Wednesday, March 31, 2010
Economics Reports End Of March
First up: ADP Employment: For March, projects a decline of 23,000 jobs in nonfarm private employment. As ADP points out in the narrative, the expectation is that government hiring of Census workers will produce a much more positive BLS report on Friday. BLS is reporting Census jobs when it reports.
ADP also revised down the Jan-Feb loss to 24,000, which gives us a monthly improvement (still losing, but losing more slowly). Services gained jobs for the second month (+28,000) while goods-producing lost jobs (-51,000). Small businesses continued to drop jobs at -12,000 overall. However small service businesses accounted for most the new service jobs at +15,000.
ADP did not see a snow effect in February, and I don't think there was much of one on retail sales net or jobs. It is true that much snow in high-density population areas has an effect, but the effects usually balance each other out. People don't go casually shopping as much, but they do buy a lot more at groceries and perhaps online. They buy extra stuff at grocery stores (rock salt) and at home improvement stores/centers (salt, snow shovels, snow blowers, etc. Also sales of hats, gloves and boots go up.). And some private businesses suspend and construction work may be halted, but there is always a strong temporary bulge of work in snow removal, which impacts the same working segment as construction. So it is usually a wash or a slight net gain, because there is forced spending.
The notable trend is that job losses continue to slowly decline - we are still on the improving trend. If I am right and June was the first month of recovery, we are 10 months in. The next two months are crucial.
The one-month extension of unemployment benefits runs out in the first week of April. I am hoping Congress can get on the ball and work out a new program. I think they will, but it is not going to help spending if unemployed people are sitting around with no money and no jobs. Unfortunately, in most of the country there simply are no jobs for the vast majority of the unemployed right now. Construction (except for public) isn't going to take up the slack this summer.
Chicago PMI. Note that all numbers I am citing are seasonally adjusted.
While still solidly in growth territory, this report notched up a pretty good drop from February to March (62.6 > 58.8, which takes us about back to December levels.). Production fell (Jan 66.6; Feb 65.2; Mar 60.5). Employment was about steady. Order backlogs fell, but only back to January's level. Inventories rose (42.4 > 52.4).
All in all, this report shows that the surge from the inventory cycle is just tailing off. You can't tell where we'll be in a few months. We could be happily plugging along in growth territory, or we could be kind of scraping along hanging steady. New orders were strong enough at 61.8 that it is hard to see possible contraction territory before late summer. The comments at the end were very mixed. The production and new orders indicators are very closely aligned, which suggests that no one is running wild with optimism. To me that makes this month's report look better; if everyone is still being conservative there's some slices left in the growth pie. This is also pretty consistent with ADP's report.
We also got the full report on February's manufacturers' shipments, inventories and orders. The reason I am concentrating on shipments is that growth in manufacturing and freight over the May- December period is going to depend on sustained growth in final demand.
The notable thing about this one are YoY metals shipment ratios. Primary metals are way up at 17.2%; fabricated are still down at -3.1%. The value of unfilled orders 2010/2009 (Jan + Feb) shows why. Primary metals are up 3.6%; fabricated metals -9.2%. Fabricated metals are the leading edge for primary, so fabricated metals are the index to watch over the next two months.
We are also turning over some small recovery rocks in the worst hit segments. While shipments for the broad category of machinery are still down 6.8% YoY, new orders are up 5.8%. But the value of unfilled orders is still dropping YoY at -6.3%.
In consumer goods, the story is somewhat different. Food shipments are up 3.5% YoY. Apparel shipments are down 6.9%. Paper is close to even at -0.3%. This is the other side of the Titanic graph - consumer spending appears to be marked by a mood of intense sobriety. Pharmaceutical shipments are down 5.8%. That is not really a strong consumer indicator. Beverages and tobacco shipments are down 4.9%.
We still have growth in computers (+12.8%), but almost all of that growth is in semiconductors and storage devices. Durable goods shipments in aggregate have dropped for two months and are up only 1.8% YoY.
Crude Oil Inventories:
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.9 million barrels from the previous week. At 354.2 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 0.3 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 1.1 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 0.5 million barrels last week and are in the lower half of the average range. Total commercial petroleum inventories increased by 3.2 million barrels last week, and are above the upper limit of the average range for this time of year.Even propane is now recovering as it is used less for heating. Inventories are very high indeed compared to usage. Over the last four weeks YoY net imports have dropped 10.2%. Product supplied has risen 2.9%, but this is slightly misleading because of ethanols and NG equivalents. I think diesel usage is up, but home heating oil usage is down, which would account for the -1.0% 4 week average YoY drop in distillates. Trucking tonnage in February dropped, but I thought that was mostly due to snow and would spring back in March. Maybe I'm wrong!
Related on the oil issue is this Bloomberg article about the rush to sell refineries. Oil consumption in the developed countries has peaked and is expected to decline. In Japan gasoline consumption dropped with demographics, and it is expected to follow suit in the US and Europe. Refineries have not generally been profitable for months. China is building massive refinery capacity. Now it just needs oil.
Monday, March 29, 2010
Stupid Congress Critter AND President Tricks II
But this was oversold; the reality is that insurance companies don't have to write coverage for sick children and can charge to cover the cost of the coverage if they do.
So now the NY Times sails into action claiming that this was an oversight. But it WASN'T. And also the White House is talking about fixing this through regulation, which it cannot:
A White House spokesman said the administration planned to issue regulations setting forth its view that “the term ‘pre-existing’ applies to both a child’s access to a plan and his or her benefits once he or she is in a plan.”I have serious concerns about an administration which is talking this way, because....
Here's an earlier take which quotes critter staffers:
Under the new law, insurance companies still would be able to refuse new coverage to children because of a pre-existing medical problem, said Karen Lightfoot, spokeswoman for the House Energy and Commerce Committee, one of the main congressional panels that wrote the bill Obama signed into law Tuesday.The section that establishes the early date for children:
However, if a child is accepted for coverage, or is already covered, the insurer cannot exclude payment for treating a particular illness, as sometimes happens now. For example, if a child has asthma, the insurance company cannot write a policy that excludes that condition from coverage. The new safeguard will be in place later this year.
Full protection for children would not come until 2014, said Kate Cyrul, a spokeswoman for the Senate Health, Education, Labor and Pensions Committee, another panel that authored the legislation.
(e) Section 1253 of this Act is amended insert beforeSection 2704:
15 the period the following: ‘‘, except that—
16 ‘‘(1) section 1251 shall take effect on the date of
17 enactment of this Act; and
18 ‘‘(2) the provisions of section 2704 of the Public
19 Health Service Act (as amended by section 1201), as
20 they apply to enrollees who are under 19 years of age,
21 shall become effective for plan years beginning on or
22 after the date that is 6 months after the date of enact
23 ment of this Act.’’.
1 (1) in section 2704 (42 U.S.C. 300gg), as so reSection 300gg relates to pre-existing health condition exclusions only. Section 300gg-11 of 42 USC contains the provisions about guaranteed enrollment. Both are modified by the reform bill, but only the changes to 300gg take effect for children after six months.
2 designated by section 1201(2)—
3 (A) in subsection (c)—
4 (i) in paragraph (2), by striking
5 ‘‘group health plan’’ each place that such
6 term appears and inserting ‘‘group or indi7
vidual health plan’’; and
8 (ii) in paragraph (3)—
9 (I) by striking ‘‘group health in
10 surance’’ each place that such term ap
11 pears and inserting ‘‘group or indi
12 vidual health insurance’’; and
13 (II) in subparagraph (D), by
14 striking ‘‘small or large’’ and inserting
15 ‘‘individual or group’’;
16 (B) in subsection (d), by striking ‘‘group
17 health insurance’’ each place that such term ap18
pears and inserting ‘‘group or individual health
19 insurance’’; and
20 (C) in subsection (e)(1)(A), by striking
21 ‘‘group health insurance’’ and inserting ‘‘group
22 or individual health insurance’’;
23 (2) by striking the second heading for subpart 2
24 of part A (relating to other requirements);
There is no way that regulations can fix this. There is nothing unclear about the law or the language, although maybe it is not beach reading. Presidents just can't start writing regulations to enforce the law they think should have been passed.
Why I Seem So Desperately Worried
According to my normal methods, this is a recovery and it is sticking.
So why am I so worried? The consumer indicators are really bad, no matter what anyone says. From March through June we get a jump from lower household energy costs, so that should help a little. Unquestionably the Census jobs will help.
But here's the baseline reality that I just don't see in the official press releases. (Monthly Treasury Statements here.)
Treasury Monthly Receipts HI (Medicare 2.9% tax)
Feb 2010:Treasury Monthly Receipts OASI (Old Age & Survivors):
FICA Withheld: 12,605 (-9.5%)
Self-Employment: 131 (-5.76%)
FICA Withheld: 13,933
FICA Withheld: 15,107
Feb 2010:The Medicare tax has no upper limit - it is charged on all wages. Thus it is a "true" indicator of total wages and salaries, ex benefits.
FICA Withheld: 41,627 (-7.8%)
Self-Employment : 306 (-3.7%)
FICA Withheld: 45,155
Note that capped wages for Social Security dropped less than Medicare wages. This shows that the higher end salaries lost the most. Obviously our ability to recover by taxing the well-off is being impaired.
For comparison, January was much better. And I expect March to be much better. I'm thinking some receipts got dropped for February and will show up in March, plus we should have some help from Census. There is also an adjustment Treasury is putting in there to move some taxes from one year to another, but they didn't have it footnoted in the most recent release, so I don't know. I think a significant portion of February was lower financial bonuses.
Treasury Monthly Receipts HI:
Jan 2010:However we slice it, we are down YoY. This does not mean that personal incomes have fallen as much as wages and salaries have. There is significant replacement stemming from two sources: unemployment benefits and early retirements.
FICA Withheld: 15,452 (-2.9%)
Self-Employment: 2,288 (-3.6%)
FICA Withheld: 15,921
FICA Withheld: 15,989
Fiscally, this represents an extreme problem. When people roll off their unemployment benefits personal income will fall like a rock. I doubt that we can have people on permanent unemployment, and if we do, you will see those federal deficits rise even more than predicted. As for early retirements and Social Security, the Social Security benefits are stable in the next decade. They will be paid. But every time an older person has to retire because of no job, the wage base that generates funds for the Social Security and Medicare programs is trimmed back.
This spring the new Social Security and Medicare trustees reports will be released. It will be fascinating to see their projections. Here is the 2009 Summary (covers 2008) and the 2009 Social Security Trustees Report (html). These reports now rank as the wildest of fantasies; even the "high-cost" projections had contributions rising in 2009 and 2010 as compared to 2008. Haha. Gravity prevails.
Needless to say our Medicare problems are exploding like a bomb. A person born in 1950 will be eligible for Medicare in 2015. Medicare was already in deficit in 2008 (link to 245 page pdf Trustees Report). Part A (hospital insurance supposedly funded by the 2.9% Medicare payroll tax) had ex-interest income of about 215 billion. Outlays were 235 billion. The 2009 report is going to look a lot worse! So we were in deficit already, long before the retirement bulge even was due to hit.
It should be obvious that we can't afford much in the way of regressive taxation. Nor we can we afford any new entitlement programs, especially those that pay benefits to people who are relatively well-off.
One of the factors hurting businesses this year is the big jump in unemployment taxes. We knew about that, but it doesn't help firms.
It looks to me like we only have a couple of years to stop the slide before we hit the wall. Our deficit problem will get much, much worse over just a few years, and with each year that it does our future options get more constrained. It's not so much the yearly deficit, but the funding tax we will be hit with as the yields on the Treasuries grow inexorably.
So I wouldn't worry too much about the health care bill that just passed. We don't have the money to pay for it. It will never happen. It's just a further excursion into fantasy. It is not a serious attempt at reform, because health insurance costs are rising mostly as a displacement from the underpayments of government insurance programs, and this "reform" only increases government insurance.
Focusing on unemployment rates currently just misses the reality. Focus on salaries and wages - and realize that states and municipalities are going to be cutting jobs this year and the next. As soon as the Census bulge wanes, our true fiscal position will become clear.
At the end of the 1982 recession we found ourselves in a similar fix, and we resorted to a round of regressive tax increases (Social Security and Medicare tax raises) to get ourselves into a stable position. However, we had two things going for us then that are working against us now. The first was favorable demographics - the boomers were entering their prime earning years. The second was that interest rates had been high and came down, so effectively many people saw their overall purchasing power increase.
Boomers basically get full Social Security at 67, so we don't even have some of the Greek and Italian options. If you raise the retirement age further, you only get more early retirees. If you raise the early retirement age, you get more people going out on disability - and when they go out on disability they qualify for Medicare after two years, so you don't get a net gain.
Obviously we are going to move to a much more rapidly rising tax burden as net incomes increase, but there are upper limits to it. You can't add 2.9% taxes for health care reform, and then add 5% more on income taxes, and then add another 6% to fix the Social Security deficit, while the states are also raising taxes. Before long you get to the position in which persons stop paying others to do work and do it themselves, which lowers total taxes.
Next year, reality hits. It's going to be such a massive, whomping blow that the entire US establishment will be reeling.
I'm not the only one saying this. Samuelson's latest. Frezza.
Sunday, March 28, 2010
Stupid Congress Critter Tricks
As readers may or may not know, publicly traded companies are required to be audited and to file a number of disclosures with the SEC. These disclosures include quarterly and yearly financials, and 8-Ks, which are disclosures of anything material affecting the company such as management changes, debt or profits. The theory behind that is that anything the management knows it must disclose to the public.
Now it is standard practice when filing an SEC statement to also release a press statement, because the last thing any company wants is for some enterprising reporter to go looking through the SEC filings and start writing articles with his or her interpretation of them. No, the company wants to control the narrative as far as it is possible and legal.
Okay, so last week a bunch of companies made "statements" regarding the health care legislation that passed. They were required by law to recognize accounting effects and file an 8-K as soon as they knew of the effects. They did so.
Here is Caterpillar's 8-K (aside from sigs and so forth):
As a result of the Patient Protection and Affordable Care Act (H.R. 3590) signed into law on March 23, 2010 (the “Act”), beginning in 2011 the tax deduction available to Caterpillar Inc. (“Caterpillar”) will be reduced to the extent its drug expenses are reimbursed under the Medicare Part D retiree drug subsidy (RDS) program. Although this tax increase does not take effect until 2011, Caterpillar is required to recognize the full accounting impact in its financial statements in the period in which the Act is signed. As retiree healthcare liabilities and related tax impacts are already reflected in Caterpillar’s financial statements, the change will result in a charge to Caterpillar’s earnings in the first quarter of 2010 of approximately $100 million after tax. This charge reflects the anticipated increase in taxes that will occur as a result of the Act. As mentioned on page A-106 of Caterpillar’s Form 10-K for the year ended December 31, 2009, Caterpillar’s 2010 Profit Outlook is based on tax law in effect as of February 19, 2010 and does not include the impact of the Act.Short, sweet, simple and pretty self-explanatory. GAAP (Generally Accepted Accounting Principles) require that companies reflect future obligations in their current financials. SOX requires that their 10-K (annual financials) be audited by an independent accounting firm and certified as accurate by management. There are significant legal penalties for not disclosing accurate financial statements. There are also significant possible penalties for accountants who help management hide the reality.
So the tax credits were included against future obligations, and since the tax credits will disappear under current law, Caterpillar had to file this notice with the SEC.
So now Waxman's Commerce and Energy Committee wants to know what's up? Huh? They are holding who'd 'a thunk hearings to demand that these executives explain themselves. Here's the committee's page and statement:
Chairman Henry A. Waxman and Subcommittee Chairman Bart Stupak today announced that the Subcommittee on Oversight and Investigations will hold a hearing on April 21, 2010, regarding claims by Caterpillar, Verizon, and Deere that provisions in the new health care reform law could adversely affect their company's ability to provide health insurance to their employees. These assertions appear to conflict with independent analyses, which show that the new law will expand coverage and bring down costs.In other words, we strongly suspect they're lying. This is where it gets so funny. From the letter to Caterpillar:
Chairman Waxman and Subcommittee Chairman Stupak sent a letter to the Chief Executive Officers of Caterpillar, Verizon, Deere and others requesting their testimony at the hearing as well as information and documentation from each company on the law's projected impact.
After the President signed the health care reform bill into law, your company announced that provisions in the law could adversely affect your ability to provide health insurance. Caterpillar stated in an SEC filing that its after-tax earnings for fiscal year 2010 will decrease by $100 million as a result of the law. A Caterpillar spokesman also warned of a reduction to employee benefits, claiming "there's greater cost pressures on us that could drive changes to plans."lThe cost impact released by Caterpillar was a very specific one prepared by its accountants and included as a mention in its 10-K. The critters want the presidents of these companies to come and testify before their committee. What are these people supposed to say? "There's a law, we have to conform to it?" Are they supposed to explain GAAP accounting to these critters?
The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern. They also appear to conflict with independent analyses.
...we request that you provide the following documents from January 1,2009, through the present: (1) any analyses related to the projected impact of health care reform on Caterpillar; and (2) any documents, including email messages, sent to or prepared or reviewed by senior company officials related to the projected impact of health care reform on Caterpillar. We also request an explanation of the accounting methods used by Caterpillar since 2003 to estimate the financial impact on your company of the 28% subsidy for retiree drug coverage and its deductibility or nondeductibility, including the accounting methods used in preparing the cost impact released by Caterpillar this week.
It seems quite unlikely that companies hadn't been lobbying about this provision of the law. So unlikely that it would be incredible. So is this committee really prepared to subject itself to a bunch of annoyed executives reading their financials, quoting their own lobbying efforts, quoting the law, reading from GAAP guidelines, and quoting their accountants?
Aren't these likely to be the most embarrassing hearings in the House for the decade? Verizon's case is a little different, because Verizon hadn't filed and was just communicating with its employees. But Verizon referenced the same provision.
Somehow I rather doubt these hearings will be held, but if they are, they should be riotously funny.
AT&T's 8-K can be most easily found at its website. The language:
On March 23, 2010, the President signed into law comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590). Included among the major provisions of the law is a change in the tax treatment of the Medicare Part D subsidy. AT&T Inc. ("AT&T") intends to take a non-cash charge of approximately $1 billion in the first quarter of 2010 to reflect the impact of this change. As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree health care benefits offered by the company.A billion here and a billion there - it adds up. The theory behind the subsidy originally was that Congress didn't want the companies to drop their retiree health benefits. Obviously there is a cost impact for companies that do provide this coverage against those that don't. Further, most of the costs of Medicare Part D (more than 3/4ths) are not paid by premium, but from the general fund. So it costs the government a lot when a retiree enrolls in the federal program. Congress gave some money back to the companies in the original Part D program as an incentive to keep them providing coverage, and Congress allowed companies to deduct the entire cost of the coverage from the program without offsetting the subsidy.
Here's a scope article:
Industry groups say they lobbied hard against the change in the tax rules before it was added to the health care law over the winter.Of course they did.
"It was in all of our letters and communications that went up to the Hill, and the companies were heavily involved in that," said Dena Battle, a tax specialist with the National Association of Manufacturers.
Friday, March 26, 2010
Arizona Iz Us
I found a copy of the AHCCCS letter to the governor. As a result of the health care reform bill, the budget Arizona just passed is going to have to be redone. I think this sheds a lot of light on the position of the states suing.
Can Arizona do it? Can other states do it? Coyoteblog is pondering the same subject. Huge new taxes are probably in the offing, but the problem is that both the states and the federal government need the same money. There are logical limits to all this. A regressive tax such as the VAT really is going to hurt people. However the bill just passed imposes a pretty hefty tax increase on really high income individuals and couples. You can't ratchet the top rates up much farther. After that and the proposed federal income tax raise for the top bracket next year, in many states a lot of higher earners will be paying over 50% income tax.
But those taxes don't even begin to make up the incoming deficit, so here is where the monumental pain begins. And there really isn't any way to get the taxes we need without moving into regressive taxation. See the post below. But if you do, all freakin' bets are off.
There is also a lot of anger in the country. The media would have it that it is right wing thuggism, but it's everywhere. (See CommonCts post - he has apparently been collecting links about attacks on Republicans.) Ridiculous, but there is a lot of worry and fear caused by insecurity in the country.
People are really under pressure now. Many with businesses are struggling along, and additional mandates and taxes are a deep concern. People without jobs are desperate. Unemployment crossed 12% in Florida, for example. Hard to believe that. It's about a 9% increase in just a few years. I knew Georgia was going sky-high, but Florida? California is still ahead, though. Michigan is 14.9%.
State sales taxes are already being jacked up, and if the feds add a 4~ sales tax, we'll be close to European taxation levels. But if we do, expect additional problems in taking care of the poor and the elderly. We will be shunting more and more of our population into poverty.
I'd Love To Say This Was Over
But we are still in the middle of a longer secular transition.
Two, really. One is just the demographic transition as the boomers move into their retirement years. That's an invariant.
The second transition is our spending and borrowing habits.
Click on this graph and open it in another tab or window.
Starting from the right top and moving down, the two dashed lines are the purple total household debt outstanding (CMDEBT). Under it you see demand deposits (DEMDEPSL). Demand deposits are funds in transactional accounts like checking and NOW accounts; this number does not include IRA and other retirement funds.
Generally, the banked portion of the population deposits paychecks each month in these accounts, and uses the funds to pay for purchases. Some part of the population uses debit cards to pay for purchases, and some part of the population uses credit cards, but pays the credit cards off each month. So logically, demand deposits should rise as retail spending rises. But if you look at the decade of the 90s versus the last decade, it's clear that debt rose heftily as amounts in demand deposit accounts dropped.
In other words, the transition beginning in the later 90s (after the end of the dot.com bubble) was that consumers borrowed an ever increasing amount of the funds to spend each month.
Entering the recession, that trend abruptly ended.
Now let's look at retail spending against demand deposits:
Again, click on this graph and open it in another tab or window. The orange line is demand deposits converted into millions.
The red line is nominal retail spending. The blue line is the indicator I usually use for retail spending - real retail spending.
The top two lines started changing their relationship in the later 1990s, and then came the 2001 recession (which really began in 2000) and we just kept borrowing.
And then the whole thing just blew up in our faces, and we stopped. It is obvious that we are debtloaded, because if you look at the first graph the red line is the ratio of nonaccrual loans (90 days past due) to total loans. Until that ratio falls quite a bit, debt will be a big drag on the economy. Banks are getting closer to rebuilding their reserves (note the non-borrowed reserves are moving up). But even as banks begin to tip over into a safer zone, companies and consumers will still be on thin ice.
From here on out (for several decades) I expect the consumer side of the economy to conform to a pattern of spending constricted by cash flow as modified by debt payment obligations.
There are definite characteristic of such an economy (debt-loaded and driven by consumer spending).
- Consumer side growth doesn't proceed quickly, and consumer side growth is dependent upon either jobs and income growth or government transfer payments.
- Consumer side growth is very negatively and quickly affected by inflation in consumer goods.
- Consumer side growth is very negatively and quickly affected by regressive taxation (such as an increase in sales taxes).
- The entire economy is very close to deflation.
- An entry into deflation increases the real debt load.
- Swapping government debt for consumer or company debt only helps insofar as it cuts net debt servicing costs.
Over the long term, such an economy relies on saving, debt writedowns or paying down debt, and increase of production for sustainable growth.
As odd as it seems, I think these are the realities that Washington hasn't yet grasped. It's hard for me to look at the demand deposits and retail sales shift and believe that Washington hasn't grasped the reality that so much of the population is obviously living, but they haven't. Perhaps this is why the tea parties are growing.
I have a horrible headache, so if this isn't clear please let me know. It is this backdrop that controls all our future public policy choices.
Thursday, March 25, 2010
Diabetes And Health Care Reform
Here's an example. You may have read about the possibility that tampons could be taxed under the act. This is unlikely IMO.
The section of the act reads
b) TAXABLE MEDICAL DEVICE.—For purposes of this section— (1) IN GENERAL.—The term "taxable medical device" means any device (as defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act) intended for humans. (2) EXEMPTIONS.—Such term shall not include— (A) eyeglasses, (B) contact lenses, (C) hearing aids, and (D) any other medical device determined by the Secretary to be of a type which is generally purchased by the general public at retail for individual use.So it is up to Secretary (see the end of the post - this is the Secretary of the Treasury) to determine whether items such as blood pressure monitors are included. However it is questionable whether items such as blood sugar monitors and testing strips can be exempted, because it is much harder to argue that they are purchased by the "general public".
(h) The term "device" (except when used in paragraph (n) of this section and in sections 301(i), 403(f), 502(c), and 602(c)) means an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is--As you can see, blood sugar monitors and testing strips are defined as medical devices.
(1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them,
(2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or
(3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes.
The idea that taxing items like blood sugar monitors and testing strips is going to cut medical expenses in this country is about as insane as it gets. Some persons who are not diabetics do buy these (for example, if you at risk and are trying to avoid developing Type II diabetes, you'd be well advised to use these devices). But mostly these items are used to control a medical complication, and their use is part of necessary medical care. Raising their cost only raises the burden upon persons with the disease. Insulin is elsewhere excluded, but these items are just as necessary.
Raising the cost of these items will make it harder and more expensive for persons to control a disease in which control is of the essence to avoid complications. For early Type II patients, using these devices and lifestyle modification can reverse the progression of the disease, preventing the need for medication and many other complications. There are many persons with diabetes who do not have insurance, and many more who have insurance that doesn't cover much of their costs. Further, the type of insurance offered in the exchanges still won't cover much of the cost. This is why some persons will be forced to not buy insurance in order to safeguard their health - unless this sort of thing is fixed in regulations, and that fix may not be possible.
If these bills had been posted as promised, and if legislators had not been hurried through this process, I believe that there would have been a specific exemption of such items. This is obviously very harmful to a portion of the population, and it is just as obviously very bad public policy. But this is what the process used to push this bill generated.
Perhaps this one example can explain part of my frustration and worry over this piece of legislation. I hope it will be fixed, but don't think that this sort of thing won't leap out and bite many other people. The idea that we will partially fund insurance for contingencies by taxing medical necessities was never realistic.
I would urge everyone with a sense of decency to contact your legislators about this and the ramifications.
I don't, btw, have diabetes. But I do have a neurological problem, and I do have to use a blood pressure monitor and test my blood sugar at times. My body's regulatory mechanisms have been deeply compromised by basically brain and nerve damage, and the treatment I use to control my condition can induce transient swings. So I am aware of these costs, and they are significant.
The cruelty of this bill is that in many ways it shifts the cost of chronic medical conditions onto those who can least afford it. We cannot control medical costs with this type of approach.
Also see Shrinkwrapped's post yesterday about the Ruth Marcus' column. Yes, this is a dumb approach.
PS: I forgot to link NFIB's earlier statement about the bill. Here it is:
This isn’t a healthcare bill, this is a tax bill wrapped up in healthcare paper. For small businesses, healthcare reform has always been about costs – reducing them. But the only thing this bill does is drive costs even higher. It will raise, not lower, insurance costs and it will increase both taxes and the cost of doing business for the very people they said they wanted to help – small business.Update: Here's the whole informational thing I sent to a Critter who never answered, because of course it was just RW nutcases who had concerns over this bill.
I wanted them to change this language which is earlier in the same section:
(1) IN GENERAL.—The term ‘‘medical deviceThis gets a bit complicated, but blood sugar monitoring devices and ancillaries are Class II under 513:
8 sales’’ means sales for use in the United States of any
9 medical device, other than the sales of a medical de
10 vice that—
11 (A) has been classified in class II under sec12
tion 513 of the Federal Food, Drug, and Cos13
metic Act (21 U.S.C. 360c) and is primarily sold
14 to consumers at retail for not more than $100
15 per unit, or
(B) has been classified in class I under such
(a) Device ClassesSo the language in the two laws basically says that class II devices normally sold retail to consumers for $100 and under are excluded from the tax. I think this means that an el Cheapo is not taxed, except for the "primarily sold to consumers at retail", because I am not sure if all of these devices ARE primarily sold at retail.
(1) There are established the following classes of devices intended for human use:
(A) CLASS I, GENERAL CONTROLS.—
(i) A device for which the controls authorized by or under section 501, 502, 510, 516, 518, 519, or 520 or any combination of such sections are sufficient to provide reasonable assurance of the safety and effectiveness of the device.
(ii) A device for which insufficient information exists to determine that the controls referred to in clause (i) are sufficient to provide reasonable assurance of the safety and effectiveness of the device or to establish special controls to provide such assurance, but because it—
(I) is not purported or represented to be for a use in supporting or sustaining human life or for a use which is of substantial importance in preventing impairment of human health, and
(II) does not present a potential unreasonable risk of illness or injury,
is to be regulated by the controls referred to in clause (i).
(B) CLASS II, SPECIAL CONTROLS.—A device which cannot be classified as a class I device because the general controls by themselves are insufficient to provide reasonable assurance of the safety and effectiveness of the device, and for which there is sufficient information to establish special controls to provide such assurance, including the promulgation of performance standards, postmarket surveillance, patient registries, development and dissemination of guidelines (including guidelines for the submission of clinical data in premarket notification submissions in accordance with section 510(k)), recommendations, and other appropriate actions as the Secretary deems necessary to provide such assurance. For a device that is purported or represented to be for a use in supporting or sustaining human life, the Secretary shall examine and identify the special controls, if any, that are necessary to provide adequate assurance of safety and effectiveness and describe how such controls provide such assurance.
(C) CLASS III, PREMARKET APPROVAL.—A device which because—
(i) it (I) cannot be classified as a class I device because insufficient information exists to determine that the application of general controls are sufficient to provide reasonable assurance of the safety and effectiveness of the device, and (II) cannot be classified as a class II device because insufficient information exists to determine that the special controls described in subparagraph (B) would provide reasonable assurance of its safety and effectiveness, and
(ii)(I) is purported or represented to be for a use in supporting or sustaining human life or for a use which is of substantial importance in preventing impairment of human health, or
(II) presents a potential unreasonable risk of illness or injury,
is to be subject, in accordance with section 515, to Premarket approval to provide reasonable assurance of its safety and effectiveness.
I wanted them to do two things: Take out "primarily" and change the currency limitation of $100 or less to a use classification. (The currency limitation makes no sense. If you need one of the devices (used for older people) that will send the data to another location, or if a person needs a pump, why should that be taxed?)
My suggested language change was to replace:
...and is primarily sold
14 to consumers at retail for not more than $100
15 per unit,
...and are not commonly used by patients for outpatient monitoring, reporting or to adjust drug dosage for medical conditions such as cardiovascular or endocrine disease, or not commonly prescribed to replace nursing or trained medical care,
It makes no sense to tax such items, obviously. It also makes no sense to assume that taxing manufacturers won't boost costs to patients or insurance companies.
You have to admit that this is one epically boring blog! I bet you wish you had this much of your life back, but this is what happens when regulators get into it.
Further update: It's not just me, see the Medtronic comments. I am sure that the higher priced stuff is included, but I think the lower-priced stuff is excluded. But it is excluded only if the regulations confirm it is. And here is the best part - it is not the HHS Secretary who makes the determination under Sec. 9009 (this one), but the Secretary of the Treasury, which is why I don't want to leave this to the named regulator:
(g) SECRETARY.—For purposes of this section, theSo I'm thinking the Secretary of the Treasury is gonna want his money and is going to be including everything he can. And the tax is retroactive to sales of medical devices after 2008. (But this is not the tax - the tax starts after 2009. This is for the reporting.):
23 term ‘‘Secretary’’ means the Secretary of the Treasury or
24 the Secretary’s delegate.
(h) GUIDANCE.—The Secretary shall publish guidance
2 necessary to carry out the purposes of this section, including
3 identification of medical devices described in subsection
4 (d)(1)(A) and with respect to the treatment of gross receipts
5 from sales of medical devices to another covered entity or
6 to another entity by reason of the application of subsection
(i) APPLICATION OF SECTION.—This section shallFinal note: If anyone is still wondering what the heck I do for a living, this is pretty much it. I read this stuff and the regulations, and I create systems that walk you through it, that do required calculations (in banking, a lot of regulation requires calculations), that model the effects, and that make sure you don't make a dumb but incredibly costly error. Sometimes these systems even tell you how to make money from it. Banking is a very, very regulated field. Somebody's gotta do it. It's a growth industry, believe me.
9 apply to any medical device sales after December 31, 2008.
If you want to know why the US doesn't have as vibrant an economy as China, it's because this sort of stuff is growing like kudzu across all industries. You want banking to be regulated. You really do not need half the regulation there is relating to many other lines of business.
So one last comment - when your regulator is the Secretary of the Treasury, and you are in the finance line, that means you aren't very regulated. But if it is for anything else, it means money, and it means that the regulations are written to maximize money you send to the Treasury, and nothing else.
This is one of the vaguest laws I've ever had to deal with. You can't tell for sure what most of it means.
Update On HCR
So I'm going to stick with the Senate bill for now, even though the House amendment would change the numbers. That's why some of what you read here may differ from other sources.
See this morning's post below for interesting stuff!
And as an adjunct to this morning's prior post, see NOFP's post with that nasty CBO US deficit graph.
Update: The Senate passed a revised version of the House amendment and now that goes back to the House. The original Senate bill is now law, but this new amendment will probably be passed by the House very quickly.
How The Pot Boils
Where to start, where to start. China:
The Ministry of Land and Resources has ordered a temporary ban on the sale of land for housing in a renewed measure to ease soaring real estate prices.There's way more. Read it - especially the stuff about land hoarding. Note that many types of companies had gotten into the gold rush. There is one slight flaw with this strategy - cutting supply does not cut prices. This reminds me so acutely of the run-up to the Great Depression in the United States. In 1929, companies of all sorts in the US had gotten into the business of lending money out in the NY call market (loans to buy stocks on margin). So had the nation's banks. And one of the reasons that the market eventually collapsed as far as it did was that the inland banks started pulling their money out.
On March 11, the Ministry of Land and Resources issued a directive ordering developers to take a 50 percent down payment on all land put up for auction within one month of signing the contract, or they will lose the land along with their deposit.
Shortly after the directive, the State-owned Assets Supervision and Administration Commission of the State Council ordered 78 central State-owned enterprises to quit the housing market on March 18.
Europe: Today Trichet of the ECB (European Central Bank) announced that their emergency collateral rules would be extended past 2010. Note that the article says that "Greece will benefit". Well, Greece is surely going to default. This is not about Greece. (Greece is Casey Serin; the IMF and Europe can give Greece more loans at a low rate, but in the long run Greece can't dig out of this. The measures to raise taxes and cut benefits will hurt their own economy too much.)
It's about Portugal and the banks which have exposure. Yesterday Fitch downgraded Portugal:
Fitch Ratings has downgraded Portugal's Long-term foreign and local currency IDRs to 'AA-' from 'AA'. The Rating Outlooks on the Long-term IDRs are Negative. Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than EU15 peers, which will put pressure on its public finances over the medium term.While that is still an investment grade rating, the outlook is negative. This was not good news for Portugal's banks.
By extending the emergency collateral rules (collateral down to BBB-) past the end of this year, the ECB is allowing banks to dump such assets at the ECB. Eventually the dumpers will have to either pony up more or take the bonds back, and this isn't helping the banks any.
There is probably a lot of discreet shifting and poking of all this stuff anywhere banks and investment companies can put it. You can see California's debt ratings at the State Treasurer's page (look down at the right). Fitch still has CA's debt rating at BBB, so there is plenty of interest in the US as well. The credit ratings firms have already been making delicate hints about a reassessment after the UK elections.
And, of course, the credit ratings firms have been making delicate hints about the US. Because any person, municipality, state or country can borrow until it is so insolvent that it collapses.
Because very little is written about Italy, it's worthwhile reminding everyone that Fitch cut Italy's credit rating to AA- back in 2006. Fitch just reiterated that it does not expect to cut Italy's rating further over the next year and a half, but stated that it is watching to see if Italy can lower its budget deficit. So since the Portugal outlook is negative, Portugal is now in a worse position than Italy. For the time being.
You can look at Dubai and just shake your head. Most of the world went on a borrowing spree, and now the world is quietly going to have to settle down to a period of relative austerity. The same forces that will constrain the US economy (high local government obligations) will constrain most of our export partners.
At the current time the US is still plugging along. According to freight, we are still eking out growth, and freight really never lies.
Undoubtedly there will be a period of relief and a slight economic boost over the health care reform plan. Companies need stability most of all; a bad but known situation allows planning, whereas a positive situation with high unknowns can constrain businesses more.
Over the longer term, the US has to confront its PIIGSy nature, and reform. Real reform. HCR was fake reform, and will fail. Real reform is going to hurt, but not as bad as Greece is hurting. Cooking the books kills companies and nations. The benefit to the US in confronting the reality now is that most people will get a much better future deal if we do, even if some dreams will be doomed in the present.
Tuesday, March 23, 2010
Health Care Reform And Constitutional Issues
Most debates over the act have centered on the constitutionality of the individual mandate. In the comments on this post, Carl at NOFP says he thinks the court will find the individual mandate constitutional, because the mandate comes in the form of a tax for failure to maintain government-approved health insurance. My position from the beginning has been that he is right.
A successful challenge might be mounted only if someone comes before the court having been imprisoned for being unable to buy insurance while affording medical care, and consequently having been jailed for not being able to afford to pay the extra tax. But it is doubtful this will happen, because everybody is aware that there are lines one cannot cross. For example, suppose the federal government passed a law saying that anyone who didn't have a job had to pay all their income to the federal government in income tax. That law would be ruled unconstitutional. There are limits.
Based on the information in the Bloomberg article, the states are concentrating on violations of their own sovereignty and arguing Printz v United States as a precedent. That was the case in which the SC struck certain mandates for local law enforcement to do background checks under the Brady Act.
From the Printz syllabus:
(c) The Constitution's structure reveals a principle that controls these cases: the system of "dual sovereignty." See, e.g., Gregory v. Ashcroft, 501 U.S. 452, 457. Although the States surrendered many of their powers to the new Federal Government, they retained a residuary and inviolable sovereignty that is reflected throughout the Constitution's text. See, e.g., Lane County v. Oregon, 7 Wall. 71, 76. The Framers rejected the concept of a central government that would act upon and through the States, and instead designed a system in which the State and Federal Governments would exercise concurrent authority over the people. The Federal Government's power would be augmented immeasurably and impermissibly if it were able to impress into its service--and at no cost to itself--the police officers of the 50 States. Pp. 18-22.Maybe Carl will comment on this.
(d) Federal control of state officers would also have an effect upon the separation and equilibration of powers between the three branches of the Federal Government itself. The Brady Act effectively transfers the President's responsibility to administer the laws enacted by Congress, Art. II, §§2 and 3, to thousands of CLEOs in the 50 States, who are left to implement the program without meaningful Presidential control. The Federal Executive's unity would be shattered, and the power of the President would be subject to reduction, if Congress could simply require state officers to execute its laws. Pp. 22-23.
(e) Contrary to the dissent's contention, the Brady Act's direction of the actions of state executive officials is not constitutionally valid under Art. I, §8, as a law "necessary and proper" to the execution of Congress's Commerce Clause power to regulate handgun sales. Where, as here, a law violates the state sovereignty principle, it is not a law "proper for carrying into Execution" delegated powers within the Necessary and Proper Clause's meaning. Cf. New York v. United States, 505 U.S. 144, 166. The Supremacy Clause does not help the dissent, since it makes "Law of the Land" only "Laws of the United States which shall be made in Pursuance [of the Constitution.]" Art. VI, cl. 2. Pp. 24-25.
(f) Finally, and most conclusively in these cases, the Court's jurisprudence makes clear that the Federal Government may not compel the States to enact or administer a federal regulatory program. See, e.g., New York, supra, at 188. The attempts of the Government and the dissent to distinguish New York--on grounds that the Brady Act's background check provision does not require state legislative or executive officials to make policy; that requiring state officers to perform discrete, ministerial federal tasks does not diminish the state or federal officials' accountability; and that the Brady Act is addressed to individual CLEOs while the provisions invalidated in New York were directed to the State itself--are not persuasive. A "balancing" analysis is inappropriate here, since the whole object of the law is to direct the functioning of the state executive, and hence to compromise the structural framework of dual sovereignty; it is the very principle of separate state sovereignty that such a law offends. See e.g., New York, supra, at 187. Pp. 25-34.
The suits do appear to have some merit, since there are mandates in this bill for the states to do certain things, but I am confused about how this is different from the current structure of Medicaid. It will be interesting to see the argument in full.
There is one difference that stands out in at least one version of the law, which sets payments for Medicaid. All Medicaid programs are run by states. The federal government sets minimum standards for coverage and gives money to defray part of the costs to the state (same with SCHIP), but the states set the payment levels and administer the programs.
But I think this challenge may not succeed, because in theory the states could opt out of Medicaid altogether. That would, of course, promptly bust many hospitals which would still be required under federal law to provide care for anyone whose life or bodily integrity is threatened, so in fact they cannot opt out, which is why they are suing.
I think that constitutionality is somehow involved here under whatever rubric one argues it, because I cannot see how some states can possibly afford to implement the law. Some of the other touted benefits of the law (like the high-risk pools) are also federal mandates to the states. I don't think all of the states can afford to implement those pools, either.
To me, very little about this law (the Senate version is now law; the House version may become law later) is as one reads in the press. I cannot suspend disbelief long enough to believe that even current benefit levels will survive in most the states, much less these new mandates. The states are facing budgetary crunches stemming from demographics of their own, and their budgets are in some cases even more imperiled than the federal budget.
I wasn't joking when I said this was going to help legal employment; it will. I read everywhere that this law will not be repealed. All I know is that it cannot go into effect because in reality the money is not there. So it will be changed.
In addition, should matters work out as I have suggested (that many persons will not pay for insurance until they become sick, and then enroll), there is a real possibility that insurance companies will start to go bankrupt. Should that occur, an insurance company threatened with bankruptcy due to this law can litigate and might win. Commercial associations also have the basic right to exist under the Constitution. The government need not save them when they fail, but the government also cannot force them to annihilate themselves. Corporate entities do have some constitutional due process rights. The most recent case I can remember is the 2008 Blackwater suit against San Diego; a district judge ruled in Blackwater's favor by allowing it to occupy the property. The Blackwater complaint is here.
There is a rather interesting (and in this context, quite amusing) law paper "Dispatch from the Supreme Court Archives: Vagrancy, Abortion, and What the Links Between Them Reveal About the History of Fundamental Rights" by Risa L Goluboff available for download. I had only a vague recollection of some of these cases, searching for text led me to this paper. What sent me on this search was a memory of some of Douglas' flights of rhetoric about socially approved and disapproved lifestyles. In essence, the US government is trying to create a new type of vagrancy law with this reform. It is no longer not having a job which will be sanctioned as socially harmful; now not having insurance will be so viewed.
I would invite readers to read the paper above, especially if the reader in question is not a lawyer. In many ways, the left of today has become the right of the 1960s with this law. Demanding conformance to a socially responsible standard of economic performance is almost a direct contradiction of the concepts of individual autonomy and social freedom from state control that informed the left's beloved 60s jurisprudence.
We have come full circle. I suspect that in the Douglas era this law would not stand. Scalia and Thomas have expressed suspicions about large parts of the substantive due process doctrine. We'll see. It depends on how far our government overreaches itself.
We may well be in litigation over this law for seven or eight years.
Welcome To Bronzeworld
Here is a WaPo calculator that helps you figure out your 2014 deal. Note that if this bill causes more employers to drop insurance, which it will, a lot of moderate income families are going to find themselves in Bronzeworld. Play with the calculator.
Note that it is a pretty good deal if you are healthy and low income, but for low-to-moderate income families with significant ongoing medical bills, many will be worse off than now - they will pay higher percentages of their income for medical bills than they now do.
This is why this bill is so sickening. So many of these people are going to realize that this is a cruel joke. Obviously we don't have 2009 stats yet, but I think median family income in the US will be in the 48-49K range. Anyway, take a look at the WaPo calculator and then guess what's going to happen to these people:
Rucker's wife has insurance, but the couple couldn't afford to put him on the policy. Now, he's excited he may also have coverage because of health care reform.
(Another example from the article).
"I worry day to day, honestly," he said. "I pray to make sure my child or my wife don't' get sick because, if they go to the hospital, we are looking at a couple of thousand (dollars in bills)."
Hah. In Bronzeworld, with 27%-30% copays, you are most certainly going to be facing a couple of thousand in bills every year. Don't think this will solve the medical bankruptcy syndrome!!! It won't. The ugly truth is that for many, insurance coverage and total out of pocket will grow under this bill. It's almost as if it were designed to prevent moderate income people from accessing medical care.
I can feel the mortgage defaults piling up already. I'm so depressed I want to suck my thumb under the bed for a week.
We need medical reform, but any medical reform has to make Medicare and Medicaid pay more for basic services as well as doing something for families who have chronically high medical bills. The biggest part of cost-shifting is coming from Medicare and Medicaid, not the uninsured.
Has anyone - anyone at all - figured out what this would do to a moderate income family with one person with moderate to severe diabetes? Anyone? Any chronic illness? Try insulin and testing costs on a 30% copay, and get back to me. Unless the regulators try to fix this by mandating (if they can, there's another range of lawsuits for you) first-dollar coverage for stuff that people have to have to maintain their health, we just condemned a huge number of people to a life of medical poverty.
I can't stand the gloating; this has turned into pure politics with no heart and no compassion.
Behind The Great Wall Of China
The same reader (Good Ol Charlie) sent him a message about mine:
BTW, Maxed Out Momma is COMPLETELY blocked. Flushed from the get-go. She wins the competition...sorry about that. Please pass the word to her.Ain't that sweet. And here I thought that only ObamaGirlz and bank presidents wanted to see my entrails being eaten by dogs. Actually, the bank presidents have since repented, but for a while things were quite ugly.
The First Amendment has more to do with the USA's past health (socially, economically, and in terms of security) than most want to believe. China's worst enemy at this time is its own ideology. Without rampant, brawling and undignified internal debate societies can't check and fix themselves.
Groupthink will make you poor, insane and WEAK. I fear groupthink as I fear nothing else.
Monday, March 22, 2010
CFNAI Et Al
First, the US. CFNAI for February has been published. The pdf release is here.
The three month average dropped. February's one-month reading was -0.64. The best one-month reading in the recent series was Nov 09's +0.14. These readings are very volatile month-by-month.
The three-month moving average (CFNAI-MA3) for February was -0.39.
There is usually a high rate of correlation across three months between some of the leading edge NFIB indicators. When both NFIB and CFNAI are moving in the wrong direction, I worry. Confidence measures in larger business surveys are often dependent on the news cycle; confidence in smaller businesses tends to change more related to experience.
This appears to be related more to the end of the inventory cycle than anything else, but the patterns of consumer spending we are seeing do not skew the picture favorably. CFNAI can hang in the negatives for a long period of time without implying a contraction of the economy, but when it does, it implies weakness and vulnerability.
And now on to Germany. Germany's current status is that employment has held up well, and the economy, while flat in the fourth and weak in the first, still has some sources of growth. Bundesbank expects the second and third quarters to be better in terms of growth.
The average German citizen is still furious about what has happened with the banks and bad debt, concerned about debt and fiscal stability, and deeply opposed to bailing out Greece. But Germany's economy is very export-dependent, and the implications of Greek debt and fiscal problems in other Euro-area countries imply that European trade will be less vibrant for Germany:
Deutsche Telekom AG, Pernod Ricard SA and Lafarge SA are among companies bracing for shrinking demand as Greece, Spain, Portugal and Ireland tighten their belts to slash budget deficits.Italy really should be in the above list because it has a very large fiscal problem. Germany is going to be dependent on its ex-European exports to sustain growth. Thus, actions such as the Indian interest rate increase are dampening the mood. Many countries (including Germany and Japan) gave hefty incentives to consumers to buy goods last year. As those incentives depart, consumer sales of some items are now dropping.
“Fiscal measures will definitely have strong repercussions on economic growth,” said Luca Mezzomo, head of economic research at Intesa Sanpaolo SpA in Milan. “The effects of the measures will be particularly harsh on consumer spending as they will cut disposable income and increase prices.”
Overall world trade is still recovering, but it isn't recovering in a booming manner, so few countries that are in bad fiscal straits are going to be bailed out by booming tax receipts. Tax increases and spending cuts, however necessary, limit final demand. Since most of the resurgence is sitting in emerging markets and Asia, anxiety over rate increases and various other measures in those markets is inducing caution.
Buffet Beats Bernanke
In the long run, it's hard to see how Buffet risk could be less than the US government, because in their dying stages governments leach all the money out of ongoing commercial interests within their control.
But on the other hand, everyone knows that Buffet isn't going to engage in one of these unilateral renegotiations that the US government has recently pulled off. So:
The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.No comment.
Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.
Btw, as the result of the House vote last night the Senate bill will become law in ten days even if President Obama does not sign it. The Senate may or may not pass the House amendment to the bill, so we may well end up with the Senate bill.
In the near term, there are very few changes to the system except for a huge new bureaucracy (expensive!) that gets set up. I am preparing the section by section and I will post that when it is completed. It's very long, though. Over a hundred pages. I may stick somewhere as an html doc and just link to it. Also there will be so many lawsuits under this thing that it will definitely boost legal employment. I figure maybe 100K lawer/reg jobs, and 250K government/medical reg jobs, so Pelosi is about right about the employment. The only thing is that is all an added burden on medical costs and another red line on the governments, so who knows.
The big economic US news of the week has nothing to do with any government stats; Walmart is crumpling and cutting grocery prices hard, plus launching a new ad program touting its prices. Walmart has been losing customers because of a bad shopping experience and because their food prices aren't really competitive with grocery prices in many areas with a lot of grocery competition. But Walmart is dependent on a lot of traffic and sales (it has high overhead prices with those big stores - think of the utility prices alone), so it has to move quickly to stop its bleeding.
The Walmart move is a very clear sign that we are in a deflationary environment. That Titanic graph I posted about retail is the problem.
Commodities are collapsing.
Sunday, March 21, 2010
Da Treez, Da Treez
Anyway, I have not been following the whole health care thing closely, but I still think it will pass because I think they'll promise anyone anything to get the last votes. It's just a question of how much it will cost. Us all. Too bad they don't make the CBO score the vote-buying.
But is there a good place to track the drama?
Note: What they're really passing into law today is the Senate bill. The amendment they vote on doesn't have to be picked up by the Senate, although it might be.. In any case, Betsy Newmark has a nice post about numbers. It's the 2014 on where the fiscal impact hits, What is the next president supposed to do?
A baby born in 1950 will be eligible for Medicare in 2015, and that's what this is really all about, clouded under all the rhetoric about reform. But you can't obfuscate your way into a public consensus.
Friday, March 19, 2010
HVP Basic Foods Recall
Some lots of the HVP distributed by Basic Foods contained salmonella, which can make you very ill indeed. If you have ever had salmonella poisoning, you may get a mild gastric upset just from eating contaminated product even if all the bacteria is dead (you get an immune reaction to the proteins in the killed bacteria). Contaminated products may also contaminate your kitchen, causing cross-contamination. For example, some of these spice mixes might get on a cutting board, and then your salad might be contaminated. So your best course to check the recalls and get rid of all products known to be contaminated (you can get refunds), but hold all those that are in similar categories. Also clean your kitchen well consistently.
The best list I have found is here. This does not cover all or even most of the products, but it will give you an idea of the types of products affected. Just throw them out or take them back. I had had suspicions about my Herbox no-salt bouillon, because both the Chief and I had gotten mild stomachaches from it. Sure enough, it is on the list.
Recalls.gov will list all the recalled products as they come out. However you should be aware that many of the companies that have foods with the contaminated product may not know themselves yet; the companies that used the HVP in their products and have been notified are notifying their downstream companies, who then check their records and issue the recall.
I once got salmonella from peanut butter (contaminated plants, yes indeed), and it was an extremely unpleasant experience.
There is one category of foods that I don't see on the list that I strongly suspect are contaminated, and that is tuna packed in water. Much of it is processed with a vegetable-type broth which probably contains HVP. I eat very little in the way of prepared foods, but eating canned tuna made me sick just like the Herbox bouillon, only much more sick. Of course, I cooked the soup in which I used the bouillon very thoroughly.....
There is also (this is not that funny, is it?) another food that is causing wide-spread recalls, and that is black pepper. Some pepper is believed to be contaminated, but was distributed to various food companies.
Women who are pregnant or trying to become pregnant are particularly at risk. It's likely that many frozen prepared foods have some HVP in them, and especially if you microwave it, the food may not be heated well enough to kill all the bacteria. If there was an interim cooking process, the bacteria may already be killed, and it is probably a minor ingredient. Nonetheless, there is some risk.
This is the FDA recall RSS feed.
This listing on a forum might be updated and is pretty comprehensive. But there should be hundreds of recalled products by the time we're done.
The Kill The Poor Initiative
Regarding the reconciliation bill, I skimmed it last night. If you haven't read the Senate bill, reading the amendment makes no sense.
The bottom line is that the CBO's analysis is way, way off, because a ton of companies will drop their insurance and shift employees into the exchanges to buy subsidized insurance. Because of the very large subsidies, this will jack the cost up about double of CBO's prediction.
There are some offsets - for example, many employees will receive more in salary as a result (companies will give back some of the savings), which will boost Social Security taxes and income taxes. But there are also another round of nasty offsets, in which the mid-range employees will end up paying much more for their insurance and medical costs, which will inflict considerable economic damage.
Of course, that's if you presume that these employees bother to take out insurance if they are healthy. If not, and they don't buy insurance because they feel assured that they will be able to get insurance should they need it (open enrollment, etc), then these families will have a net boost in income but health insurance rates will shoot through the roof. That is the most likely result, and it will set up a cartwheel effect that will force more and more companies to drop insurance, and more and more mid-range families to drop insurance.
It's a beautiful statistical problem, but one not likely to produce the results CBO predicts.
The other problem is that this legislation does not address the real cost-shifting problem, which is from Medicare and Medicaid to private insurers. So we have ensured a continuing rise in insurance costs regardless, which is why I am so sure that many companies will drop insurance altogether.
The funniest part about this is that many mid-range income families would be better off in the short-term, as long as they dumped some of this money into savings, especially tax-preferred savings. Because of the rise of cash clinics everywhere, medical care in the US is cheap as long as you go to the right places for it. Really cheap. The result would be to essentially bankrupt many hospitals, which would mean that over the long term, your chances of surviving a true medical emergency would drop substantially.
The other thing this legislation does is basically cut lower-income elderly out of the Medicare system by a stealth process. This stealth process is well-explained by a doctor who happens to be Obama's cousin:
...consider the implications of Obamacare's financial penalty aimed at your doctor if he seeks the expert care he has determined you need. If your doctor is in the top 10 percent of primary care physicians who refer patients to specialists most frequently - no matter how valid the reasons - he will face a 5 percent penalty on all their Medicare reimbursements for the entire year. This scheme is specifically designed to deny you the chance to see a specialist. Each year, the insidious nature of that arbitrary 10 percent rule will make things even worse as 100 percent of doctors try to stay off that list. Many doctors will try to avoid the sickest patients, and others will simply refuse to accept Medicare. Already, 42 percent of doctors have chosen that route, and it will get worse. Your mother's shiny government-issued Medicare health card is meaningless without doctors who will accept it.People who call themselves liberal and support this really should be wondering whether the Catholic church is correct about purgatory. Because this change is meaningless for older people who are well off and on Medicare. They can afford to pay for a SuperDoc who will cheerfully refer them for any care they need. So the retirees that can afford to pay $500 out of pocket to see a doctor annually will continue (until the hospitals degenerate, which they will) to get all the rest of Medicare's benefits.
No, the persons hurt will be the retirees who are strapped and can't afford to go outside Medicare for their primary care. They will never know why they are being killed. Certainly the doctors who bow to this won't tell them. They won't see a cancer doctor, they won't get the cardiac tests, they will get the aspirins and be sent home to die.
If the Bush administration had proposed anything like this, every liberal organization from Pew on down would reacted with a storm of protest. Rightful and righteous protest. But no, this comes from a ???Democratic????? administration that controls the government absolutely.
I ask my burning question again. What will replace the Democratic party? Because this just isn't right or decent, and the US is not this kind of country. I'm not saying we're saints, but this is bounteous welfare for the wealthy and a walk-the-plank for those who are just scraping by. It's the nastiest piece of legislation I think I have ever read.
I have a lot more to write on this issue. Nothing will stop this bill from passage, because the Democratic leadership is convinced they have to have this, and they are going to hand out anything to anyone to get these votes. Nor do most of the representatives even know what's in this bill, but they will understand what they are being promised in order to vote for it. One of the reasons many are shifting to the undecided category is to get in on the pinata scramble.
But it's a very uncivilized piece of legislation. This is economic Jim Crow.
According to polls, most liberals support this bill. This convinces me that most liberals nowadays are either wealthy SOBs or people with good hearts who cannot add or subtract. SuperDoc said that this bill amounted to paying doctors to kill Medicare patients cheaply. He's not sure what he'll do, but he's not going to go along with this. I don't think many have his moral fiber, though, and most don't have his deep pockets.
Thanks to BobN, who whatever his politics, clearly can add and subtract.
Btw, if you are one of those liberals who can add and subtract, and are justifying this to yourself on the basis that we really do need to control Medicare costs, your thinking is way off. Because in the long run, this will hike medical costs. People will still be able to go to the emergency room, and when they do, they'll get treated. But they'll be very sick. So they'll wind up on Medicaid and in nursing homes, which will completely blow away the savings. You have no idea about how medicine works.
There is not a way to kill people cheaply in the US.