression level unemployment rate.

Real Unemployment (Box 2)

As economists and political decision makers know quite well, the "official" unemployment rate is not the full rate of US unemployment. The "official" rate is technically known as the U3 rate of unemployment, and it is a politically advantageous partial accounting for the unemployed. The U.S. Bureau of Labor Statistics calculates unemployment 6 different ways, U1-U6, and it is only in the U6 statistic that all the categories of unemployment are added together.

The two biggest differences between the U3 official rate of unemployment and the U6 full rate of unemployment are in the treatment of the long-term unemployed and involuntary part-time workers. If you've been out of work for a long time, you badly want a job, but you know from your long search that nobody in your area is hiring; you already have applications on file at every reasonable prospect, and you haven't filled out a new application recently -- then from an official perspective (U3), you are not only no longer unemployed, you just became a non-person altogether. Alternatively, if you have a master's degree in engineering, lost your job, and are working 15 hours a week (the most you can get) in a convenience store at minimum wage to keep a little money coming in, then from an official (U3) perspective you would be fully employed. In contrast, U6 is the most inclusive measure of unemployment, as it includes both the long-term unemployed and the involuntary part-time categories. Thus, individuals in each of the situations described above would be included in the U6 measure.

The green bar segment in the graph above illustrates what happens when we look at the full, U6 measure of unemployment as reported by the U.S. Bureau of Labor Statistics for November of 2010. Our unemployment rate almost doubles, as we go from 9.8% to 17% of the civilian work force being unemployed. The real unemployed go from one in ten workers, to one in six workers. The difference between a just-under-10% unemployment rate and a close to 20% rate of unemployment is the difference between recession and depression.

Unfortunately, there is more in the mix than simple unemployment statistics, and when we look inside the "third box" in the next section, we will see that the economic situation is not a mild depression, but rather a full blown major depression.

To try to prevent a flood of corrective e-mails from readers, let me state that the challenge I set for myself in writing this article was to illustrate what was happening using only official US government numbers. Meaning, in my opinion, using unreliable and deliberately misleading numbers that have been subjected to increasing degrees of political manipulation over the decades. I have been writing articles for years that have discussed increasing government manipulation of inflation statistics, and am well aware of the work of John Williams and others in trying to independently determine genuine inflation and unemployment rates. I personally believe that the real inflation and unemployment rates are substantively higher that what is being reported to us, and that the real U6 measure is likely 20% or above.

That said, I wanted to separate the concept of the three boxes from the concepts of statistical manipulation, so there were no distractions for a reader who was skeptical about manipulations, i.e. whether the US government would abuse the fine print of economic statistics to mislead its citizens for political purposes. If you have no trouble accepting that the government manipulates statistics for political advantage, then understand that the situation is significantly worse than what is illustrated herein.

The Gaping Hole In The Economy

To see what a real depression looks like, take a long look at the graph below, which shows what happened to the US economy between 2007 and 2009. As shown with the blue bars and the chart below the graph, the size of the US private sector economy plunged by $1.3 trillion -- and it hasn't come back.

Yet, we don't see the full extent of this plunge around us on the streets or in the headlines. Indeed, despite this ongoing, gaping hole in the US economy, the official story is that the US isn't even in a recession. What happened to all of the job losses from this rapid and persistent collapse of a large section of the US private economy?

The answers can be found in the red and yellow bars above, representing Federal government spending and state and local government spending. Federal spending rose by $700 billion, and state and local government spending rose by $300 billion. (With the state and local spending being funded by Federal government transfers that have been netted out, so it is really almost all growth in Federal spending.) The private economy plummeted by $1.3 trillion while the government economy soared by $1 trillion, and we were left with what looks like a much more manageable $300 billion shrinkage, the kind of economic change that might be associated with a 9.8% official unemployment rate. In other word, a little over 75% of the collapse in the private economy was (and is) being covered by increased government spending.