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POP QUIZ: Why did gun sales in the US surge during the Christmas season?

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Okay, here's your economics quiz for the day:

1--Why did gun sales in the US surge during the Christmas season?

2--Why is the 10-year Treasury still stuck below 2 percent three years into the so-called "recovery"?

3--Why did the Fed announce that it will keep interest rates at zero for another three years when 4th Quarter GDP clocked in at a respectable 2.8 percent?

4--Why are retail investors taking their money out of stocks and bonds and dumping it into checking and savings accounts at a record pace?

All of the above questions can be answered with one word. Can you guess what that word is?

Here's a clue from an article that popped up in the Telegraph titled "Americans buy record numbers of guns for Christmas":

"Americans bought record numbers of guns last month amid an apparent surge in popularity for weapons as Christmas presents.

"According to the FBI, over 1.5 million background checks on customers were requested by gun dealers to the National Instant Criminal Background Check System in December. Nearly 500,000 of those were in the six days before Christmas.

"It was the highest number ever in a single month, surpassing the previous record set in November.

"On Dec 23 alone there were 102,222 background checks, making it the second busiest single day for buying guns in history. The actual number of guns bought may have been even higher if individual customers took home more than one each." (The Telegraph)"

So, what's this all about? Why the sudden surge in gun sales?

Here's another clue. Take a look at the 10-year Treasury which -- as of Friday -- was still stuck below 2 percent at 1.89 percent. And the 5-year is even worse. The yield on the 5-year dropped to a record 0.75 just last Wednesday.

What does it mean? It means investors are so scared that they're willing to make next-to-nothing on their money just to avoid any risk. It also means that no one's borrowing money, (because there's nothing to invest in) and that all the blabber about a "recovery" is just hogwash.

Next question: Why did the Fed announce that it will keep interest rates at zero for another three years when 4th Quarter GDP showed a dramatic improvement to 2.8 percent?

Same answer, really. It's because the economy is still in the tank. No one's borrowing and no one's lending. Consumers are still slashing their spending, while businesses are sitting on $1.9 trillion in savings with no productive outlets for investment. And -- oh by-the-way -- the banks are also sitting on $1.6 trillion in reserves with no credit-worthy borrowers to lend to. The economy is dead in the water, so Mr. Bernanke -- being the genius that he is -- has settled on a policy that will kickstart consumer spending and lead to the next credit expansion.

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Mike is a freelance writer living in Washington state.

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