Monday, March 26, 2012

More Evidence that Economy is Disintegrating-One Week?

Despite the hopium coming from the various federal data collection agencies about how the economy is improving more evidence emerges that the end of the masquerade is near. Two very well respected economist, John Williams and John P. Hussman, are in agreement that there is very little, maybe a week, left before economic indicators turn “hard negative” for everyone to see.
The top graph is John P. Hussman’s verstion of federal withholding of taxes from workers.

Federal Withholding Tax Deposits - John P. Hussman Interpretation/Graphics. June 2011 to December 2011
As can be seen the most recent numbers drop off significantly. To put it bluntly, less workers, less taxes, less production of goods and services, less GDP. To quote Dr. Hussman directly “For our measures (of economic data), the signals tend to lead the data by 13-16 weeks (3-4 months). It has been about 15 weeks since our main composites turned negative, so while every cycle is different, I suspect that we are on the cusp of observable economic deterioration.” 12-19-2011.
Happy New Year.
The bottom graph is John Williams version of the federal withholding of taxes from workers.

John Williams version of the federal withholding of taxes, 2001 to 2011
Looking at the Williams version it is easier to see that in strong economic growth periods there is not the significant drop off in payroll taxes collected. While the tax withholding can be seasonal, varying between 3.2 million workers out of 153,683,000 counted in the workforce, the overall trend can be observed. It is plain that in strong growth periods taxes collected can increase, and continue to increase, through the December/January period.
Generally in the past there has been deflation of commodities when there has been slow economic activity. This has to be balanced with the prospect of the Federal Reserve continuing its heavy monetary intervention into the economy, including the possibility of more quantitative easing, aka printing money.
The outlook for precious metals remains positive, as well as stocking up on essentials. Real economic output is measured in physical production, not fiat paper. When the real producers of wealth go out of business so will their production disappear from the marketplace. With the Federal Reserve continuing its Keynesian economic policies of “priming the pump” there certainly will be more dollars chasing fewer goods, and the resulting inflation.
The bottom line is deleveraging must occur, six months to eighteen months, without banking and government interference, severe recession, and reallocation of resources, for there to be real positive economic growth.

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