Posts
The current House version of the “Healthcare Reform Bill” (H.R. 3962) is projected to cost about $900 billion which is the spending limit President Obama said he would place on the bill. President Obama also said the bill would have to be “revenue neutral” which translated means you can spend up to $900 billion but you cannot (directly) add to the deficit.
The house bill claims to meet these two requirements. It spends $900 billion (or more) and it is revenue neutral if you believe in fairy tales. Following are some reasons why:
1. Taxes paid in advance will be put into the same “lock box” used for Social Security
To get to revenue neutral, the bill provides for taxes to be collected immediately (about $600 billion over 10 years) but doesn’t start healthcare services until 2013. That’s one way to get the costs down to $900 billion: charge for the service for years in advance so you get 10 years of taxes but only have to deliver six or seven years of service.
But we’ve had enough experience with Congress to know that they will simply spend all the money they collect and then in 2013 make payments out of the general fund --.just like they did with Social Security.
2. The $400 billion dollar cuts to Medicare and Medicaid are vary unlikely to happen
They have not been able to cut 10 cents out of these entitlement programs since they were enacted in 1964. Now they are suddenly going to throw seniors under the bus. I don’t think so. Here are a couple of examples why:
Social Security recipients are not going to get an increase in their social security payments in 2010 because there is no inflation. And they are scheduled to get an increase of about $8 in their Medicare insurance payment. Unable to withstand the pressure for even an $8 cut in benefits, Congress is looking at a new program to pay each recipient $250 as part of a “stimulus” package.
Or, how about the $250 billion reduction in payments to doctors (part of the $400 billion overall Medicare reduction) to help pay for the health care program (and keep the total costs under $1 trillion.) But, they then introduced a separate bill to pay doctors $250 billion to replace the $250 billion they would lose in the Healthcare bill. Since this bill is not part of the healthcare bill, the costs don’t count. The bill was voted down but you know what their intent is and they will find a way to pass it or disguise it sooner or later.
3. Waste, fraud and abuse will be eliminated or severely reduced
There is no line item in the budget for waste, fraud and abuse. Therefore, politicians on both sides of the isle have been unable to find these unnecessary costs for the past 45 years. Now they expect us to believe they are going to find them next year.
It’s time for us to wake up and realize this is not a health care reform bill. It is a big government, big spending bill. We already have the best health care in the world and yes the most expensive because we like to eat cheeseburgers, get hip and knee replacements to make our lives better, and get the best and latest cancer treatment, etc.
If politicians were serious about reform, they would attack the real reasons healthcare cost are rising so quickly that many people can’t afford health care insurance like the aging population which is about half of the future rise in costs and federal and state government regulations that prevent us from having a consumer driven healthcare system.
If you would like to get more information on fiscal and monetary policy, you can go the non-partisan, web site of the Concord Coalition www.concordcoalition.org
Friday, November 13, 2009
Tuesday, November 10, 2009
Market Rising Faster Than Economy: Five Reasons Why
The market has significantly outperformed the economy recently. It seems confusing because of all the headwinds making economic recovery so difficult. For example: housing and commercial real estate continuing to decline, an over-levered consumer, growing unemployment, etc. However, the market does not seem to be concerned about these headwinds (at this time) so what are traders and investors using to bid up this market? You see and read a lot about the recession being over or that we’ve avoided a depression or consumer attitudes are improving etc. But it appears there are five major reasons the market is outpacing the growth of the real economy.
1. The “economy” is assembled and dissected as a Statistical Model
Remember, most people see the market through the lens of the conventional, statistical model of Gross National Product (GDP.) This model looks at the economy from a consumption point of view: a dollar spent, no matter who spends it, represents a dollar of GDP. This of course is why many people see green shoots all over the place and hear so many declarations from politicians, economists and the media that the positive GDP growth in the third quarter means the recession is over. They don’t seem to consider that a dollar spend today (increase in GDP) is a dollar that has to be subtracted (from GDP) through taxes later. Nor do they seem to consider that the dollar will be taken from someone who could probably use it more effectively.
2. U.S. fiscal policy is out of control
Government spending is out of control and congress has every intention of spending more and more. The government will pump in at least $1 trillion (above tax collections) this year and probably each year for the next ten years. That’s a lot of GDP “growth.” Add to that any new programs that might be enacted like health care spending or cash for clunkers. Also, the $800 billion stimulus package has not worked (business revenues still falling and unemployment has gone from 5% to 10%.) Yet, according to demand side economists (preferred by most politicians) like Paul Krugman at Princeton, we need another, bigger stimulus package if we really want to turn this economy around.
The government may not (at this time, be able to get another big, trillion-dollar stimulus package through Congress. However, they may be able to get a lot of “little, very targeted stimulus packages” through congress like: $11 billion more for home buyers, $33 billion for businesses on tax losses 3-5 years ago, $250 for each Social Security recipient at a cost of $14 billion, how about another “successful” cash for clunkers program because GM needs money, etc. All of this money will push up the GDP.
3. U. S. monetary policy is out of control
The Federal Reserve has reduced interest rates to 0-.25 percent (basically free money for banks); expanded its balance sheet by $1.75 trillion dollars and guaranteed the financial community $4.3 trillion to make sure banks will trade with other banks. The Fed, at its meeting last week, stated again that it intends to keep interest rates low (where they are) for an extended period of time (until the economy turns around or until they see inflation.)
This “liquidity” not only helps the banks recapitalize, it punishes savers and forces them to buy risk assets if they want to earn a return on their money (or simply spend it and help GDP.) All of this liquidity helps consumption, but it also causes malinvestment and the current “carry trade.”
4. Stable, low-cost money encourages a Carry Trade
This simply means you capitalize on the returns you can get by borrowing money at low rates in one country and investing the funds in another country for a higher return. Remember reading about this when people were borrowing the Japanese yen at zero percent interest and investing in the U.S. at a higher rate of interest. Well, you can do that right now without leaving the U.S. We are now the carry trade. Banks can borrow from the Federal Reserve at zero percent and buy longer term Treasuries and make the difference. Or, some can short the dollar (it’s down over 10 percent this year) and use the money to buy higher risk assets (equities, gold, etc) and make even more.
5. Global funds still streaming into the U.S.
This carry trade is not just being done by Americans, it’s global. Countries around the world have more growth than ever and are taking advantage of the declining dollar and the rising assets like equities, commodities, etc. As we saw in the Technology bubble and the housing bubble, the world is awash in money looking for a place it will be treated well.
These are certainly not all of the reasons the market is rising faster than the economy, but they are some of the more significant reasons. Also they may stay in place until the headwinds become too strong.
1. The “economy” is assembled and dissected as a Statistical Model
Remember, most people see the market through the lens of the conventional, statistical model of Gross National Product (GDP.) This model looks at the economy from a consumption point of view: a dollar spent, no matter who spends it, represents a dollar of GDP. This of course is why many people see green shoots all over the place and hear so many declarations from politicians, economists and the media that the positive GDP growth in the third quarter means the recession is over. They don’t seem to consider that a dollar spend today (increase in GDP) is a dollar that has to be subtracted (from GDP) through taxes later. Nor do they seem to consider that the dollar will be taken from someone who could probably use it more effectively.
2. U.S. fiscal policy is out of control
Government spending is out of control and congress has every intention of spending more and more. The government will pump in at least $1 trillion (above tax collections) this year and probably each year for the next ten years. That’s a lot of GDP “growth.” Add to that any new programs that might be enacted like health care spending or cash for clunkers. Also, the $800 billion stimulus package has not worked (business revenues still falling and unemployment has gone from 5% to 10%.) Yet, according to demand side economists (preferred by most politicians) like Paul Krugman at Princeton, we need another, bigger stimulus package if we really want to turn this economy around.
The government may not (at this time, be able to get another big, trillion-dollar stimulus package through Congress. However, they may be able to get a lot of “little, very targeted stimulus packages” through congress like: $11 billion more for home buyers, $33 billion for businesses on tax losses 3-5 years ago, $250 for each Social Security recipient at a cost of $14 billion, how about another “successful” cash for clunkers program because GM needs money, etc. All of this money will push up the GDP.
3. U. S. monetary policy is out of control
The Federal Reserve has reduced interest rates to 0-.25 percent (basically free money for banks); expanded its balance sheet by $1.75 trillion dollars and guaranteed the financial community $4.3 trillion to make sure banks will trade with other banks. The Fed, at its meeting last week, stated again that it intends to keep interest rates low (where they are) for an extended period of time (until the economy turns around or until they see inflation.)
This “liquidity” not only helps the banks recapitalize, it punishes savers and forces them to buy risk assets if they want to earn a return on their money (or simply spend it and help GDP.) All of this liquidity helps consumption, but it also causes malinvestment and the current “carry trade.”
4. Stable, low-cost money encourages a Carry Trade
This simply means you capitalize on the returns you can get by borrowing money at low rates in one country and investing the funds in another country for a higher return. Remember reading about this when people were borrowing the Japanese yen at zero percent interest and investing in the U.S. at a higher rate of interest. Well, you can do that right now without leaving the U.S. We are now the carry trade. Banks can borrow from the Federal Reserve at zero percent and buy longer term Treasuries and make the difference. Or, some can short the dollar (it’s down over 10 percent this year) and use the money to buy higher risk assets (equities, gold, etc) and make even more.
5. Global funds still streaming into the U.S.
This carry trade is not just being done by Americans, it’s global. Countries around the world have more growth than ever and are taking advantage of the declining dollar and the rising assets like equities, commodities, etc. As we saw in the Technology bubble and the housing bubble, the world is awash in money looking for a place it will be treated well.
These are certainly not all of the reasons the market is rising faster than the economy, but they are some of the more significant reasons. Also they may stay in place until the headwinds become too strong.
Subscribe to:
Posts (Atom)