Disability Fraud vs. Expiring Unemployment Benefits Revisited

Mike Shedlock
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Posted: May 12, 2012 12:01 AM

In response to 2.2 Million Go On Disability Since Mid-2010; Fraud Explains Falling Unemployment Rate I received a nice email from Madeline Schnapp, Director, Macroeconomic Research at TrimTabs Investment Research.

Madeline Writes ...

Hello Mish,

I loved your disability graph so decided to expand on that theme some more and took a look at the relationship between the trend in disability recipients and the roll off of recipients of emergency and extended unemployment insurance programs.

Should we dare say there is a stunning relationship!

Enjoy,

Best, Madeline


Amazing Achievement is Fraud

 First consider a few snips from my previous post, then we will take a look at what TrimTabs has to say.

In the last year, the civilian population rose by 3,638,000. Yet the labor force only rose by 945,000. Those not in the labor force rose by 2,693,000.

In the last month, actual employment fell by 169,000, but the unemployment rate dropped by .1%.

That is an amazing "achievement" to say the least.

Since Mid-2010 2.2 Million Went on Disability



Notice the jump in claims after the recession was allegedly long-over.

The timing coincides with unemployment benefits expiring at 99 weeks. Supposedly higher taxes will fix the problem. I say "nonsense".

Trim Tabs Weekly Macro Analysis 

Please consider snips from the TrimTabs Weekly Forecast for May 8, 2012.

A recent post on the popular ZeroHedge financial blog compared the annualized growth in federal debt to the annualized growth in GDP in Q1 2012. ZeroHedge reported that while U.S. government debt rose by $359.1 billion in Q1 2012, the U.S. GDP grew only $142.4 billion. Durden noted that, “It now takes $2.52 in new federal debt to buy $1 worth of economic growth.”

See
Chart Of The Day: Change In Q1 American Debt And GDP

The surprising observation prompted us to examine the relationship between growth in debt and growth in GDP from 1975 through 2012. What we found is both astonishing and frightening. From 1974 to 1980, each $1 increase in GDP was accompanied by an increase in debt of between 20 and 47 cents. Since 2009, however, each $1 increase in GDP has been accompanied by a whopping $2.50 increase in debt. At some point, the amount of debt required to generate $1 of GDP will suffocate the economy and trigger another financial shock.

In Q1 2012, GDP rose $142 billion, while debt rose $355 billion. In other words, it took $2.50 in debt to generate $1.00 in GDP. We wanted to understand how this relationship compared to those that prevailed in previous decades. The graph below shows our findings.



click on chart for sharper image


From 1974 to 1980, each $1 increase in GDP was accompanied by an increase in debt of between 23 and 53 cents. Since 2009, however, each $1 increase in debt has been accompanied by a whopping $2.41 increase in debt. At some point, the amount of debt required to generate $1 of GDP will suffocate the economy and trigger another financial shock.

Another recent post on the popular Global Economic Trend Analysis blog (hat tip to Mish Shedlock) suggested the recent declines in the unemployment rate were due, in part, to the rapid increase in enrollment in disability because people on disability are no longer counted as unemployed.

Please see
2.2 Million Go On Disability Since Mid-2010; Fraud Explains Falling Unemployment Rate

In his blog post Shedlock reported, “Since mid-2010, precisely the time million of U.S. citizens used up all of their 99 weeks of unemployment insurance, disability claims have risen by 2.2 million.”

Mish's observation prompted us to dig a little deeper into the relationship between the number of people exhausting extended and emergency unemployment benefits compared to the increase in disability recipients. What we discovered was interesting, to say the least.



click on chart for sharper image


From July 2010 to April 2012, the decline in the number of people collecting extended and emergency unemployment benefits was 2.46 million. Over the same time period the number of people collecting disability benefits increased by 2.20 million. We suspect the similarity in the inverse relationship is more than coincidence.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com