The August 16 issue of Financial Times reports that the Minister of Health in Germany is issuing new policy guidelines to get control of spiralling health costs. The paper report that as of the end of 2008, the cost of drugs and treatments had risen between 10 and 15% over the previous five years in Germany and that the country is now spending around $3,800 per year per person on healthcare.
Meanwhile, the United States government has stalled in its' attempts to control healthcare costs since it doesn't seem to be a dire issue to policy makers. This year alone, however, insurance premiums are reported to be rising as much as 20% while the US spends a bit more on healthcare per person. Almost twice as much as Germany actually, over $7,200 per person.
Wednesday, August 18, 2010
Thursday, May 20, 2010
Curing Greece Syndrome
Curing Greece Syndrome
Review: Comeback America, Turning the Country Around and Restoring Fiscal Responsibility, David M. Walker, Random House, 2010
If you feel a distinct disquiet every time you consider the future of our country, you might consider reading David Walker’s new book, Comeback America. In this diagnostic and prescriptive summary of what ails America’s budget from the former head of the Federal Government Accountability Office (GAO), the scope of the fiscal issue, from political pandering, to risky demographics to the complicity of nearly every American in the tax vs. benefit charade is fronted.
Comeback America may be the one book you should read on the fiscal problem. A credible commentator of the first order on the subject, Walker positions himself as both non-partisan and highly placed. He was comptroller of the GAO for 10 years through 2008 and is a political independent. With 10 year experience in of one of the most politically independent positions in the government and near the epicenter of the fiscal issue, Walker brings deep credentials to the debate.
Since this book’s publication earlier this year, events have added color but not overshadowed his point. Lately Greece is on page one as its fiscal wreck now threatens continental Europe’s single currency and banking system. It is thanks to Greece that you don’t have to be a Cassandra anymore to see how the process of a sovereign first world fiscal implosion plays out. It is playing out right before our eyes.
Discovering the truth about a government’s true financial health isn’t really that easy. Up until recently, It would have taken a mystic to foresee Greece’s issues. The politicians had been lying about the true fiscal situation and it didn’t come out until the last government left office. Not collecting taxes while increasing services to get votes isn’t just a Greek politician’s trick, of course. Walker argues it has been done by the majority of our own State and Federal administrations for years. No it isn’t just the Greeks, but since this Greek canary has already died and its fiscal/political paradigm has been laid bare for all to see, the lessons are more easily understood.
Walker’s treatment of the subject is both understandable and substantial in its description of the pathology of the United States’ government finances. He shows how the US is hiding huge future liabilities such as promises to provide services for our retired citizens or public sector pensions which are not paid for, or how the Federal budgeting process that leads to pork barrel spending is the product of our election rules and how we are overspending on legitimate programs such as defense and education and not getting the results we pay for. Finally he takes on the government for chasing delusions such as the most expensive (one we cannot afford even now) but not the best healthcare system in the world and pretending it is otherwise. Judging from the information in recent articles about Greece, we have a lot in common with them.
So how can Comeback America ease your pessimism? It is about our comeback. It has good realistic and non-partisan ideas about how to do this. Walker’s ideas start with putting our own individual financial choices on a sounder footing to restructuring our political system so as to remove the incentives for professional politicians to trade the nation’s financial future for votes in the next election. The information is both valuable and accessible.
Walker portrays America as he understands it; still capable of reforming itself in the process of rediscovering our past fiscal responsibility and thus restoring hope. This is the issue of our time and post the fall elections this year look for the government to begin to address our structural deficits. Understanding the issues and options we face is a good idea. For 2010 this is a timely book and a good read.
Review: Comeback America, Turning the Country Around and Restoring Fiscal Responsibility, David M. Walker, Random House, 2010
If you feel a distinct disquiet every time you consider the future of our country, you might consider reading David Walker’s new book, Comeback America. In this diagnostic and prescriptive summary of what ails America’s budget from the former head of the Federal Government Accountability Office (GAO), the scope of the fiscal issue, from political pandering, to risky demographics to the complicity of nearly every American in the tax vs. benefit charade is fronted.
Comeback America may be the one book you should read on the fiscal problem. A credible commentator of the first order on the subject, Walker positions himself as both non-partisan and highly placed. He was comptroller of the GAO for 10 years through 2008 and is a political independent. With 10 year experience in of one of the most politically independent positions in the government and near the epicenter of the fiscal issue, Walker brings deep credentials to the debate.
Since this book’s publication earlier this year, events have added color but not overshadowed his point. Lately Greece is on page one as its fiscal wreck now threatens continental Europe’s single currency and banking system. It is thanks to Greece that you don’t have to be a Cassandra anymore to see how the process of a sovereign first world fiscal implosion plays out. It is playing out right before our eyes.
Discovering the truth about a government’s true financial health isn’t really that easy. Up until recently, It would have taken a mystic to foresee Greece’s issues. The politicians had been lying about the true fiscal situation and it didn’t come out until the last government left office. Not collecting taxes while increasing services to get votes isn’t just a Greek politician’s trick, of course. Walker argues it has been done by the majority of our own State and Federal administrations for years. No it isn’t just the Greeks, but since this Greek canary has already died and its fiscal/political paradigm has been laid bare for all to see, the lessons are more easily understood.
Walker’s treatment of the subject is both understandable and substantial in its description of the pathology of the United States’ government finances. He shows how the US is hiding huge future liabilities such as promises to provide services for our retired citizens or public sector pensions which are not paid for, or how the Federal budgeting process that leads to pork barrel spending is the product of our election rules and how we are overspending on legitimate programs such as defense and education and not getting the results we pay for. Finally he takes on the government for chasing delusions such as the most expensive (one we cannot afford even now) but not the best healthcare system in the world and pretending it is otherwise. Judging from the information in recent articles about Greece, we have a lot in common with them.
So how can Comeback America ease your pessimism? It is about our comeback. It has good realistic and non-partisan ideas about how to do this. Walker’s ideas start with putting our own individual financial choices on a sounder footing to restructuring our political system so as to remove the incentives for professional politicians to trade the nation’s financial future for votes in the next election. The information is both valuable and accessible.
Walker portrays America as he understands it; still capable of reforming itself in the process of rediscovering our past fiscal responsibility and thus restoring hope. This is the issue of our time and post the fall elections this year look for the government to begin to address our structural deficits. Understanding the issues and options we face is a good idea. For 2010 this is a timely book and a good read.
Monday, March 29, 2010
Trying to Make Sense of the Health Care Bill
Friday March 19. 2010
My job is to understand events and translate them into investment views and strategies. It is in this vein, that I offer the following comment on the latest health care reform bill that seems likely to pass this weekend. It is also my attempt to help you understand it better. The United States spends 2-3 times more per capita on health care than most other developed nations and we don’t get our money’s worth in my opinion. Among developed countries, for instance, the US is below average in life expectancy.
The fiscal impact of the bill on the nation’s balance sheet is the primary investment issue and there are details in the bill that I see, as presented by the Wall Street Journal, that are going to be negatives to the market. There are some slightly positive aspects and finally there is a glaring omission that leaves me concerned. The CBO has announced that the bill will result large savings over 10 years and into the future. Be skeptical of that. They are under tremendous pressure.
Negatives:
The negatives surround the extra taxes that are going to be levied to pay for the expansion of coverage to those who now are not covered. It should be noted that the indigent go the emergency room when they really need medical attention and they are admitted. The cost for their care, and emergency room care is quite expensive, is passed onto all of the rest of us in higher prices. So there is some part of this expansion that is already in the system. The extra taxes are focused on those with incomes over $250,000. For those people, interest and dividend income will be taxed at higher rates next year it appears if you are above that income level. There are other taxes, but again they are not directly affecting the majority of people, but are going to have some influence on the market in the future and the consumption of certain items such as super expensive health plans. New taxes such as those on insurance companies and medical device companies will probably be passed on to us. There is some element of charade in these numbers.
The bill will probably hinder some job growth. The rhetoric against the bill misses that it is employers of more than 50 people, for instance, who will have to provide a plan or pay a $750 per employee penalty. That penalty isn’t huge and presumably the fee will be used by the government to subsidize a system of health insurance accessible by individuals. Employers of more than 200 employees don’t have the option of not providing health insurance. What we think of as small buisiness, those employing less than 50 persons, doesn't pick up a mandate to provide health coverage.
Positives:
The positives begin with the fact that the issue will be better defined and the uncertainty can diminish. Good for everyone to get this worked out, but this is only the beginning. A very very long slog lies ahead.
Another positive is that the cost of care issue in the US is being addressed, though only superficially, by the pooling of insurance buying for individuals and small business people. I believe the market is also going to be opened up to interstate competition. Competition will help but it is indirect isn’t it? It is competition between the insurance companies that charge 15% of the system’s cost to allocate funds. This is helpful but not a solution.
It is positive that health care will be more accessible and the risk of financial devastation due to health problems will be reduced. This is a positive for small business and the general welfare of the nation. Broad coverage also offers us hope that inefficient emergency medicine can be reduced as the gateway to health care by the poor. That can save us all money it is hoped.
Omissions:
I am going to say here that I am very critical of the absence of health care cost reductions in this bill. The government has an opportunity to get something important done here and they have passed on it. The most obvious reform would be tort reform, opposed by the trial attorneys. It should be noted that the trial attorneys are politically very powerful and are in particular patrons of the Democratic Party. Tort reform would limit damage awards and eliminate medical malpractice as a gold mine for attorneys and an unmanageable risk for physicians. It would undoubtedly decrease the cost of healthcare in the US by allowing physicians to practice sensible medicine and not order every possible expensive test in order to protect themselves from lawsuits.
We should wonder why the absence of tort reform in the bill should be tolerated by the taxpayer. Certainly it is a reform that would be quite popular among voters but not politicians.
Another omission is how the $438 billion cut in Medicare reimbursement over 10 years is paid for or what it means in practice? This cost reduction is the cornerstone of the savings in the plan and it hasn’t been given much airtime. It seems to be a cut that the care providers are supposed to work into their practice. Will it mean they serve Medicare clients differently? I don’t know. It probably does.
In the US, we pay more for drugs and specific treatment than other countries. There are incentives for treatments to be offered us regardless of cost or the effectiveness. Incentives such as more profits for the provider, or a patient who feels better cared for or to avoid the attacks of trial attorneys all contribute to our too expensive healthcare system. Does this bill really tackle this issue? I don’t see that it does.
I also think the role of insurance companies needs to be justified in our system. 15% of the cost of healthcare is the insurance industry’s “administrative cost”. The hospitals also have significant administrative costs as do companies who provide insurance to their employees and then the government is administering too as do individuals who are bombarded with bills, and letters about deductibles and denied coverage. Pretty ungainly apparatus it seems, the value of which is questionable.
While it is good we are finally dealing with the health care issue in our country, without smart cost reductions, we should be concerned about the effect on the economy and for the coming generations who are being left with a legacy of debts. Real reform isn’t just about coverage expansion. Health care reform without cost reduction is at best a neutral but probably amounts to a negative and which is probably why there is so much opposition to the bill.
Post Script; March 29, 2010
There is a growing list of talented and non-partisan voices refuting the claim by the Congressional Budget Office that the Health Care Reform Bill will lower the cost of health in America. William Gross of Pimco manages more fixed income money than anyone on the planet and it his business to comment on this issue. If the US government isn't solvent at some time in the future, he has to take steps to protect his client's vast holdings of government bonds. Gross sees the CBO estimate as false and in his montly report last week sees at least a $500 billion cost deficit instead of a savings.
More than anything, the health issue is a fiscal issue. A 50 year old man who is 50 pounds overweight can ill afford to put on more weight if he wants to enjoy a healthy retirment. A 234 year old man, Uncle Sam is now doing just that. He is alot overweight and gaining much more every year. Will he make it to 250?
National Geographic, Excellent Graph Showing Heath Care Cost Problem, Dec 2009
http://blogs.ngm.com/.a/6a00e0098226918833012876a6070f970c-800wi
Wall Street Journal Table
http://online.wsj.com/public/resources/documents/st_healthcareproposals_20090912.html
New Yorker Article on Cost Overruns of Medicare
http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande
My job is to understand events and translate them into investment views and strategies. It is in this vein, that I offer the following comment on the latest health care reform bill that seems likely to pass this weekend. It is also my attempt to help you understand it better. The United States spends 2-3 times more per capita on health care than most other developed nations and we don’t get our money’s worth in my opinion. Among developed countries, for instance, the US is below average in life expectancy.
The fiscal impact of the bill on the nation’s balance sheet is the primary investment issue and there are details in the bill that I see, as presented by the Wall Street Journal, that are going to be negatives to the market. There are some slightly positive aspects and finally there is a glaring omission that leaves me concerned. The CBO has announced that the bill will result large savings over 10 years and into the future. Be skeptical of that. They are under tremendous pressure.
Negatives:
The negatives surround the extra taxes that are going to be levied to pay for the expansion of coverage to those who now are not covered. It should be noted that the indigent go the emergency room when they really need medical attention and they are admitted. The cost for their care, and emergency room care is quite expensive, is passed onto all of the rest of us in higher prices. So there is some part of this expansion that is already in the system. The extra taxes are focused on those with incomes over $250,000. For those people, interest and dividend income will be taxed at higher rates next year it appears if you are above that income level. There are other taxes, but again they are not directly affecting the majority of people, but are going to have some influence on the market in the future and the consumption of certain items such as super expensive health plans. New taxes such as those on insurance companies and medical device companies will probably be passed on to us. There is some element of charade in these numbers.
The bill will probably hinder some job growth. The rhetoric against the bill misses that it is employers of more than 50 people, for instance, who will have to provide a plan or pay a $750 per employee penalty. That penalty isn’t huge and presumably the fee will be used by the government to subsidize a system of health insurance accessible by individuals. Employers of more than 200 employees don’t have the option of not providing health insurance. What we think of as small buisiness, those employing less than 50 persons, doesn't pick up a mandate to provide health coverage.
Positives:
The positives begin with the fact that the issue will be better defined and the uncertainty can diminish. Good for everyone to get this worked out, but this is only the beginning. A very very long slog lies ahead.
Another positive is that the cost of care issue in the US is being addressed, though only superficially, by the pooling of insurance buying for individuals and small business people. I believe the market is also going to be opened up to interstate competition. Competition will help but it is indirect isn’t it? It is competition between the insurance companies that charge 15% of the system’s cost to allocate funds. This is helpful but not a solution.
It is positive that health care will be more accessible and the risk of financial devastation due to health problems will be reduced. This is a positive for small business and the general welfare of the nation. Broad coverage also offers us hope that inefficient emergency medicine can be reduced as the gateway to health care by the poor. That can save us all money it is hoped.
Omissions:
I am going to say here that I am very critical of the absence of health care cost reductions in this bill. The government has an opportunity to get something important done here and they have passed on it. The most obvious reform would be tort reform, opposed by the trial attorneys. It should be noted that the trial attorneys are politically very powerful and are in particular patrons of the Democratic Party. Tort reform would limit damage awards and eliminate medical malpractice as a gold mine for attorneys and an unmanageable risk for physicians. It would undoubtedly decrease the cost of healthcare in the US by allowing physicians to practice sensible medicine and not order every possible expensive test in order to protect themselves from lawsuits.
We should wonder why the absence of tort reform in the bill should be tolerated by the taxpayer. Certainly it is a reform that would be quite popular among voters but not politicians.
Another omission is how the $438 billion cut in Medicare reimbursement over 10 years is paid for or what it means in practice? This cost reduction is the cornerstone of the savings in the plan and it hasn’t been given much airtime. It seems to be a cut that the care providers are supposed to work into their practice. Will it mean they serve Medicare clients differently? I don’t know. It probably does.
In the US, we pay more for drugs and specific treatment than other countries. There are incentives for treatments to be offered us regardless of cost or the effectiveness. Incentives such as more profits for the provider, or a patient who feels better cared for or to avoid the attacks of trial attorneys all contribute to our too expensive healthcare system. Does this bill really tackle this issue? I don’t see that it does.
I also think the role of insurance companies needs to be justified in our system. 15% of the cost of healthcare is the insurance industry’s “administrative cost”. The hospitals also have significant administrative costs as do companies who provide insurance to their employees and then the government is administering too as do individuals who are bombarded with bills, and letters about deductibles and denied coverage. Pretty ungainly apparatus it seems, the value of which is questionable.
While it is good we are finally dealing with the health care issue in our country, without smart cost reductions, we should be concerned about the effect on the economy and for the coming generations who are being left with a legacy of debts. Real reform isn’t just about coverage expansion. Health care reform without cost reduction is at best a neutral but probably amounts to a negative and which is probably why there is so much opposition to the bill.
Post Script; March 29, 2010
There is a growing list of talented and non-partisan voices refuting the claim by the Congressional Budget Office that the Health Care Reform Bill will lower the cost of health in America. William Gross of Pimco manages more fixed income money than anyone on the planet and it his business to comment on this issue. If the US government isn't solvent at some time in the future, he has to take steps to protect his client's vast holdings of government bonds. Gross sees the CBO estimate as false and in his montly report last week sees at least a $500 billion cost deficit instead of a savings.
More than anything, the health issue is a fiscal issue. A 50 year old man who is 50 pounds overweight can ill afford to put on more weight if he wants to enjoy a healthy retirment. A 234 year old man, Uncle Sam is now doing just that. He is alot overweight and gaining much more every year. Will he make it to 250?
National Geographic, Excellent Graph Showing Heath Care Cost Problem, Dec 2009
http://blogs.ngm.com/.a/6a00e0098226918833012876a6070f970c-800wi
Wall Street Journal Table
http://online.wsj.com/public/resources/documents/st_healthcareproposals_20090912.html
New Yorker Article on Cost Overruns of Medicare
http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande
Wednesday, January 6, 2010
Questions - Outcomes
Very very affordable mortgages are arguably the most effective policy the government has enacted to pull the economy out of the recession. But many people worry that mortgage rates are going to rise this year, possibly quite a bit and thus the improving economy could hit the skids. How likely is this to occur?
There are three reasons interest rates are so low.
-First there is demand for US government bonds and buyers are willing to accept the low yields they offer at this time. They are deemed safe in an uncertain world and some foreign countries such as China are accumulating US dollars from their trade surpluses that need to be parked somewhere reliable. These low rates are setting the floor in the market.
-Second, our Federal Reserve is buying new mortgages as they are being originated in a kind of subsidy that is intended to help the economy by creating financing and lowering the cost of home ownership. This policy is an indispensable aspect of the emerging recovery.
-Third, the inflation rate is very low and therefore interest rates should be low.
Unemployment over 10% is the biggest single influence at this time over interest rates. Such high unemployment means the government cannot back off from helping the economy and the mortgage supports must continue. It isn't wise and it is politically impossible to alter this policy for the visible future. As 2010 begins we are hearing that jobs creation is the biggest economic priority for the Obama administration. A recovery in housing is a key requirement and for jobs to be created the US is going to need those cheap mortgages for sometime.
High unemployment means labor costs aren't going to rise and inflation is going to be muted. Inflation should not be pushing on these rates for sometime and this is another reason for interest rates to stay low.
The third factor may not be so favorable. Investor demand for US government bonds could become an issue. It may take higher rates to keep them buying. Why? The huge deficits we continue to run are going to undermine that market as the quantity of US bonds in the world exceeds the demand. Will this happen and if so will it be later than sooner? We'll see. It isn't in anyone's interest for the US economy to crater and it seems adjustments to the bond market are going to be orderly. This is a factor that will push rates higher theoretically. In reality, it has yet to be seen.
So the interest rate market seems set for a moderate increase in rates but given how unlikely employment is to improve a great deal or inflation to rise, we are going to continue to see what are historically very good deals on mortgages. Get one today if you can!
There are three reasons interest rates are so low.
-First there is demand for US government bonds and buyers are willing to accept the low yields they offer at this time. They are deemed safe in an uncertain world and some foreign countries such as China are accumulating US dollars from their trade surpluses that need to be parked somewhere reliable. These low rates are setting the floor in the market.
-Second, our Federal Reserve is buying new mortgages as they are being originated in a kind of subsidy that is intended to help the economy by creating financing and lowering the cost of home ownership. This policy is an indispensable aspect of the emerging recovery.
-Third, the inflation rate is very low and therefore interest rates should be low.
Unemployment over 10% is the biggest single influence at this time over interest rates. Such high unemployment means the government cannot back off from helping the economy and the mortgage supports must continue. It isn't wise and it is politically impossible to alter this policy for the visible future. As 2010 begins we are hearing that jobs creation is the biggest economic priority for the Obama administration. A recovery in housing is a key requirement and for jobs to be created the US is going to need those cheap mortgages for sometime.
High unemployment means labor costs aren't going to rise and inflation is going to be muted. Inflation should not be pushing on these rates for sometime and this is another reason for interest rates to stay low.
The third factor may not be so favorable. Investor demand for US government bonds could become an issue. It may take higher rates to keep them buying. Why? The huge deficits we continue to run are going to undermine that market as the quantity of US bonds in the world exceeds the demand. Will this happen and if so will it be later than sooner? We'll see. It isn't in anyone's interest for the US economy to crater and it seems adjustments to the bond market are going to be orderly. This is a factor that will push rates higher theoretically. In reality, it has yet to be seen.
So the interest rate market seems set for a moderate increase in rates but given how unlikely employment is to improve a great deal or inflation to rise, we are going to continue to see what are historically very good deals on mortgages. Get one today if you can!
Monday, November 16, 2009
On the gas!
The stock market has attained a level of price with respect to 2010 earnings that is fairly close to past market levels. So is the profit opportunity already realized?
I don't think so because if you are looking for a place for money that needs a return, try to build a shorter term ladder these days. Available interest rates on the one year tranche are less than 1% if you are credit risk averse.
Money is flowing into the financial system generally as well. Try to refinance residential real estate. Is it virtually impossible as some reports have made is seem? No credit standards are just sensible like they used to be and loans are being readily made. What is different is rates and the ability to lever up. 4.25% on a 15 year mortgage is cheap and available. Is there a reinvestment opportunity for some in this setup? Yes very much so and it is going on now.
With realistic loan underwriting and cheap money, we have a potential for a sustainable healing to take place in the economy even as the direction of the business cycle points up. Given the improving trend and flows of cheap capital, I think it is hard to see how one can be bearish despite the bad news and debt issues. Most importantly the low interest return on fixed income is encouraging to flow towards assets with much higher potential returns and risks.
While this has caused stocks to rebound, and some in particular still look very good, it has most of all resulted in investment money flowing towards commodities.
Some commodities like oil are strong despite having no current shortage whatsoever, yet a strong case can be made there will be. Gold on the other hand, is migrating to a role it used have. Arguably gold is now primarily a store of value or in other words a currency in of itself. What price is that worth? You don't know? How can anyone?
It has been proposed that gold will become a currency of exchange in an electronic medium. If you have used Pay Pal you see the beginning of the idea. Instead of dollars in a Pay Pal account, what if there were gold credits? What if I sold you a laptop for 1/2 an ounce of gold on your gold Pay Pal account. Would that be too far out to imagine? No not all.
So cheap interest rates are the gas and where it all goes isn't within the control of those who apply the gas. Home prices or financial asset prices will benefit collaterally, but the charts show gold at new all time highs almost everyday now. The gas is flowing and where it goes seems to be the most salient investment news of all.
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