Medicare

The Debt Ceiling Is Back

While many may not recall that the US has been without an official debt ceiling for the past three months, or even that it has a debt target ceiling, the bonus period agreed upon in January to let the nation rake up some $400 billion in addition debt in the past few months, officially runs out tomorrow, May 19, when the debt limit will be restored to its previous level plus the debt that was incurred in the interim, which means around $16.735 trillion in total debt as of yesterday, plus the amount incurred today, excluding the debt not subject to the cap which is about $30 billion. And since no grand bargain is forthcoming in a world in which official governance is now almost universally in the hands of the world's central bankers and out of the hands of the theatrical career politicians, it means that the next deadline in the endless US debt ceiling saga will be the day when the extraordinary measures to extend the debt ceiling run out. Such a deadline will likely be hit in just over three months.

 

Frontrunning: May 17

  • Mine union threatens to bring South Africa to 'standstill' (Reuters)
  • Russia Raises Stakes in Syria (WSJ) - as reported here yesterday 
  • Japan buys into US shale gas boom (FT)
  • Bill Gates Retakes World’s Richest Title From Carlos Slim (BBG) - so he can afford a Tesla now?
  • China Wages Rose Sharply in 2012 (WSJ)
  • Regulators Target Exchanges As They Ready Record Fine (WSJ)
  • Citi Takes Some Traders Off Bloomberg Chat Tool (WSJ)
  • After Google, Amazon to be grilled on UK tax presence (Reuters)
  • Apple CEO Cook to Propose Tax Reform for Offshore Cash (BBG)
  • French, German politicians to pressure Google on tax (Reuters)
  • Gold Bears Revived as Rout Resumes After Coin Rush (BBG)
  • A stretched Samsung chases rival Apple's suppliers (Reuters)

Guest Post: The Trick To Suppressing Revolution: Keeping Debt/Tax Serfdom Bearable

Parasites must balance their drive to maximize what they extract from their host with the risk of losing everything by killing their host. This is the dilemma of the parasitic partnership of the central state and financial Elites everywhere: to extract the maximum possible in debt payments and taxes without sparking rebellion and revolution. The 30 million whose labor funds the parasitic status quo don't have to rebel; they simply have to stop going to work, stop starting enterprises, stop being productive. They just have to tire of being the host, tire of being debt-serfs, tire of being tax donkeys. The trick to suppressing revolution is to keep debt-tax serfdom bearable. The parasitic Elites are keeping the host going, but at a high cost in resiliency. Let's see how long the host lasts once a crisis hits.

Guest Post: The Brewing Generational Conflict

The promises made to the 76 million baby Boomers cannot be met. It's really very simple: promises made when the economy was growing by 4% a year and the next generation was roughly double the size of the generation entering retirement cannot be fulfilled in an economy growing 1.5% a year (and only growing at all as the result of massive expansions of public and private debt) in which the generation after the cohort entering retirement is significantly smaller. We desperately need an adult discussion focused on reality rather than resentment. The solution will require dismantling open-ended, everyone-deserves-everything Medicare, which will bankrupt the nation itself. The solution is currently "impossible". What nobody dares say is that if the 76 million Boomers press their claims to the point the nation is bankrupted, then the next generations (X and Y) will have to wrest political power from the retirees, not for their own sake but for the sake of the nation and for the generations behind them.

Guest Post: The New European Revolt

It is a fair bet that one way or another, the current generation of young people will be unwilling and/or unable to pay for Social Security and Medicare as they presently stand. Of course, Western Europe has the same problem and President Hollande of France recently got a whiff of what is coming from an open letter addressed to him by a 20-year old student named Clara G... "I want to go to a country where there is growth, where wages are rising, where being rich is not a deadly sin, a country in short where the individual and the society have confidence that tomorrow will be brighter than today." Developed nations with deteriorating demographics will have a big problem if large taxpayers decided to move away to lower tax jurisdictions. Clara’s letter suggests that an exodus by the young would be just as damaging, indeed probably more damaging.

The Number Of US Citizens On Disability Is Now Larger Than The Population Of Greece

The number of people on SSDI now exceeds the entire population of Greece. The aging of the population has nothing to do with the increase. In 1968 there were 51 workers for every person on disability. Today there are 13 workers for every person on disablity. Even the most pollyanna would agree that medical advancements since 1968 have been significant. These medical advancements would argue for less people being on disability and unable to work. Workplace safety measures have been increased exponentially since 1968, so that also argues for less disabled workers. The good old ADA law forced all workplaces to become disabled friendly. That argues for less people on disability. The country has transitioned from a manufacturing society to a service society. Workers don’t work on dangerous assembly lines anymore. Robots do the dangerous stuff. This should have dramatically reduced worker injuries and disabilities. The tremendous increase in people on SSDI is nothing but a gigantic fraud. The government broadened the scope of disabilities to include stress, depression, and non-diagnosable things like aches and pains. And don't forget, you get the added benefit of Medicare coverage after only two years of SSDI stress.

To College Grads: It's A Different Economy

The economy has changed in structural ways; preparing for the old economy is a sure path to disappointment. Millions of young people will be graduating from college over the next four years, and unfortunately, they will be entering an economy that has changed in structural ways for the worse. It's easy to blame politics or the Baby Boomers (that's like shooting fish in a barrel), but the dynamics are deeper than policy or one generation's foolish belief in endless good times and rising housing prices.

Frontrunning: May 3

  • U.S. Bulks Up to Combat Iran (WSJ)
  • Taking sides in Syria is hard choice for Israel (Reuters)
  • Gold Traders Most Bearish in Three Years After Drop (BBG)
  • It's a Hard Job Predicting Payrolls Number  (WSJ)
  • EU economies to breach deficit limits as economic picture darkens (FT)
  • IBM Says U.S. Justice Investigating Bribery Allegations (BBG)
  • At Texas fertilizer plant, a history of theft, tampering (Reuters)
  • SAC Sets Plan to Dock Pay in Cases of Wrongdoing (WSJ) - "in case of"?
  • EU to propose duties on Chinese solar panels (Reuters)
  • Billionaire Kaiser Exploiting Charity Loophole With Boats (BBG)
  • SEC Zeroing In on 'Prime' Funds (WSJ)
  • Apple Avoids $9.2 Billion in Taxes With Debt Deal (BBG)
  • China April official services PMI at 54.5 vs 55.6 in March (Reuters)

Guest Post: How Hospitals Profit From Making Mistakes

One of the many things holding the nation back at the moment is the complete lack of incentive to be a creative, productive and honest member of society versus the tremendous incentive to be a corrupt, thieving, lackey for the establishment.  In a free market system, with a strict set of rules governing the game that is applied to everyone equally, market signals and incentives exist for companies to create a great product and to meet customer needs with great service.  In contrast, within a crony capitalist system, the primary incentive is to get as close as possible to political and corporate power in order to financially benefit from their oligarchical ownership of the controlled economy. It is only within a completely disconnected from reality, crony, fraudulent economy where you could have a situation in which hospitals actually earn much larger profit margins from making mistakes and harming their patients, than from providing excellent care.

Frontrunning: April 17

  • Boston bomb probe looking at pressure cooker, backpacks (Reuters), Boston Bomb Clues Surface (WSJ) Forensic Investigators Discover Clues to Boston Bombing (BBG)
  • China local authority debt ‘out of control’ (FT)
  • Gold Wipes $560 Billion From Central Banks as Equities Rally (BBG)... or the same impact a 2% rise in rates would have on the Fed's balance sheet
  • More Wall Street leakage: Stock Surge Linked to Lobbyist (WSJ)
  • China's bird flu death toll rises to 16, government warns of spread (Reuters)
  • Chinese official endorses monetary easing (FT)
  • As global price slumps, "Abenomics" risks drive Japan gold bugs (Reuters)
  • North Korea rejects US call for talks (FT)
  • IMF Renews Push Against Austerity (WSJ)
  • India Gains as Gold Plunge Boosts Scope for Rate Cuts (BBG)
  • Germany set to approve Cyprus aid (FT)
  • Easing Is an Issue as G-20 Meets (WSJ)

100 Years Old & Still Killing Us: America Was Much Better Off Before The Income Tax

Did you know that the greatest period of economic growth in American history was during a time when there was absolutely no federal income tax?  Between the end of the Civil War and 1913, there was an explosion of economic activity in the United States unlike anything ever seen before or since.  Unfortunately, a federal income tax was instituted in 1913, and this year it turned 100 years old.  But there was no fanfare, was there?  There was no celebration because the federal income tax is universally hated.  This year, the American people will shell out approximately $4.22 trillion in state and federal income taxes.  That amount is equivalent to approximately 29.4 percent of all income that Americans will bring in this year, and that does not even take into account the dozens of other taxes that Americans pay each year.  At this point, the U.S. tax code is about 13 miles long, and those that are honest and pay their taxes every year are being absolutely shredded by this system.

Frontrunning: April 11

  • Obama to report to his bosses today: Obama Meets With Blankfein, Dimon and Moynihan Today (BBG)
  • 2007 is here all over again: Seeking Relief, Banks Shift Risk to Murkier Corners (NYT)
  • Kuroda Calls BOJ Inflation Target 'Flexible' (WSJ)
  • Lagarde warns over three-speed world (FT)
  • N. Korea’s Retro Propaganda Calls U.S. Boiled Pumpkin (BBG)
  • Luxembourg To Ease Bank Secrecy Rule, Share Data In 2015 (BBG)
  • Bank of Korea Keeps Policy Steady (WSJ)
  • BOE Stimulus Dilemma Persists as Inflation Seen Higher (BBG)
  • EU Sounds Alarm on Spain (WSJ)
  • Qatar gives Egypt $3bn aid package (FT)
  • RBNZ Says Deposit Insurance May Increase Risk of Bank Failure (BBG)
  • Plosser Calls for Reducing QE Pace Citing Gains in Labor Market (BBG)
  • Obama budget aims to kick start deficit-reduction talks (Reuters)

Overnight Sentiment: Keep Ignoring Fundamentals, Keep Buying

Futures green? Check. Overnight ramp in either the EURUSD or USDJPY carry funding pair? Check? Lack of good economic news and plethora of economic misses? Check. In short, all the ingredients for continued New Normal record highs, driven only by the central bank liquidity tsunami are here. The weakness started with Australia's stunning unemployment jump overnight which saw a 36,100 drop in jobs on just 7,500 expected. A miss in Chinese auto sales was next, with 1.59MM cars sole in March, below the 1.596 expected, and even despite the surge in M2 and loan data, the Shanghai Composite closed down once again, dropping 0.29% to 2219.6. Nikkei continued its deranged liquidity-fueled ways, rising 1.96% even as Kuroda is starting to become quite concerned about the rapid move in the Yen, saying he "may adjust policy before the 2% target is reached if the economy and other indicators are growing rapidly." They aren't, and won't be, but if the Nikkei225 is confused for the economy, he just may push on the breaks which would send the only reason for the latest rally, the USDJPY tumbling. Finally, looking at Europe, Italy sold well less than the maximum €6 billion targeted in 2016, 2017 and 2028 bonds, which dented some of the enthusiasm for Italian paper although with Japanese money desperate to be parked somewhere, it will continue going into European and all other fixed income, distorting market signals for a long time. In short, expect the central-bank risk levitation to continue as all the deteriorating fundamentals and reality are ignored once more, and hopium and P/E multiple expansion are the only story in town.