Daily Archives: July 7, 2010
Today's P/E ratio for the S&P 500 is 19.3. The historical avg is 15.7. that implies the S&P index could drop another 200 points to 862. #
I can't figure out who I care less about: Lindsay Lohan, or Levi Johnson. #
Wow. Seems like a slow news day. #
Last Friday, the Committee for a Responsible Federal Budget released a report commenting on the CBO’s long term budget outlook. As one might imagine, it’s not pretty:
Yesterday, the Congressional Budget Office (CBO) issued its Long Term Budget Outlook. Under CBO’s “Extended-Baseline Scenario,” the long-run fiscal picture has slightly worsened over the next twenty years, compared to last year, but significantly improved over the longer run – due largely to the impact of health care reform on spending and especially revenues. However, CBO’s overall analysis shows the budget to be on an unsustainable path, with debt moving to unprecedented and cripplingly high levels.
One has to wonder how any budget found to be on an “unsustainable path, with debt moving to unprecedented and crippling high levels” could at the same time show significant improvement over “the longer run”. The fact remains that whatever “significantly improved” picture any particular budget provides over another one, the bottom line remains “unsustainable, unprecedented and crippling” for our future. The Committee’s report goes on:
Under current law, CBO projects that public debt will rise from 62 percent of GDP this year, to 84 percent by 2040, and to 107 percent by 2080. This scenario is highly optimistic, since it assumes that all the 2001/2003 tax cuts will expire this year as scheduled, there will be no AMT patches or doc fixes, all of the savings in the health care bill will be sustained over the next two decades, and revenues will eventually exceed 30 percent of GDP.
“Highly optimistic” doesn’t begin to describe this budgetary charade. A 6 month “doc fix” has been passed the Senate and is awaiting House approval. Most believe it will continue to be passed in the foreseeable future. Legislators do not have the spine necessary to refuse the fix and weather the consequent political fallout which would see a mass exodus of doctors from the Medicare program. And anyone with the IQ of an onion knows that the “waste, fraud and abuse” savings promised for health care are simply throw-away promises made to balance out the numbers and get the bill passed into law.
So there are no savings on the way through health care. Optimistic is the wrong word to use here. It should be “fraudulent”. In fact, if we throw out the fraudulent health care assumptions, we end up with reality – which CBO calls its “Alternative Fiscal Scenario”:
Under CBO’s Alternative Fiscal Scenario, which does not make these assumptions, debt will rise to 87 percent by 2020, 233 percent by 2040, and to 854 percent by 2080.
There’s the most likely picture we’ll see in 2020. And frankly, at that point, it will almost be a runaway fiscal train. Impossible to stop and headed for a disastrous crash.
Even under the “highly optimistic” scenario, we’re in deep, deep trouble:
Yet, even under the current law revenue scenario – in which all the 2001/2003 tax cuts expire at the end of this year, policymakers discontinue the annual practice of enacting AMT patches, real bracket creep continues unfettered into perpetuity, and the excise tax on high cost health care plans grows to raise an increasing amount of revenue (3 percent of GDP by 2080) – revenues will fall short of spending. And under this scenario, revenue will grow to 30 percent of GDP. That’s twice as large a share of the economy as we will raise in 2010, and nearly 50 percent greater than any time in our history.
We’re certainly seeing history in the making, but it isn’t history in which we should be willing participants. The solution isn’t difficult to see, but politically its implementation is very hard to do. That’s because there are no political incentives to solve the problems. In fact, there are tremendous political incentives not to do that. That’s because no matter how much fiscal sense austerity measures (spending cuts, reductions in force, closing government agencies and departments, etc.) make, they’re painful and a political minefield. And we’ve yet to see the political class – regardless of their ideological bent – willing to seriously tackle this crisis in any meaningful way and take the political hits necessary to do so.
No one really expects that to change. Of course, that means the doomsday analysis by the CBO, which will be mostly ignored by politicians on both sides, is likely to come to pass. What the politicians of today plan on doing is letting those of their ilk in office at the time the fiscal train crashes deal with it and the fallout. How’s that for being ill served by the political class? Of course it’s nothing new – it’s been going on for decades.
Unfortunately for us, when the avoidable crisis finally hits in the near future, it will most likely be too late to do what is necessary and politically viable at the same time. Those stuck with the problem, at that time, will essentially have to commit political suicide. Of course, given the gravity of the situation they will face, they’ll have absolutely no choice.
What will come out of the trainwreck is anyone’s guess – but whatever it is will be a country that is weaker, less powerful and more vulnerable than it has been since its founding. And its enemies will be sure to take advantage of that situation, you can count on it.
One of the things many election analysts continue to cite as a hopeful sign for Democrats in the upcoming mid-term elections is the fact that Obama’s approval rating has remained fairly high.
The thinking, then, is the vote won’t be about him or his agenda and that means Democrats may be successful in keeping the focus local and weathering the storm of electoral anger.
I don’t think so. And here’s why:
Thirty-eight percent of independents approve of the job Barack Obama is doing as president, the first time independent approval of Obama has dropped below 40% in a Gallup Daily tracking weekly aggregate. Meanwhile, Obama maintains the support of 81% of Democrats, and his job approval among Republicans remains low, at 12%.
That’s right – those that have the power to swing any election have mostly fallen out of love with Obama. And, one would assume, that would be driven by what he has done or not done as the case may be. But the point is 4 months before these crucial elections, only 38% of the group that secured him in office still approve of him and the job he’s doing.
You don’t think that will reflect in November?
Democrats and the left, of course, have no where to go but they can stay home – and I think many will. The Republicans and the right are fired up and energized. They’re going to turn out. Whether or not independents turn out or not, it appears they will not be overwhelmingly supporting Democrats because of “good approval ratings” for the president. In fact, the opposite case can be compellingly made.
I think it is becoming increasingly obvious to everyone, to include Congressional Democrats, that the GOP will win seats in both chambers of Congress. The only thing left to guesswork is how many.
No one denies that Obamacare is modeled after the Massachusetts model signed into law there by Governor Mitt Romney. In fact, in 2006 then Senator Barack Obama called it a "bold initiative" that it would "reduce costs and expand coverage" and as recently as early this year, now President Obama called his initiative, “essentially identical” to that of Massachusetts.
And that’s precisely how Obamacare was sold to the American public. I use “sold” advisedly, since most of the American public made it clear they didn’t want what Obama and the Democrats were selling. But regardless, they passed it into law anyway.
So now we turn our attention to the experiment that has been running in MA for years and what do we find?
Massachussets has the highest average health care premiums in the nation, according to the <em>Wall Street Journal’s</em> Joseph Rago. In fact, Governor Deval Patrick has tried to cap insurance premiums, arbitrarily denying 235 of 274 rate increases submitted by the major health insurance companies serving the state (all nonprofits, by the way). However a state appeals board has since reversed Patrick’s arbitrary caps. The state is appealing the board’s decision.
In the meantime, the insurance companies have suffered $116 million in loses.
Robert Dynan, a career insurance commissioner responsible for ensuring the solvency of state carriers, wrote that his superiors "implemented artificial price caps on HMO rates. The rates, by design, have no actuarial support. This action was taken against my objections and without including me in the conversation."
Mr. Dynan added that "The current course . . . has the potential for catastrophic consequences including irreversible damage to our non-profit health care system" and that "there most likely will be a train wreck (or perhaps several train wrecks)."
As a result of the Patrick rate caps, three of the insurance companies are under administrative oversight because of concerns about their financial viability. And that’s not all. In order to cut costs, rationing and other measures are being contemplated:
Naturally, Mr. Patrick wants to export the rate review beyond the insurers to hospitals, physician groups and specialty providers—presumably to set medical prices as well as insurance prices. Last month, his administration also announced it would use the existing state "determination of need" process to restrict the diffusion of expensive medical technologies like MRI machines and linear accelerator radiation therapy.
Meanwhile, Richard Moore, a state senator from Uxbridge and an architect of the 2006 plan, has introduced a new bill that will make physician participation in government health programs a condition of medical licensure. This would essentially convert all Massachusetts doctors into public employees.
There are literally no surprises to be found in those two paragraphs. All of this was foretold by critics of the Obamacare plan. All of it. These are inevitable outcomes of such a plan. It was clear from the outset that Democrats and the administration were selling something they couldn’t deliver – essentially no changes in your coverage except less cost. Massachusetts has proven that to be the pure nonsense critics called it from the beginning. As Rago says:
In other words, health reform was a classic bait and switch: Sell a virtually unrepealable entitlement on utterly unrealistic premises and then the political class will eventually be forced to control spending. The likes of Mr. Kingsdale would say cost control is only a matter of technocratic judgment, but the raw dirigisme of Mr. Patrick’s price controls is a better indicator of what happens when health care is in the custody of elected officials rather than a market.
Or, as goes Massachusetts, so goes the country under Obamacare.
Is it any wonder 60% of the nation favors repeal?
Apparently the only jobs the massive "stimulus" may have saved, at least temporarily, were government jobs. Now, even those are in jeopardy as state and local governments are forced to deal with the reality of their fiscal situation:
Up to 400,000 workers could lose jobs in the next year as states, counties and cities grapple with lower revenue and less federal funding, says Mark Zandi, chief economist for Moody’s Economy.com.
Layoffs by state and local governments moderated in June, with 10,000 jobs trimmed. That was down from 85,000 job losses the first five months of the year and about 190,000 since June 2009. But the pain is likely to worsen.
States face a cumulative $140 billion budget gap in fiscal 2011, which began July 1 for most, says the Center on Budget and Policy Priorities.
While general-fund tax revenue is projected to rise 3.7% as the economy rebounds in the coming year, it still will be 8%, or $53 billion, below fiscal 2008 levels, according to the National Association of State Budget Officers.
And that means that states will not be able to afford some of the services or staff they presently employ. And that, of course, means layoffs and even more workers seeking jobs. While to this point, many state and localities have been able to avoid layoffs by offering furloughs, that option is no longer viable for most.
And economic growth isn’t looking all that hot either. Wells Fargo economist Mark Vitner is amending his third quarter economic growth estimate from 1.9% to 1.5%.
If this is a recovery, I’d hate to see a depression.