|REALITY CHECK: GDII IS ALREADY WORSE THAN GDI
I'm going to compare GDI and GDII in unemployment, federal deficits, unfunded liabilities, home values,
and factory loss. But first, why don't Americans already know the real economic situation? My answer
comes from an economist who makes his living selling slices of economic reality.
"Misleading accounting used by the U.S. government, both in financial and economic reporting, far
exceeds the scope of corporate accounting wrongdoing that has received partial credit for recent stock
market turbulence. The bad boys of Corporate America, though, still were subject to significant
regulatory oversights and the application of GAAP accounting to their books. In contrast, the
government’s operations and economic reporting have been subject to oversight solely by Congress,
America’s only "distinctly native criminal class."" (Walter J. "John" Williams, "Federal Deficit Reality,"
2004, see www.shadowstats.com/article/federal_deficit_reality). Note: GAAP stands for "generally
accepted accounting principles."
"Walter J. "John" Williams was born in 1949. He received an A.B. in Economics, cum laude, from
Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth's Amos Tuck School of Business
Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting
economist, John has worked with individuals as well as Fortune 500 companies." (Ibid, see www.
Why has the government systematically hoodwinked the American people about the state of the nation.
Of course, there is the obvious reason, politicians seek to be reelected. But there is a more subtle
reason as well. The world financial system is in deep trouble, but there is a desire among financiers to
profit from it a little longer.
The world financial system exists (despite claims of its utility to commerce) primarily to take some of the
money made by those working men and women who create tangible wealth (like houses, cars and
computers) and those who provide services (like car repair, sales, and cleaning). The world financial
system gives part of their money to the super rich and to those who are striving to become rich.
The world financial system sends money upward in various ways, some more legitimate than others.
Some monies are taken in acceptable, if annoying, ways, for example interest, and credit card fees, and
late fines. Others, like the sale of bundled fraudulent mortgages purporting to be AAA securities are
criminal, even if not indicted by the Obama administration. This scam defrauded pension funds that
bought these securities all over the world, but it made the scamsters involved very rich.
The financial system has always contained the seeds of its own destruction. At the bottom, banks must
lend money. The difference between the interest on the money they hold for depositors and the money
they lend supports the salaries of their employees, the cost of their buildings, etc. As the economy
becomes worse, people cut back on their spending and their borrowing. If people were aware of how
bad things really are, their retrenchments would collapse the whole financial system.
Before getting to specifics like unemployment, here's a view of some of the things that are worse now
than in 1929.
"In 1929, the US dollar was backed by gold. Now it is backed by nothing more than your faith. In 1929,
credit cards and home equity loans did not exist, and people of that era avoided debt like the plague.
Today personal debt levels are near all time highs... In 1929 we didn't face terrorist threats and we
weren't worried about a porous border allowing an influx of millions of illegal aliens. The high price of
oil wasn't an issue, neither was an oppressive regulatory environment. Things like the $40 billion
monthly trade imbalance, bloated federal bureaucracy, ballooning state deficits, severely underfunded
pensions, crippling tax burden and crumbling infrastructure just weren't issues then either. It's
blindingly obvious that the trillions of dollars printed by the government are masking a horrifyingly weak
financial condition that has been in a downward spiral for many years." (Richard Martin, "It's worse than
the Great Depression," The Wake up Call, Progressive Radio Network, 2011). With thirty years
experience in the financial arena and experience living in 8 countries, including the USA, Richard
Martin's aim is to demystify economics and investment for the average man.
Because this report is long, I have put its conclusions in charts that precede each section. Read each
section to understand how I came to my conclusions. Skip to the end to see my suggested solutions.
Unemployment: Total 1931 16%
Within "labor force" (U.3) 2011 9%
Including discouraged workers (U.6) 16%
Estimated true figure 23%
Let's start with unemployment. John William's figures are terse: "October Payroll Employment Not Only
Was 6.5 Million Below the Pre-2007 Recession High, But Also Was 1.0 Million Below the Pre-2001
Recession High •October Unemployment: 9.0% (U.3), 16.2% (U.6), 22.9% (SGS)." (Walter J. "John" Williams,
"No. 397: October Employment and Unemployment," Nov. 2011, see www.shadowstats.com). Note: the 9%
(U.3) is a US Bureau of Labor Statistics figure which includes only those working or actively looking for
work. The 16% (U.6) is another US BLS figure which also includes those not working who have not tried
to find work in the last year, discouraged workers. The 22.9 (SGS) is what John thinks is the actual
John provides a description of exactly how methodology calculating unemployment changed over the
years, a history of which politician changed what. Many presidents fudged the numbers, but Bill Clinton
was the worst data revisionist. "Whatever integrity had survived in the economic reporting system
disappeared during the Clinton years. Unemployment was redefined to eliminate five million
discouraged workers and to lower the unemployment rate; methodologies were changed to reduce
poverty reporting, to reduce reported CPI inflation, to inflate reported GDP growth, among others."
(Ibid, www.shadowstats.com/article/primers_intro, 2004.)
For another view, here again is Richard Martin of the Progressive Radio Network commenting on
"It's actually difficult to compare unemployment statistics, because the methodology used to estimate
the data has changed over time. At the peak of the depression in 1933, it's estimated that unemployment
reached 25% nationwide. That compares to the 9.1% rate of August, 2011, published by the US Bureau of
Labor Statistics, which identifies the labor pool according to three separate categories, that is to say,
those employed, ie, people with jobs, the unemployed, ie people who are jobless, looking for jobs and
available for work, and what they call not in the labor force, that's people who are neither employed or
unemployed. Which of course is complete nonsense and it's all just for political reasons, because it has
no real meaning in the life that we all know. People who are not in the labor force are people who are
"So you see the statistics have been completely tweaked and wrenched to provide political expediency
and a total lack of transparency. Now remember that people in that last category, that not in the labor
force category, are not counted in the unemployment rate calculation, and if they were, the rate would
be 7 to 10% higher. And in addition, the Federal Deficit of $1,600 billion is paying for about 9 million jobs
that wouldn't exist if the budget were balanced, eliminate those jobs and the unemployment rate jumps
again. Adding in these missing elements brings today's adjusted rate to at least 22 to 25%, higher than
the average 18% rate from 1930 to 1940." (Richard Martin, "It's worse than the Great Depression," The
Wake up Call, Progressive Radio Network, 2011).
Total (billions) % GDP
National Debt: 1929 16 16%
1933 20 20%
1936 34 40%
Nov. 14, 2011 14,990 100% (15,020 GDP)
"When the depression started, the government was not saddled with servicing a huge debt burden, the
debt was only about 16% of gross national product. Contrast that with the current debt approaching
15,000 billion, which is what you call 15 trillion... with an estimated annual interest cost of over 434
billion for 2011, even with the benefit of extremely low interest rates. Now understand well that that
interest burden is a massive drag on the economy, that didn't exist during the Great Depression." (Ibid).
Although the National Debt started low the Depression escalated it. "When Roosevelt took office in
1933, the national debt was almost $20 billion; a sum equal to 20 percent of the U.S. gross domestic
product (GDP)... By 1936, the national debt had increased to $33.7 billion or approximately 40 percent of
GDP." (Wikipedia, United States Public Debt). The worst of the Depression did not bring us to the debt
levels seen now.
"As of 2010 the US GNP or Gross National Product was around 15,000 billion as well, leaving the country
with a 100% debt to GNP ratio. 4,500 billion of the current debt is owned by foreign governments, with
almost half held by China and Japan alone. And this gives these countries influence over US foreign
policy that may not be overt, but it's there nonetheless. They could also cause financial chaos, if they
simultaneously sold their treasury holdings. Now, this was not even vaguely an issue in 1929." (Richard
Martin, "It's worse than the Great Depression," The Wake up Call, Progressive Radio Network, 2011).
Unfunded Liabilities: 0 at least $62 trillion
"A USA Today analysis published in June 2011 estimated that these liabilities amount to about $62,000
billion, that's sort of 62 trillion if you like, or $528,000 per household... The current unfunded liabilities,
that is to say, those obligations of the future which have not yet been funded, they are more than 5
times the personal debt of the average household. That debt will experience exponential growth as the
baby boomer generation adds 10,000 retirees per day to the entitlement program rolls. Skyrocketing
health care costs only add to the problem. These programs resemble a Ponzi scheme in that today's
working generation is paying the taxes to fund the payments for those currently collecting benefits... If
you can imagine a situation where these programs didn't exist, you're thinking 1929. So there was no
burden on the tax payers to come up with the money to pay for them..." (Ibid).
"If you add up all the promises that have been made for spending obligations, including defense
expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion.
That's the fiscal gap. That's our true indebtedness." (NPR Staff, "A National Debt Of $14 Trillion? Try $211
Trillion," NPR, August 6, 2011, quoting Laurence J. Kotlikoff). Economics professor Laurence J. Kotlikoff
served as a senior economist on President Reagan's Council of Economic Advisers.
Depression 2006 to mid-2011
Percent Loss of Home Values (Zillow) 25.9% 29.5%
"By the first quarter of 2011, home prices had dropped 33% below the 2006 peak reached in most areas
of the US. This compares to the 31% drop experienced during the Depression. It took nearly two
decades to recover the lost equity. Whether or not housing has reached bottom yet is an open
question." (Richard Martin, "It's worse than the Great Depression," The Wake up Call, Progressive Radio
Similar figures are produced by Zillow. "Along with the snow and cold, November brought continued
declines in home values. In fact, the Zillow Home Value Index has now fallen 26% since its peak in June
2006. That’s more than the 25.9% decline in the Depression-era years between 1928 and 1933." (Katie
Curnutte, "Home Value Declines Surpass Those of Great Depression," ZillowBlog, Jan. 2011).
Since that time prices have fluctuated. "U.S. home values posted their largest quarter-over-quarter
decline since Q42008, falling 3 percent. Home values have fallen 29.5 percent from their peak in June
2006." Zillow Press Release, "First Quarter Home Value Declines Match Worst of Housing Recession;
Bottom Unlikely to Appear Before 2012," May 9, 2011).
Bank Failures: Total Banks 4000+ 325
Cost to Depositors $1.3 billion 0
Cost To Depositors in 2011 dollars $17 billion
Cost to FDIC so far over $73 billion
Cost To Taxpayers of Bailouts ??? Trillions ???
It is difficult to compare bank failures between the two depressions. The Great Depression was an era
of small banks. We are in an era of the failure of big banks. In the first Great Depression over 4000 small
banks failed. In GDII a few hundred large banks have failed. Additionally, the creation of the FDIC
changed the way banks fail.
"From 1929 to 1933, bank failures resulted in losses to depositors of about $1.3 billion. Before the FDIC
was in operation, large-scale cash demands of fearful depositors often struck the fatal blow to banks
that might otherwise have survived." (FDIC Learning Bank, "The 1930's", see The Banking Act of 1933).
The website Inflationdata.com gives a Sept 2011 CPI (Consumer Price Index) of 226.889 and a Sept 1929
CPI of 17.300. Both figures are in 1982 dollars. (Inflationdata.com, Historical CPI-U data from 1913 to the
present). These figures indicate that the cost of consumer items has increased over 13 times since
1929. Using this yardstick, the $1.3 billion lost in the bank failures of GDI would therefore be a little over
$17 billion in 2011 buying power.
The FDIC acts to conserve the assets of failed banks, so that only a part of the money is lost. Nine of
the banks that failed in 2008 had assets over $1 billion. Washington Mutual Bank of Seattle had assets of
$307 billion, but this was unusual. Total assets from bank failures in 2008 were over $373 billion. Total
assets from bank failures in 2009 were almost $164 billion and total assets from bank failures in 2010
were $96 billion. (Wikipedia, "List of bank failures in the United States (2008–present)").
"The pace of bank failures has been increasing dramatically over the past three years. During 2010, a
total of 157 banks failed, the most since 1992 when 181 were closed. Banking failures during 2010 cost
the FDIC Deposit Insurance Fund $26 billion, bringing the fund balance to below zero. A total of 140
institutions failed during 2009 compared to only 25 during 2008. There were only 3 bank failures during
all of 2007. No banks failed during 2005 and 2006.
"The number of failed institutions in 2011 totals 88 banks including the latest banking failure for the
week ending November 10, 2011. The cost to the FDIC Deposit Insurance Fund (DIF) for the 88 banking
failures totals $7.1 billion." ("Failed Bank List," www.problembanklist.com, 2011).
The FDIC is struggling to cope with the cost of the bank failures. The FDIC Deposit Insurance Fund
shrunk almost $40 billion from December 2007 to March 2009. Added to the $26 billion and $7 billion cost
of 2010 and 2011 bank failures, the total is at least $73. (Bank failures during the last 9 months of 2009
are not included in the total as I could not isolate their cost to the FDIC.) The following paragraph also
confirms a higher total.
"A March 2008 memorandum to the FDIC Board of Directors shows a 2007 year-end Deposit Insurance
Fund balance of about $52.4 billion... As of June 2008, the DIF had a balance of $45.2 billion. However, 9
months later, in March, 2009, the DIF fell to $13 billion. In the second quarter of 2009, the FDIC imposed
an emergency fee aimed at raising $5.6 billion to replenish the DIF. The FDIC announced its intent, on
September 29, 2009 to assess the banks in advance for three years of premiums in an effort to avoid DIF
insolvency. The FDIC revised its estimated costs of bank failures to about $100 billion over the next four
years... The FDIC board voted to require insured banks to prepay $45 billion in premiums to replenish
the fund." (Wikipedia, "Federal Deposit Insurance Corporation," see Deposit Insurance Fund).
The bank failures of the first Great Depression would seem to be much harder on depositors than those
of the second Great Depression, except for one thing. Bank depositors are also tax payers, and the
over $73 billion cost of bank failures to the FDIC is just the tip of the iceberg.
Tax payers are also on the hook for up to $700 billion in Troubled Asset Relief Program (TARP) funds and
more from other "bailout" programs (such as the Federal Reserve's Maiden Lane Transactions and the
Federal takeover of Fannie Mae and Freddie Mac).
Manufacturing: Factories Lost ? 42,400 (2001 to 2009)
For American manufacturing, GDII actually began in 2001.
"For American manufacturers, the bad years didn’t begin with the banking crisis of 2008. Indeed, the U.
S. manufacturing sector never emerged from the 2001 recession, which coincided with China’s entry
into the World Trade Organization. Since 2001, the country has lost 42,400 factories, including 36
percent of factories that employ more than 1,000 workers (which declined from 1,479 to 947), and 38
percent of factories that employ between 500 and 999 employees (from 3,198 to 1,972). An additional
90,000 manufacturing companies are now at risk of going out of business." (Richard McCormack, "The
Plight of American Manufacturing," The American Prospect, December 21, 2009).
"Manufacturing employment dropped to 11.7 million in October 2009, a loss of 5.5 million or 32 percent
of all manufacturing jobs since October 2000." (Ibid).
"Without an industrial base, an increase in consumer spending, which pulled the country out of past
recessions, will not put Americans back to work." (Ibid).
Manufacturing also took a hit during GDI. The Gross National Product dropped 32% between 1929 and
1932. (Wikipedia, Economic History of the United States).
There was a great slowdown in the production of durable goods. "Production fell 36 percent between
the end of 1929 and the end of 1930 and then fell another 36 percent between the end of 1930 and the
end of 1931." (Gene Smiley, Great Depression," The Concise Encyclopedia of Economics). Gene Smiley
is an emeritus professor of economics at Marquette University.
The output of factories slowed or stopped, but the means of production, the factories, stayed in America.
Within a few years, the GDP returned to 1929 levels. Contrast this with the loss of America factories in
the last decade, 42,400 is only part of the number. More factories have been lost since 2009.
Conclusion: So far I have shown by a half dozen measurements that we are in GDII and it's already much
worse than GDI. I would be remiss in my duty as a Christian Zionist if I didn't advise you to find a place
out in the country, plant a garden and prepare for much worse. (See No. 127, "Surviving GDII.")
If you are hoping things can be turned around, I only see one possibility. There is a well qualified hidden
candidate named Buddy Roemer. He's a former US Representative and Governor of Louisiana. He's a
Harvard MBA, who has founded several successful businesses. As Governor of Louisiana he balanced
the budget and cut unemployment in half. He is trying to get elected without taking money from Special
Interests and he has good ideas for ways to tackle the financial mess America is in.
All the other candidates are happily being compromised by the very Big Money interests that created
the awful economic mess that is present day America. You will probably be deprived of your chance to
vote for a real reformer, as Big Media and Big Money seem determined to hide Buddy Roemer
throughout the Primaries. If that is the case, I can only recommend that you pack up and leave as soon
as possible. When the checks don't arrive, the cities will become deathtraps.
Amo Paul Bishop Roden