Showing posts with label Obamacare. Show all posts
Showing posts with label Obamacare. Show all posts

Tuesday, August 11, 2015

Closing the Sausage Factory

By John Mauldin

“Bureaucracy destroys initiative. There is little that bureaucrats hate more than innovation, especially innovation that produces better results than the old routines. Improvements always make those at the top of the heap look inept. Who enjoys appearing inept?”
– Frank Herbert, Heretics of Dune

“Economies naturally grow. People innovate as they go through life. They also look around at what others are doing and adopt better practices or tools. They invest, accumulating financial, human and physical capital.
Something is deeply wrong if an economy is not growing, because it means these natural processes are impeded. That is why around the world, since the Dark Ages, lack of growth has been a signal of political oppression or instability. Absent such sickness, growth occurs.”
– Adam Posen, “Debate: The Case for Slower Growth

Today’s letter will be shorter than usual, because I’m at Camp Kotok in Grand Lake Stream, Maine, where the first order of business today is trying to outfish my son (not likely to happen, this year). But I’ve been looking closer at productivity barriers, and I want to give you some points to ponder.

The New Normal?

Like many of you readers, I’m old enough to remember a time when 2.3% annual GDP growth was a disappointment. We always knew America could do better. Not anymore, apparently. Some people actually cheered last week’s first estimate for 2Q real GDP growth. It was 4.4% in nominal terms, but inflation brought the figure back down. While certain segments are growing like crazy, for the most part we are muddling along in a slow growing malaise. You might even call it “stagnant.”

I for one still think the United States can do more. We have a large population of intelligent people who want to build a solid future for their children. They’re willing to work hard to do it. If that’s not happening – and clearly it isn’t – some barrier must be standing in their way. What is this barrier to productivity and growth? There are actually several, but government red tape is one of the biggest. I thought about this after reading an excellent Holman Jenkins column in the Wall Street Journal last week.

Jenkins led me to an audio recording of an interesting discussion on “The Future of Freedom, Democracy and Prosperity,” conducted at a symposium held at Stanford University’s Hoover Institution last month.
Government research & development funding has fallen off considerably from its peak in the 1970s moonshot days. This holds back worker productivity. The federal government is doing too much to slow down business and not enough to boost it.

The three economists who spoke at Stanford all pointed to important productivity barriers emanating from Washington DC.....

One of the participants, Hoover economist John Cochrane, spoke of fears that America is drifting toward a “corporatist system” with diminished political freedom. Are rules knowable in advance so businesses can avoid becoming targets of enforcement actions? Is there a meaningful appeals process? Are permissions received in a timely fashion, or can bureaucrats arbitrarily decide your case by simply sitting on it?

The answer to these questions increasingly is “no.” Whatever the merits of 1,231 individual waivers issued under ObamaCare, a law implemented largely through waivers and exemptions is not law-like. In such a system, where even hairdressers and tour guides are subjected to arbitrary licensing requirements, all the advantages accrue to established, politically connected businesses.

The resources that businesses put into complying with government regulations is staggering. I have often envied people outside the highly regulated financial industry for their freedom to operate rationally. In my business we seem to spend half our time – and an ungodly fraction of our money – just maneuvering through the regulatory morass.

Intrusive federal regulations touch every part of the economy:
  • Energy and mining companies have to deal with environmental protection rules.
  • Drug companies and health care providers must satisfy the FDA and Medicare.
  • Cloud technology companies have to process FBI and NSA demands for user information.
  • Retailers and consumer product makers are required to abide by the fine print on millions of product labels.
I could go on, but you get the point. Anything you do attracts bureaucratic oversight now. We may laugh at “helicopter parents” hovering over their children at school, but we all have a helicopter government looking over our shoulders at work.

Before anyone calls me an anarchist, I think some government regulation is perfectly appropriate. We all want clean drinking water. Everyone appreciates knowing our cars meet crash survival standards. I’m glad FAA is keeping order in the skies.

The problem arises when agencies enforce confusing, contradictory, and excessive regulations and try to micromanage the nation’s businesses. Every business owner I know is glad to play by the rules. They just want to know what the rules say, and that is frequently very hard to do.

A few weeks ago, in “Productivity and Modern-Day Horse Manure,” I explained that growth is really quite simple: if we want GDP to grow, we need some combination of population growth and productivity growth.

The US population is growing, thanks mainly to immigration, but the effectiveness of the workforce is another matter. Baby Boomer retirements are rapidly removing productive assets from the economy. To offset that trend, we need to make younger workers more productive.The red tape that constantly spews out of Foggy Bottom is not helping matters.

Regulatory Capture

The red tape hurts the economy overall, but it does help certain parties. The largest players in any niche often “capture” their regulators. Then they use their influence to tilt enforcement away from themselves and toward smaller competitors.

Put simply, new regulations can be great for your business if you are already well established and have the resources to comply with government mandates. New entrants rarely have those resources. The resulting lack of competition boosts profits for the big players but hurts consumers. The competition that would normally lead to better, less expensive goods and services never happens.

Holman Jenkins makes another great point about how over regulation affects growth.

Another participant, Lee Ohanian, a UCLA economist affiliated with Hoover, drew the connection between the regulatory state and today’s depressed growth in labor productivity. From a long-term average of 2.5% a year, the rate has dropped to 0.7% in the current recovery. Labor productivity is what allows rising incomes. A related factor is a decline in business start ups. New businesses are the ones that bring new techniques to bear and create new jobs. Big, established companies, in contrast, tend to be net job shrinkers over time.

Recall our economic growth formula: population growth plus productivity growth. The US population grew at a peak rate of 1.4% in 1992, and growth has been trending down ever since. Now it is around 0.75% per year. Add that to 0.7% productivity growth, and you see why Jeb Bush’s 4% growth target will be so hard to hit.

Blame Flows Downhill

Business leaders love to complain about the bureaucrats who run Washington’s alphabet-soup agencies. I think the problem goes deeper. With only a few exceptions, the regulators I’ve met over the years have been competent professionals. They weren’t intentionally trying to hurt my business. Often the regulations confused them as much as they confused me.

The real blame, I think, starts on Capitol Hill. Our legislative process is a sausage factory. Congress passes vague, complicated laws riddled with exceptions for this and zero tolerance for that. The result is superficially attractive but a mess inside. People in the alphabet agencies then have to remove the sausage skin and make sense of the contents. This would be a tough job for anyone. I certainly don’t envy them.

Jenkins mentions Obamacare’s convoluted waivers and exemptions. Even its advocates admit the law is a crazy mess. But how and why did it get that way?

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best selling author, and Chairman of Mauldin Economics – please click here.



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Saturday, October 11, 2014

The Broken State and How to Fix It

By Casey Research

The United States of America is not what it used to be. Unsustainable mountains of debt, continuous meddling by the government and Fed to “stimulate the economy,” and the U.S. dollar’s dwindling status as the world’s reserve currency are very real threats to Americans’ standard of living. Here are some opinions from the recently concluded Casey Research Fall Summit on the state of the state and how to fix it.

Marc Victor, a criminal defense attorney from Arizona and a staunch liberty advocate, says there’s really no such thing as “the state”—“it’s just some people bossing other people around.”

Not everyone wants to fix things, he says; the bosses like the status quo. For example, aside from drug lords, DEA agents are the ones benefiting most from the “War on Drugs.”

Victor believes that democracy and freedom are incompatible, since “democracy is majority rule, and freedom is self-rule.” If you want to bring true freedom to America, he says, winning hearts and minds is the only way to reboot this country and create a free society.

Paul Rosenberg, adventure capitalist, Casey Research contributor, and editor of “A Free Man’s Take,” views America’s future similarly. He thinks the United States is in a state of entropy.

The bad news, says Rosenberg, is that there will be no revolution. The good news is that the peak of citizens’ obedience to the state is behind us, and people are getting fed up with the government’s shenanigans.

Real change is slow, he says, so we must work persistently to create a better world.

Stephen Moore, chief economist at the Heritage Foundation, says the problem is liberal economic policy: Red states in the US, he says, have blown away blue states in job creation since 1990. Texas alone accounts for the entire net growth of the US economy over the past five years.

As another proof point in favor of a free market economy, Moore emphasizes that both Obama and Reagan took office during terrible economic times. While Obama has raised taxes and instituted Obamacare, Reagan cut taxes and regulation. As a result, the Reagan economic recovery was almost twice as robust as the Obama “recovery.”

One of the US’s biggest problems, says Moore, is that companies can’t reinvest profits because dividend, capital gains, and income taxes all have increased under Obama. Corporate taxes in the rest of the world have dramatically declined in the last 25 years, but in the US, they haven’t budged. The average corporate tax rate around the world is 24%—in the US, it’s 38%.

Overall, though, Moore is bullish on the U.S. economy. American companies, he says, are the best run in the world, if only the US government would adopt less economically destructive policies.

Doug Casey, chairman of Casey Research, legendary speculator, and best-selling financial author, isn’t so optimistic. First of all, he says, we’re in the Greater Depression right now, which began in 2008. He fears it’s too late to repair America, but says if anyone would attempt to do so, the following seven step program would help:
  • Allow the collapse of “zombie companies” (companies that are only being held up by government handouts and other cash infusions).
  • Abolish all regulatory agencies.
  • Abolish the Federal Reserve.
  • Cut the size of the military by at least 90%.
  • Sell all US government assets.
  • Eliminate the income tax.
  • Default on the national debt.
Of course, says Casey, that’s not going to happen, so individual investors shouldn’t hope for a political solution or waste their time and money trying to stop the inevitable collapse of the U.S. economy. The only way to save yourself and your assets is to internationalize.

He recommends owning significant assets outside your home country: for example, by buying foreign real estate. You should also buy and store gold, “the only financial asset that’s not simultaneously someone else’s liability.”

Casey’s suggestions include going short bubbles that are about to burst (like Japanese bonds denominated in yen), selling expensive assets like collectible cars and expensive real estate in major cities, as well as looking toward places like Africa as contrarian investment opportunities.

Nick Giambruno, senior editor of International Man, agrees that internationalizing your wealth—and yourself—is the most prudent way to go for today’s high net worth investors. It ensures that “no single government can control your destiny,” and that you put your money, business, and yourself where they are treated best.

You should internationalize each of these six aspects of your life, says Giambruno: our assets; your citizenship; your income/business; your legal residency; your lifestyle residency; and your digital presence.
Regarding your assets, you can find better capitalized, more liquid banks abroad, and using international brokerage accounts can provide you access to new investment markets.

To hear all of Nick Giambruno’s detailed tips on how to go global, as well as every single presentation of the Summit, order your 26+-hour Summit Audio Collection now. It’s available in CD and/or MP3 format.

Learn More Here


The article The Broken State and How to Fix It was originally published at Casey Research.


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Thursday, April 10, 2014

It's Risk On.....Regardless

By John Mauldin


When Gary Shilling was with us here last fall, he and I were feeling considerably more sanguine about the near-term propects for the US and global economies. In fact, I said about Gary that “that old confirmed bear is waxing positively bullish about the future prospects of the US. In doing so he mirrors my own views.”

In today’s excerpt from Gary’s quarterly INSIGHT letter, he tackles head-on the shift in sentiment and economic performance that has ensued since then. He steps us through the ebullient headlines and forecasts that dominated at year-end, and then remarks,

It’s as if an iron curtain came down between the last trading day of 2013 and January 2014. A headline in the Feb. 5, 2014 Wall Street Journal screamed, “Turnabout on Global Outlook Darkens Mood.”

Don’t get me (and Gary) wrong: many of the positive factors that he and I identified last fall are still in play; but they are longer-term, secular factors such as technological transformation and a tectonic shift in the energy landscape rather than the cyclical factors that will dominate for most of the rest of this decade.

In today’s OTB, Gary does an excellent job of summarizing and analyzing those cyclical factors. In this extended excerpt from INSIGHT, you’ll be treated to sections on investor and consumer behavior, deleveraging, housing, income polarization, unemployment, Obamacare and medical costs, the prospects for inflation, the Fed, emerging markets, and much more.

Be sure to see the close of the letter for Gary’s special offer to OTB readers.

I find myself in the lovely tropical city of Durban, South Africa. The hotel where I’m staying, The Oyster Box, is a lovely old throwback properly set on the Indian Ocean, where you can see the continual shipping traffic queuing up to get into the port, which is the largest in Africa. The hotel reminds me of the Raffles in Singapore, with a better view and somewhat more Old World charm. Or at least what I romanticize as Old World charm from movies I saw as a kid (though some of my younger readers are probably sure I lived in that era!).

I sleep now, then get up in less than five hours to catch a plane to Johannesburg, where I will spend the next three days doing more of the speeches and interviews that I’ve been doing for the last two, for my host Glacier by Sanlam. Anton Raath, the CEO, has that quintessential ability to make everyone feel welcome and keep them on goal. I am continually impressed with the quality of South African management, whether here or among the South African diaspora. If the government here could ever figure out how to get out of their way… I wrote a Thoughts from the Frontline almost exactly seven years ago that I called “Out Of Africa.” It was a very bullish take on a country that I could see had wonderful prospects. And indeed investing in South Africa would have been a good move at the time – a solid double in seven years.



But this trip I’ve seen things and talked to people that don’t give me the same feeling. We’ll talk about it this weekend, after I have more meetings with both stakeholders and analysts of the local economy. South Africa seems to me to face many of the same problems that have beset Brazil, Turkey, and others in the Fragile Six. Why is this? Why should a country with this many resources, both physical and human, be falling behind? I think some of you can guess the answer, but I will wait to tell the rest of you in this week’s letter.

Once again, for the fourth time in my life, my hot air balloon trip was canceled! Sigh. I am not sure what the travel gods are trying to tell me, but I will not give up, and one day I expect to soar above the earth on something other than my own hot air.

Have a great week,

Your wanting to come back to this hotel and pretend to be genteel for a few days analyst,
John Mauldin, Editor
Outside the Box

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Risk On, Regardless

(Excerpted from the March 2014 edition of A. Gary Shilling's INSIGHT)

U.S. stocks leaped 30% last year, continuing the rally that commenced in March 2009 and elevated the S&P 500 index 173% from its recessionary low (Chart 1). By late 2013, many investors were in a state of euphoria, even irrationally exuberant about prospects for more of the same this year and seized on any data that suggested that robust economic growth here and abroad would underpin more of the same equity performance.


 

Optimistic Forecasts

 

Many forecasts from credible sources accommodated them. The Organization for Economic Cooperation and Development in January said the leading indicators for its 34 members rose to 109.9 in November from 100.7 in October, foretelling faster economic growth in the first half of 2014 for the U.S., U.K., Japan and the eurozone.

The International Monetary Fund in mid-January raised its global growth forecast for 2014 real GDP from its October estimate by 0.1 percentage points to 3.7%, with the U.S. (up 0.2 points to 2.2%), Japan (up 0.4 to 1.7%), the U.K. (up 0.6 to 2.4%), the eurozone (up 0.1 to 1.0%) and China (up 0.3 to 7.5%) leading the way.

Outgoing Fed Chairman Ben Bernanke on January 3 said that the fiscal drag from federal and state fiscal policies that restrained growth in recent years was likely to ease in 2014 and 2015. Other deterrents such as the European debt crisis, tighter bank lending standards and U.S. household debt reductions were easing, he said. “The combination of financial healing, greater balance in the housing market, less fiscal restraint and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters.”

A Wall Street Journal poll of economists found an average forecast of 2.7% growth in 2014, up from 1.9% in 2013 and the official forecast of the perennially-optimistic Fed, made before Christmas, called for 2.8% to 3.2% real GDP growth this year. Also, chronically-optimistic Barron’s, in its Feb. 17, 2014 edition, headlined its cover story, “Good News. The U.S. Economy Could Grow This Year At A Surprisingly Robust 4%. Forget The Snow. Consumers And Businesses Are Ready To Spend.” Many investors also believed that the U.S. economy was about to break out of the 2% real GDP rises that have ruled since 2010.

Sentiment Shift

 

It’s interesting that Barron’s ran this headline after investor sentiment shifted dramatically. It’s as if an iron curtain came down between the last trading day of 2013 and January 2014. A headline in the Feb. 5, 2014 Wall Street Journal screamed, “Turnabout on Global Outlook Darkens Mood.” As stocks flattened and then fell, people started to realize that economic growth last year was weak, rising only 1.9% from 2012 as measured by real GDP.

The fourth quarter annual rate was chopped from the 3.2% “advance estimate” by the Commerce Department to 2.4%, and one percentage point of the 2.4% was due to the jump in net exports as imports fell due to domestic shale oil and natural gas replacing imported energy. Nevertheless, exports remain vulnerable to ongoing weakness in American trading partners. Also in the third quarter of 2013, 1.7 percentage points of the 4.1% growth was due to inventories. Given the disappointing Christmas sales, these were probably undesired additions to stocks and will retard growth this year as they are liquidated.
Even the stated GDP numbers show this to be the slowest recovery in post-World War II history (Chart 2). And real median income has atypically dropped in this recovery, largely due to the slashing of labor costs by American business.



Pending home sales, which are contracts signed for future closings, peaked last May and had dropped considerably before cold weather set in this past winter while housing starts fell for a third straight month in February.

Wary Investors

 

While stocks soared in 2013, investors didn’t dig too deeply into corporate earnings reports, but now they are. As we’ve discussed in many past Insights, with limited sales volume increases in this recovery and virtually no pricing power, businesses have promoted profits by cutting costs, resulting in all time highs for profit margins. Many investors are now joining us in believing that the leap in profit margins, which has stalled for eight quarters, may be vulnerable.

They’re also paying more attention to the outlook for future profits and cash generation as foretold by acquisitions and spending on R&D. Shareholders favor those companies that invest while penalizing companies that fall short. Per-share profits gains due to share buybacks are no longer viewed favorably. Furthermore, investors are aware that two-thirds of the 30% rise in the S&P 500 index last year was due to the rising P/E, with only a third resulting from earnings improvement.

In mid-February, the S&P 500 stocks were trading at 14.6 times the next 12 months earnings, higher than the 10-year average of 13.9. As Insight readers may recall, we take a dim view of this measure since it amounts to a double discount of both future stock performance and analysts’ perennially-optimistic estimates of earnings. In December, Wall Street seers, on average, forecast a 10% rise in stocks for 2014, the average of the last 10 years. But the average forecasting error over the past decade was 12% with a 50% overestimate in 2008. That 12% error was larger than the average gain of 10%.

Besides cost-cutting, the leap in profit margins has been supported by declining borrowing costs spawned by record-low interest rates. Low rates have also made equities attractive relative to plenty of liquidity supplied by the Fed and Chinese banks and shadow banks.

Last May and June, stocks, bonds and other securities were shaken by the Fed’s talk of tapering its then-$85 billion per month worth of security purchases, in part because many assumed that also meant hikes in the central bank’s federal funds rate. But then the Fed then went on an aggressive offensive to convince investors that raising rates would be much later than tapering, and investors have largely shrugged off the credit authorities’ decision in December to cut its monthly purchases from $85 billion to $75 billion in January and by another $10 billion in February.

The Fed’s decision in January came despite the recent signs of weak U.S. economic activity, weather-related or not, and indications of trouble abroad. Furthermore, although the Fed is still adding fuel to the fire under equities, it is adding less and less, and is on schedule to end its quantitative easing later this year.

The Age of Deleveraging

 

So the zeal for equities persists but we remain cautious about the spread between that enthusiasm and the sluggish growth of economies around the globe. As in every year of this recovery, the early-in-the-year hope for economic acceleration that would justify soaring equities may again be disappointed, and real GDP is likely to continue to rise at about a 2% annual rate.

Deleveraging after a major bout of borrowing and the inevitable crisis that follows normally takes a decade. The process of working down excess debt and retrenching, especially by U.S. consumers and financial institutions globally, is six years old, so history suggests another four years of deleveraging and slow growth. And, as we’ve noted many times in the past, the immense power of deleveraging is shown by the reality that slow growth persists despite the massive fiscal and monetary stimulus of recent years. Furthermore, although the Fed hasn’t started to sell off its immense holdings of securities, as it will need to in order to eliminate excess bank reserves, it is reducing the additions to that pile by tapering its new purchases.

Consumers Retrench

 

In the U.S., some have made a big deal over the uptick in domestic borrowing in the fourth quarter of 2013. Auto loans have risen, the result of strong replacement sales of aged vehicles, but sales are now falling. Student debt and delinquencies continue to leap (Chart 3). The decline in credit borrowing may be leveling, but what’s gotten the most attention was the rise in mortgage debt.



Since housing activity is falling, the mortgage borrowing uptick is due to fewer foreclosures and mortgage writeoffs as well as easier lending standards by some banks. They are under continuing regulatory pressure to increase their capital and slash their exposure to highly-profitable activities like derivatives origination and trading, off-balance sheet vehicles and proprietary trading, so banks are eager for other loans. Furthermore, the jump in mortgage rates touched off by the Fed’s taper talk has slaughtered the profitable business of refinancing mortgages as applications collapsed.

Household debt remains elevated even though, as a percentage of disposable personal income, it has fallen from a peak of 130% in 2007 to 104% in the third quarter, the latest data (Chart 4). It still is well above the 65% earlier norm, and we’re strong believers in reversion to well-established norms. Even more so considering the memories many households still have of the horrors of excess debt and the losses they suffered in recent years.



Furthermore, given the lack of real wage gains and real total income growth, the only way that consumers can increase the inflation-adjusted purchases of goods and services is to reduce their still-low saving rate or increase their still-high debts. Furthermore, consumer confidence has stabilized after its recessionary nosedive but remains well below the pre-recession peak.

So, in rational fashion, consumers are retrenching, with retail sales declines in December and January and slightly up in February. That’s much to the dismay of retailers who appear to be stuck with excess merchandise, as reflected in their rising inventory-sales ratio. And recall that retailers slashed prices on Christmas goods right before the holidays to avoid being burdened with unwanted inventories. Of course, there’s the usual argument that cold winter weather kept shoppers at home. But that's where they could order online, yet non-store retail sales—largely online purchases—actually fell 0.6% in January in contrast to the early double-digit year-over-year gains.

We’re not forecasting a recession this year but rather a continuation of slow growth of about 2% at annual rates. But with slow growth, it doesn’t take much of a hiccup to drive the economy into negative territory. And indicators of future activity are ominous. The index of leading indicators is still rising, but a more consistent forecaster—the ratio of coincident to lagging indicators—is falling after an initial post-recession revival.

Housing

 

Housing activity is retrenching, with pending sales, housing starts and mortgage applications for refinancing all declining. Also, as we’ve discussed repeatedly in past Insights, the housing recovery has never been the on the solid backs of new homeowners who buy the starter houses that allow their sellers to move up to the next rung on the housing ladder, etc. Mortgage applications for house purchases, principally by new homeowners, never recovered from their recessionary collapse. Multi-family housing starts, mostly rental apartments), recovered to the 300,000 annual rate of the last decade but single-family starts, now about 600,000, remain about half the pre-collapse 1.1 million average.

Many potential homeowners, especially young people, don’t have the 20% required downpayments, are unemployed or worry about their job security, don’t have high enough credit scores to qualify for mortgages, and realize that for the first time since the 1930s, house prices nationwide have fallen—and might again. Prices have recovered some of their earlier losses (Chart 5), but in part because lenders have cleaned up inventories of foreclosed and other distressed houses they sold at low prices. In any event, prices weakened slightly late last year.



Some realtors complain that existing home sales are being depressed by the lack of for-sale inventory. Nevertheless, inventories of existing houses rose from December to January by 2.2%. Fannie Mae reported that its inventories of foreclosed properties rose for the second time in the last three months of 2013 as sales fell and prices dropped for the first time in three years. Also, with the percentage of underwater home mortgage loans dropping—to 11.4% in October from 19% at the start of 2013—potential sellers may emerge now that their houses are worth more than their mortgages.

Income Polarization

 

Rising equity prices persist not only in the face of a weak economic recovery, including a faltering housing sector, but also a recovery that has been benefiting relatively few. The winners are found in the financial sector and those with brains and skills to succeed in today’s globalized economy that put the low-skilled in direct competition with lower-paid workers in developing lands. The ongoing polarization of incomes illustrates this reality eloquently.

Chart 6 shows that the only share of income that continues to increase is the top quintile. All of the four lower quintiles continue to lose shares. Income polarization is very real in the minds of many. It probably doesn’t bother people too much as long as their real incomes are rising. Sure, their shares of the total may be falling but their purchasing power is going up. But now both the shares and real incomes of most people are falling.



Resentment is being augmented by huge pay packages of the CEOs of big banks that were bailed out by the federal government. The number of billionaires in the world, most of them in the U.S., rose from 1,426 in 2012 to 1,645 last year, far surpassing the 1,125 in 2008.

The leaders of financial institutions and other businesses appear to be setting themselves up as easy targets for President Obama, who is fanning the flames of income inequality with some rather pointed rhetoric. Last year, he said, “Ordinary folks can’t write massive campaign checks or hire high priced lobbyists and lawyers to secure policies that tilt the playing field in their favor at everyone else’s expense. And so people get the bad taste that the system is rigged, and that increases cynicism and polarization, and it decreases the political participation that is a requisite part of our system of self government.”

Minimum Wages

 

Nevertheless, pressure to reduce income inequality remains strong and the Administration’s attempts to raise minimum wages are an obvious manipulation of its efforts in this area. The President issued an executive order raising minimum wages on new federal contracts and in his State of the Union address called for an increase in the federal minimum wage from $7.25 per hour to $10.10 in 2016.

The effects of the minimum wage have been hotly debated for years, no doubt since it was first introduced in 1938, and during each of the nearly 30 times it’s been raised since then, the latest in 2009. Liberals argue that it increases incomes and purchasing power and lifts people out of poverty. Conservatives believe that higher labor costs reduce labor demand, encourage automation, the hiring of fewer high skilled people and result in more jobs being exported to cheaper areas abroad. A new study by the bipartisan Congressional Budget office found that both arguments are true.

The report predicts that 16.5 million workers would benefit from the President’s proposal and lift 900,000 out of poverty from the 45 million projected to be in it in 2016. Earnings of low paid workers would rise $31 billion. Since low income people tend to spend most of their paychecks, higher consumer outlays would result.

But the CBO also predicts that the proposed rise in minimum wages would eliminate 500,000 jobs and because of their income losses, the overall effect on wages would be an increase of only $2 billion, not $31 billion. Also, 30% of the higher pay would go to families that earn three times the poverty level since many minimum wage workers are second earners and teenagers in middle and upper income households. And higher labor costs would retard profits and result in price increases, muting the effects of more spending power by higher minimum wage recipients.

In any event, it appears that the proposed jump in the minimum wage from $7.25 to $10.10 would cause a lot of distortions and no doubt unintended consequences for a net gain in low-wage earnings of just $2 billion. That’s less than a rounding error in the $17 trillion economy and would do almost nothing to narrow income inequality. Regardless of the merits, the evidence suggests that higher federal minimum wages are probably in the cards.

Unemployment

 

By his promotion of an increase in the minimum wage, the President reveals his preference for higher pay for those with jobs over the creation of additional employment. This seems strange politically in an era when unemployment remains very high, especially when corrected for the fall in the labor participation rate (Chart 7).



As also noted earlier, the cutting of costs, especially labor costs, has been the route to the leap in profit margins to record levels and the related strength in corporate earnings in an era when slow economic growth has curtailed sales volume gains, the absence of inflation has virtually eliminated pricing power and the strengthening dollar is creating currency translation losses for foreign and export revenues.

Obamacare

 

One reason for the Administration’s emphasis on income inequality and raising the minimum wage may be to divert attention from the troubled rollout of Obamacare. True, big new government programs always have bugs but the Administration’s overconfidence in initiating Obamacare and the lack of testing of its website is notable. Also, Obama promised that "if you like your plan, you can keep it," but many, in effect, are being forced into high-cost but more comprehensive policies. To reduce the flack it is receiving, the Administration plans for a second time to allow insurers to sell policies that don't comply with the new federal law for at least 12 more months.

Another problem for the Administration is that Obamacare will reduce working hours by the equivalent of 2.5 million jobs by 2024, according to the CBO. People will work less in order to have low enough incomes to qualify for Obamacare health insurance subsidies. Also, older workers who previously planned to keep their jobs until they could qualify for Medicare will cut back their hours or leave the workforce entirely in order to qualify for Medicare, the federal-state programs for low-income folks that are being expanded under Obamacare.

Hospitals may benefit from Obamacare. Under a 1970s-era law, they must shoulder the emergency room costs of the uninsured, but those risks are being shifted to insurers and taxpayers. Taxpayers will also pay more since 25 states have refused to expand Medicaid, leaving the federal government to set up and run the enhanced programs.

More Medical Costs

 

Not only is Obamacare proving unaffordable for many but also promises huge additional costs for the government. Healthcare outlays have been leaping and were already scheduled to continue skyrocketing under previous laws as the postwar babies retire and draw Medicare benefits while Medicare costs leap.

The original projected jump in insured people under Obamacare was not projected by the Administration to increase the government’s health care costs appreciably from what they otherwise would have been. You might recall, however, that when Obamacare was enacted, we noted in Insight that after Medicare was introduced in 1967, the House Ways and Means Committee forecast its cost at $12 billion in 1990. It turned out to be $110 billion—nine times as much. Obamacare is no doubt destined for the same cost overruns.

Acting in what they perceive to be their best economic interest, elderly people and those in poor health—but not healthy folks—have persevered through the government website labyrinth to sign up for healthcare exchanges. They're taking advantage of the law's ban on discrimination based on health conditions and age-related premiums. Many healthy people, on the other hand, don’t want to pay higher premiums than on their existing policies, and many of those who are uninsured want to remain so.

So, to make insurance plans economically viable, in the absence of younger, healthy participants to pay for the ill ones, insurers will need to be subsidized by the government or premiums will need to be much higher and therefore much less attractive to all but the chronically ill. This self-reinforcing upward spiral in health care insurance premiums would no doubt also require substantial government subsidies. Aetna expects to lose money this year on its health care exchanges due to enrollment that is skewed more than expected to older people.

Many of the young, healthy people needed to make Obamacare function as a valid insurance fund would rather pay the penalty, which begins at $95 for this year, and continue to use the emergency room instead for medical treatment. Even the escalation of the penalty from $150 in 2014 for a single person earning $25,000 to $325 in 2015 and $695 in 2016 may not spur sign-ups. In total, there are 11.6 million people ages 18 to 34 who are uninsured, a big share of the 32 million Obamacare is intending to insure.

Some employers, especially smaller outfits, plan to encourage employees to sign up for exchanges and drop company plans. The government could push up the now-low penalties for not signing up to force participation, but we doubt that the Administration would risk the ire of an already-unhappy public in pursuing this approach. On balance, the taxpayer cost of Obamacare seems destined to exceed vastly the $2 billion originally projected gap.

The Fed

 

The Fed is on course to continue reducing its monthly purchases of securities and at the current rate, would cut them from $65 billion at present to zero late this year. The minutes of the Fed’s January policy meeting indicate that it would take a distinct weakening of the economy to curtail another $10 billion cut in security purchases in March.

The tapering of the Fed’s monthly security purchases only reduced the ongoing additions to the staggering pile of $2.5 trillion in excess reserves. That’s the difference between the total reserves of member banks at the Fed, created when the central bank buys securities, and the reserves required by the bank’s deposit base. Normally, banks lend and re-lend those reserves and each dollar of them turns into $70 of M2 money.

But with banks reluctant to lend and regulators urging them to be cautious while creditworthy borrowers are swimming in cash, each dollar of reserves has only generated $1.4 in M2 since the Fed’s big asset purchase commenced in August 2008.

At present, those excess reserves amount to no more than entries on the banks’ and the Fed’s balance sheets. But when the Age of Deleveraging ends in another four years or so and real GDP growth almost doubles from the current 2% annual rate, those excess reserves will be lent, the money supply will leap and the economy could be driven by excess credit through full employment and into serious inflation. So as the Fed is well aware, its challenge is, first, to end additions to those excess reserves through quantitative easing and then eliminate them by selling off its huge securities portfolio. This will be Yellen’s major job, assuming she's still chairwoman in coming years.

Raise Rates?

 

Last spring, when the Fed began to talk of tapering its monthly security purchases, investors assumed that to mean simultaneous increases in interest rates, so Treasury notes and bonds sold off as interest rates jumped. In the course of 2013, however, the Fed’s concerted jawboning campaign convinced markets that the two were separate policy decisions and that rate-raising was distant. Still, as in almost every year since the great rally in Treasury bonds began in 1981 (Chart 8), the chorus of forecasters at the end of 2013 predicted higher yields in 2014.



“Treasury Yields Set To Resume Climb,” read a January 2 Wall Street Journal headline. It cited a number of bond dealers and investors who expected the yield on 10-year Treasury notes to rise from 3% at the end of 2013 to 3.5% a year later or even 3.75%. They cited a strengthening economy, Fed tapering and higher inflation. Many investors rushed into the Treasury’s brand new floating rate 2-year notes when they were issued in January in anticipation of higher rates. About $300 billion in floating-rate securities already existed, issued by Fannie Mae and Freddie Mac as well as the U.K. and Italian governments.

Nevertheless, Treasurys have rallied so far this year as the 10-year note yield dropped to 2.6% on March 3 from 3.0% at the end of 2013. U.S. economic statistics so far this year are predominantly weak, as noted earlier. Emerging markets are in turmoil. China’s growth is slowing.

Inflation

 

Besides concerns over the sluggish economic recovery and chronic employment problems, the Fed worries about too-low inflation, which remains well below its 2% target, and over the threat of deflation.

As discussed in our January 2014 Insight, there are many ongoing deflationary forces in the world, including falling commodity prices, aging and declining populations globally, economic output well below potential, globalization of production and the resulting excess supply, developing-country emphasis on exports and saving to the detriment of consumption, growing worldwide protectionism including competitive devaluation in Japan, declining real incomes, income polarization, declining union memberships, high unemployment and downward pressure on federal and state and local government spending.

Very low inflation is found throughout developed countries (Chart 9). It ran 0.8% in the eurozone in January year over year, well below the target of just under 2%. In Germany, where employment is high, inflation was 1.2% but lower in the southern weak countries with 0.6% in Italy, 0.3% in Spain and a deflationary minus-1.4% in Greece in January from a year earlier. In the U.K., inflation in January at 1.9% was just below the Bank of England’s 2% target.


 

Chronic Deflation Delayed

 

We’ve noted in past Insights that aggressive monetary and fiscal stimuli probably have delayed but not prevented chronic deflation in producer and consumer prices (see “What’s Preventing Deflation?,” Feb. 2013 Insight). Still, this year may see the onset of chronic global deflation. And it will probably be a combination of the good deflation of new technology- and globalization-driven excess supply with the bad deflation of deficient demand.

Why do the Fed and other central banks clearly fear deflation and fight so hard to stave it off? There are a number of reasons. Steadily declining prices can induce buyers to wait for still-lower prices. So, excess capacity and inventories result and force prices lower. That confirms suspicions and encourages buyers to wait even further. Those deflationary expectations are partly responsible for the slow economic growth in Japan for two decades.

Central banks also worry that with deflation, it can’t create negative interest rates that encourage borrowers to borrow since, then, in real terms, they’re being paid to take the filthy lucre away. Since central bank target rates can’t go below zero, real rates are always positive when price indices are falling. This has been a problem in Japan many times in the last two decades (Chart 10). Furthermore, credit authorities fret that if chronic deflation sets in, it can’t very well raise interest rates. That means it would have no room to cut them as it would prefer when the next bout of economic weakness threatens.



Central banks also are concerned that deflation raises the real value of debts and could produce considerable financial strains in today’s debt-laden economies. In deflation, debt remains unchanged nominally, but as prices fall, it rises in real terms. Since the incomes and cash flows of debtors no doubt fall in nominal terms, their ability to service their debts is questionable. This makes banks reluctant to lend.

Governments also worry about the rising real cost of their debts in deflation, especially when slow growth makes it difficult to reduce even nominal debts in relation to GDP. This is the dilemma among the Club Med eurozone countries. Deflationary cuts in wages and prices make them more competitive but raises real debt burdens.

Emerging Markets: Sheep and Goats

 

As noted earlier, the agonizing reappraisal of emerging economies by investors commenced with the Fed’s taper talk last May and June. Investors have been forced to separate well-managed emerging economies, the good guys, or the Sheep that, in the Bible, Christ separated from the bad guys, the Goats with poorly-run economies.

Our list of Sheep—South Korea, Malaysia, Taiwan and the Philippines—have current account surpluses, which measure the excess of domestic saving over domestic investment. So they are exporting that difference, which gives them the wherewithal to fund any outflows of hot money. The Sheep also have stable currencies against the U.S. dollar, moderate inflation and fairly flat stock markets over the last decade. Also, with their current account surpluses, the Sheep haven’t been forced to raise interest rates in order to retain hot money.

In contrast, the Goats have negative and growing current account deficits. These countries include the “fragile five”—Brazil, India, Indonesia, South Africa and Turkey—with basket case Argentina thrown in for good measure. They also have weak currencies, serious inflation and falling stock markets on balance. These Goats rely on foreign money inflows to fill their current account deficits, so when it leaves, they’re in deep trouble with no good choices. They’ve raised interest rates to try to retain and attract foreign funds. Higher rates may curb inflation and support their currencies but they depress already-weak economies while any strength in currencies is negative for exports.

The alternative is exchange controls, utilized by Argentina as well as Venezuela. That’s why Argentina hasn’t bothered to increase its central bank rate. But these policies devastate already-screwed up economies. In Argentina, artificially-low interest rates and soaring inflation encourage Argentinians to spend, not save. Inflation is probably rising at about a 40% annual rate this year, up from 28% in 2013 but officially 11%. Purchasers are frustrated because retailers don’t want to sell their goods, knowing they’ll have to replace inventories at higher prices—if they can obtain them.

Who Gives? Who Gets?

 

In some ways, even the Goats among emerging economies are better off than they were in the late 1990s. Back then, many had fixed exchange rates and borrowed in dollars and other hard foreign currencies. So they didn’t want to devalue because that would increase the local currency cost of their foreign debts. Consequently, they all were vulnerable and fell like dominoes when Thailand ran out of foreign currency reserves in 1997. That touched off the 1997-1998 Asian crisis that ultimately spread to Russia, Brazil and Argentina.

Today, less foreign borrowing, more debts in local currencies and flexible exchange rates make adjustments easier. Still, as discussed earlier, the sharp currency drops that are seen promote inflation, but raising interest rates to protect currencies depresses economic growth. Either way, it's no-win in Goatland.

Furthermore, as our friends at GaveKal research point out, current account balances globally are a zero sum game, so if the Goats’ current account deficits decline, other countries’ balances must weaken. This is difficult in an era of slow growth in global trade. Which countries will volunteer to help out the Goats? Not likely the Sheep. Not the U.S. As noted earlier, the Fed has said clearly that the emerging countries are on their own. China isn’t likely as overall growth slows and both import and export order indices in China's Purchasing Managers Index have dropped below 50, indicating contraction. Furthermore, China maintains her mercantilist bias and isn’t overjoyed with her much diminished recent current account and trade balances.
A collapse in oil prices would transfer export earnings from OPEC to energy-importing Goats but oil shocks as a result of a Middle East crisis or an economic collapse and revolution in Venezuela seem more likely. Japan is going the other way, with the Abe government’s trashing of the yen designed to spike exports, reverse the negative trade balance and the soon-to-go-negative current account. The eurozone is also unlikely to help the Goats due to its slow growth and attempts by the Club Med South, mentioned earlier, to become more competitive and improve their trade balances.

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The article Outside the Box: Risk On, Regardless was originally published at Mauldin Economics


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Wednesday, March 12, 2014

Complete Breakdown of Financial Controls in US Government, Says Austin Fitts

Complete Breakdown of Financial Controls in US Government, Says Austin Fitts Former HUD Assistant Housing Secretary and investment advisor Catherine Austin Fitts reveals her thoughts on the ever rising debt ceiling… what Obamacare is really about (and that’s not socialized healthcare)…why over $4 trillion missing from federal programs may not be incompetence, but a covert strategy....how to protect yourself from the constant devaluation of the U.S. dollar.....and what exactly the Popsicle Index measures and why it matters.

Here are a few excerpts:

“I don’t see Obamacare as something designed to offer healthcare. … I think the question comes down to a bigger one, which is, are we going to create a society where one hundred percent of everything is digitized and under central control?”

“Who is the governance system, and why are they behaving the way they are behaving? What we see is literally a psychopathic effort and intensity—whether it is in the energy area, whether it is in the currency area, whether it is in the food area, whether it is in the healthcare area—to get 100% central control and to use digital means to do it, and the question is why?”

“Well, you have a complete breakdown of internal financial controls in the U.S. government.…..You had over $4 trillion of what is called undocumentable adjustments and to this day, [these agencies] have never, as required by law, produced audited financial statements.”

“In my experience, government is not incompetent at all.…..Gridlock is a cover story, incompetence is a cover story. There is a plan, you just can’t see what it is.”



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Wednesday, February 19, 2014

99 Problems… And Crude Oil Ain’t One of Them

By Marin Katusa, Chief Energy Investment Strategist

America has some serious problems.


Despite the fact that the United States spends $15,171 per student—more than any other country in the world—American students consistently trail their foreign counterparts, ranking 23rd in science and 31st in math.

The US also spends more than twice as much on health care per capita than the average developed country, yet underperforms most of the developed world in infant mortality and life expectancy. The U.S. rate of premature births, for example, resembles that of sub-Saharan Africa, rather than a First World country. And if you think Obamacare is going to change that… I have a bridge to sell you.

K Street has a bigger influence on American politics now than Main Street, and economic key players like the TBTF banks, the insurance industry, etc., have nearly carte blanche to act in whichever way they see fit, with no negative consequences.

The US government is spending more money to spy on Americans and foreigners than ever before. Since August 2011, the NSA has recorded 1.8 billion phone calls per day (!)—with the goal of creating a metadata repository capable of taking in 20 billion "record events" daily.

More than one in seven Americans are on the Supplemental Nutrition Assistance Program (SNAP)—better known as "food stamps."

The list goes on and on.

But there is one problem that America doesn't have......getting oil out of the ground.

After decades of declining domestic production, U.S. producers finally figured out how to extract oil from difficult locations, whether that's the shale formations or deposits under thousands of feet of water… and they've kept going ever since.

Today, the U.S. is one of the few countries in the world that have seen double digit growth in oil production over the past five years.


This presents some great investment opportunities for the discerning investor.

The oil industry's new treasure trove, the legendary Bakken formation, has turned formerly sleepy North Dakota into one of the hottest places in the United States. According to the Minneapolis Fed, "the Bakken oil boom is five times larger than the oil boom in the 1980s."

Unemployment in the state with 2.7% is the lowest in the nation; in Dickinson, ND, even the local McDonald's offers a $300 signing bonus to new hires, on top of an hourly wage of $15.
Here are some more fun facts, courtesy of the Fiscal Times:

  • There are now an estimated 40,856 oil industry jobs in North Dakota, plus an additional 18,000 jobs supporting the industry. Between 2010 and 2012, Williston, ND, a town with a population of only 16,000, produced 14,000 new jobs.
  • While other US states are struggling, some even being close to bankruptcy, North Dakota now has a billion-dollar budget surplus.
  • The number of ND taxpayers reporting income of more than $1 million nearly tripled between 2005 and 2011—and that in a state with a total population of 700,000.
  • The low population numbers will soon be a thing of the past, though: the population in the oil-producing region is expected to climb over 50% in the next 20 years.
  • 2,000-3,000 new housing units are built every year in Williston, ND, but it's still not enough to fill the need. Rents have gone from a pre-boom $350 per month for a two-bedroom apartment to over $2,000 today… the equivalent of a studio apartment in New York's rich Upper East Side.
The entire "energy map" of the United States has been altered by the Bakken: the Midwest, rather than the Gulf, is now the go-to area.

And who profits the most? The pipeline companies that can quickly adapt to this new situation and the refinery companies that can use this readily available domestic oil.

Though the rest of the world is trying to catch up, the United States has a huge head start over everyone else. The advancements it holds in hydraulic fracturing and horizontal drilling had been built on the back of one and a half centuries of oil and gas exploration and the thousands of firms that service the drillers and producers.

So far, other countries simply lack the experience and the infrastructure to even compete.

In fact, American companies have spent 50% more money on energy research and development (R&D) than companies anywhere else in the world. What's more, they are exporting this technology across the globe, enabling other countries to unlock their own hydrocarbon reserves.

Obviously, they're not doing this out of philanthropy; there is a lot of money to be made by licensing out their technology and "lending a helping hand."

The biggest winners, hands down, are the energy-service companies that already know how to get oil out of US fields… and that apply these methods to other fields worldwide to boost production and reduce decline rates.

As the easy-to-extract oil depletes in the U.S. and abroad, oil companies and governments are beginning to look at past-producing oil fields. As it turns out, the producing wells drilled in the 1970s and '80s weren't very good at getting every drop of oil out of the ground. With modern technology, however, it is now possible to access previously out-of-reach deposits. Even a mere 5% or 10% improvement in oil recovery rates means billions, if not trillions, more in revenues.

Rediscovering previously overlooked fields was what started the boom in the Bakken as well as the Eagle Ford formations… and other countries are beginning to catch on.

We believe that this new trend of applying new technologies to old oil fields is not a fad but here to stay. That's why our energy portfolios are stocked with companies doing just that in Europe, Oceania, and even South America.

As it's becoming clear that the era of cheap, light, sweet crude is nearing its end, the industry is adapting to this new reality of oil becoming more difficult to access. And if investors want to make profits in today's energy markets, they, too, must learn to adapt.

Read our 2014 Energy Forecast for more details on what's hot and what's not in this year's energy markets. This free special report tells you about the 3 sectors we are most bullish on for this year, and which sectors to avoid in 2014. Read it now.


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Wednesday, July 31, 2013

10 Reasons Why Obamacare Is Going to Ruin Your Medical Care… and Your Life

By Elizabeth Lee Vliet, M.D.

Of course you've heard of "liar loans"—in the heyday of subprime mortgages, unscrupulous lenders handed out mortgages to practically everyone with a pulse. "So you're saying you make $100,000 a year? Great, check this box titled 'McMansion.'"

We all know how this charade ended. Now Dr. Elizabeth Lee Vliet, M.D., an acclaimed expert on the subject of Obamacare, warns that the delay of the employer mandate by one year will force Americans into a single payer system, raising insurance premiums and encouraging "liar subsidies" that might prove fiscally devastating. Not to mention that under the new health care system, you may well end up dead…

Dan Steinhart
Editor, Casey Research

Obamacare is a hodgepodge of new regulations, requirements, and penalties. I'd like to start by defining three terms, which, while obscure today, should begin to enter our everyday vocabulary as Obamacare continues to take effect:

Health insurance exchanges are the basket of qualified insurance policies that meet the new healthcare law requirements for expanded coverage. These may be set up by the states (many are refusing to do so, due to high cost and fear of bankrupting the state) or the federal government. The Exchanges are supposed to be fully operational by October 1, 2013, but it is questionable whether they will actually be in place by that deadline.

The individual mandate requires that individuals purchase health insurance that meets the new, expanded federal requirements. Individuals who do not comply face a financial penalty. Individuals who fall below minimum income levels will be eligible for taxpayer-funded subsidies to buy health insurance.

The employer mandate requires that businesses with more than 50 full-time employees must provide health insurance for all employees, and that insurance must meet the new standards set forth in the new law. Businesses that do not comply must pay a financial penalty for each employee, which for large companies can run into the millions of dollars annually. This is the piece of Obamacare that has been delayed by one year.

Selective Enforcement

Why delay one component of Obamacare and not the others? More specifically, why delay the employer mandate but not the individual mandate?

To answer that question, we must first understand this fact: Obama wants a single payer healthcare system in the US.

This is not a secret:
Barack Obama, 2003: "I happen to be a proponent of a single payer healthcare system for America, but as all of you know, we may not get there immediately."

Barack Obama, 2007: "But I don't think we will be able to eliminate employer-based coverage immediately. There is potentially going to be some transition time."

These quotes are not taken out of context. Anyone who has been paying attention knows that transitioning to a single-payer system has been Obama's and his cohorts' ultimate goal all along:

Rep. Jan Schakowsky (D-IL), 2009: "Next to me was a guy from the insurance company who then argued against the public option. He said it would not let private insurance companies compete. A public option would put the private insurance companies out of business and lead to single payer. My single payer friends, he was right. The man was right!"

Here, Rep. Schakowsky is suggesting that the "public option" will lead to their desired goal of a single-payer healthcare system. Single-payer proponents no longer use this term, since the public has clearly and consistently opposed it.

The "public option" has been renamed "Medicaid expansion," which serves the public-relations purpose of confusing the public and avoiding calling taxpayer-funded healthcare "single payer."

Jacob S. Hacker (Yale Professor), 2008: "Someone once said to me this is a Trojan Horse for single payer. It's not a Trojan Horse, right? It's right there! I am telling you. We are going to get there. Over time. Slowly. But we are going to move away from reliance on employer-based health insurance, as we should, but we will do it in a way that we are not going to frighten people into thinking they are going to lose their private insurance. We will give them a choice of public or private insurance when they are in the pool. We are going to let them keep their private insurance as long as their employer continues to provide it."
Hacker nicely sums up the underlying goals of Obamacare: not to increase competition or patient choice, but to drive people out of private insurance as a stepping stone to a government-run, single-payer system.

 

Stepping Stone to Single-Payer

Knowing Obama and his cohorts' goals, the purpose behind the delay of the employer mandate seems clearer: to hurry the "transition time" away from employer-based health insurance and to a single-payer system.

By forcing individuals to purchase compliant healthcare plans but not forcing employers to provide those plans, Obama is creating a swell of 10-13 million workers that must enroll in health insurance, but cannot obtain it from their employers. These workers thus have no choice but to use the government-controlled health insurance exchanges, or else pay a financial penalty.

This represents a doubling of the number of workers forced to get health insurance on the exchanges.
Importantly, the IRS has ruled that if workers have access to affordable health insurance through their employer, their dependents are not eligible for taxpayer-funded subsidies on the Obamacare health insurance exchanges.

Now that businesses will not be required to offer health insurance until 2015, workers and their dependents will be eligible for taxpayer-funded subsidies to purchase health insurance on the exchanges.
This will cost taxpayers an estimated $60 billion dollars in 2014 alone to cover the increased costs of subsidies—and the loss of revenue from employer penalties.

This $60 billion figure is before we take into account the "liar subsidies" that will invariably occur now that the administration has quietly removed eligibility verification for taxpayer-funded subsidies.
Community organizers are already being hired around the country to sign people up for the health exchanges. There are no penalties for failing to verify eligibility, and no penalties for signing up people who cannot afford to pay the monthly insurance premiums.

It is set up for disaster, much like the "liar loans" that helped topple the mortgage industry when people were not required to verify their income to qualify for a mortgage.

Remember, by enacting the dual mandates, Obamacare ostensibly was designed to ensure that its costs were borne by businesses, not taxpayers. But when the president decided to enforce only certain portions of the healthcare law and delay others, he shifted the cost of health insurance onto the backs of taxpayers.

This is all on top of the burdensome costs Obamacare has already created. Various studies have projected that private insurance premiums will rise between 20 to 60% in 2014, and some as much as 100%.
How long will the private-insurance market survive with such exploding costs? People will not be able to afford such massive premium increases. That seems to be the point: drive up costs and drive everyone into the arms of government-controlled medical care.

Jeff Smith from Seattle summed it up nicely in a Wall Street Journal letter on June 12:

"I was going to leave my job… to start a business until I shopped around for a healthcare plan: At Group Health, a health-maintenance organization in Seattle, I was given a quote of $842 per month for me and my family. But that would increase to $2,320 starting in January 2014 when Obamacare kicks in—a 276% increase. Why? Because I would be forced to carry coverage I don't want and don't need, such as maternity care. Welcome to the world of socialized medicine, courtesy of the Un-Affordable Care Act."

 

How Obamacare Affects You and Your Medical Care

The delay in the employer mandate is but one of dozens of negative impacts Obamacare will have on your medical services. As an independent physician, I've been discussing these issues with my patients for the past few years, helping them to prepare for what's ahead.
Here are the ten most important points that I tell my patients:
  1. Your private insurance premiums will cost more and more each year.
  1. You will lose the choices and flexibility in health insurance policies that we have had available up until now.
  1. As reimbursements continue to drop, fewer and fewer doctors will take Medicare (for those 65 and older) or Medicaid (people younger than 65).
  1. Fewer doctors accepting Medicare and Medicaid causes an increase in wait times for appointments and a decrease in the numbers and types of specialists available on these plans. Consumers would be wise to line up their doctors now.
  1. Studies from various organizations and states have consistently shown that Medicaid recipients have longer waits for medical care, fewer options for specialists, poorer medical outcomes, and die sooner after surgeries than people with no health insurance at all. Yet an increasing number of Americans will be forced into this second-class medical care.
  1. As more people enter the taxpayer-funded plans (Medicare and Medicaid) instead of paying for private insurance, the costs to provide this increased medical care and medications will escalate, leading to higher taxes.
  1. With no eligibility verifications in place, millions of people who are in the US illegally will be able to access taxpayer-funded medical services, making longer lines, longer wait times, and less money available for medical care for American citizens… unless taxes are increased even more.
  1. Higher expenditures to provide medical services lead to rationing of medical care and treatment options to reduce costs. This is the mandated function of the Independent Payment Advisory Board: to cut costs by deciding which types of medical services to allow… or disallow.

    If you are denied treatment, you have no appeal of IPAB decisions; you are simply out of luck, and possibly out of life. This is a radical departure from the appeals process required for all private health insurance plans. Further, the IPAB is accountable only to President Obama, and cannot be overridden by Congress or the courts. IPAB is designed to have the final word on your health.
  1. Under current regulations, if medical care is denied by Medicare, then a patient is not allowed to pay cash to a Medicare-contracted physician or hospital or other health professional. Patients who need medical care that is denied under Medicare or Medicaid will find themselves having to either: 1) look for an independent physician or hospital (quite rare these days); or 2) go outside the USA for treatment.
  1. Expect a loss of medical privacy. Beginning in 2014, if you participate in government health insurance, your health records will be sent to a centralized federal database, with or without your consent.
The bottom line is that Americans are losing more and more of their medical freedom. By 2015, so many workers will be trapped in the government-run health insurance exchanges that there will be no going back to the private plans we have today. At this rate, single-payer proponents will drive private insurance companies out of business, which has been their intention all along.

Americans need to become far more proactive about taking charge of their health. The healthier you are, the less vulnerable you are to our degrading healthcare system. It's also wise to consider proactively planning for medical treatment options outside the US.

Dr. Vliet will share her thoughts on what Obamacare will do to medical freedom and privacy—and the steps Americans can take now to preserve both—at the upcoming Casey Research Summit 3 Days with Casey, October 4-6 in Tucson, Arizona.

Aside from Dr. Vliet, our blue-ribbon faculty includes keynote speaker Dr. Ron Paul, economic and investment experts Catherine Austin Fitts, Lacy Hunt, James Rickards, John Mauldin, Rick Rule, Chris Martenson, and many more. Most of the speakers have agreed to attend the conference for the entire three days and mingle with the participants.

This is one conference you don't want to miss, but seats are filling up fast.

Get all the details now—if you sign up today, you can still get our $100 first-come, first-save discount.


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