Medicare

All you need to know about the fiscal cliff which will savage the US economy in under 5 months, unless Congress finds a way to compromise at a time when animosity and polarization in congress is the worst it has ever been in history.

Every now and then we prefer to sit back and let some of the smartest money speak, especially when said smart money agrees with us. In this case, we hand the podium over to none other than Paul Singer's Elliott Management, which after starting with $1.3 million in 1977 was at $19.8 billion most recently. No expert networks, no high frequency trading, no "information arbitrage", no crony capitalism and pseudo monopolies of scale, and most certainly no bailouts: Singer did it all the old fashioned way: by picking undervalued assets and watching them appreciate. The timing is opportune because while Elliott has much to say about virtually everything in their latest 20 pages Q2 letter, it is the billionaire's sentiment vis-a-vis US Treasury debt that may be most critical, and may be the catalyst that resulted in today's abysmal 10 Year bond auction. To wit: "long-term government debt of the U.S., U.K., Europe and Japan probably will be the worst-performing asset class over the next ten to twenty years. We make this recommendation to our friends: if you own such debt, sell it now. You’ve had a great ride, don’t press your luck. From here it is basically all risk, with very little reward." There is little that can be misinterpreted in the bolded statement. And while many have taken the other side of the Fed over the past 3 years, few have dared to stand against Paul Singer because if there is one person whose opinion matters above most, certainly above that of the Chairsatan, it is his.

If the political tsunami underway in Maine is any indicator, the November 2012 election will be fascinating and unpredictable

The following chart from today's TBAC presentation slidedeck should put to bed all debate of not only what the US government spends its money on (of which about half is generated through tax collection and half is borrowed), but also what the trends in current year spending are compared to 2011. In summary: of the 4 biggest categories HHS (Medicare & Madicaid), Social Security or together Welfare, Treasury and Defense, Welfare is higher, Treasury is higher, and Defense is not only lower, but has lost to Treasury as the third biggest expense category year to date.

The effect on the USA of its casually wandering over the Fiscal Cliff will be catastrophic; adding approximately $607bln to the US deficit which in turn would sap anywhere up to 4% (according to the CBO) or possibly even 5% (if Chairman Bernanke—in full-on ‘scare Congress’ mode—is to be believed) from US GDP and send the country crashing into outright recession (or further into recession depending on how things continue to deteriorate in the coming months). “That we cannot have” was the opinion of Erskine Bowles who, along with former Sen. Alan Simpson, devised a debt reduction plan last year to prevent this doomsday scenario.... According to the OMB estimates, any attempt to do something remotely meaningful will result in at least a percentage point reduction in US GDP, which is fine in a world of 3% growth, but today that 1% is not something these guys have to play around with. In the run-up to December 31, you can guarantee that the issue of the US Fiscal Cliff will replace Europe as the major concern facing the world in general and the US in particular and, if things continue to deteriorate at their current pace, anything that will lead to even a 0.5% cut inGDP will be seen as a  disaster.

So the end stage of neoliberalism threatens a Dark Age of poverty/immiseration – most characteristically, one of debt peonage. ~ Michael Hudson

In his testimony over the last two days, Bernanke has listed the 'fiscal cliff' as one of the two greatest risks to the US economy, along with the situation in Europe, and urged Congress to enact 'earlier rather than later' a plan that achieves 'short-term and long-term objectives,' with the primary short-term objective to adjust the timing of the near-term fiscal contraction "to allow the recovery a little more space to continue." . However, like us, Goldman believes that resolving the two key issues - the fiscal cliff and the need to raise the debt limit - will be more difficult than it was last year, for three reasons: (1) the "easiest" options to lower the deficit have already been adopted, so the remaining options touch more controversial areas than those enacted last year; (2) some members of both parties have indicated that they regret the agreements reached in 2010 and 2011, implying less willingness to compromise this year, and (3) both parties appear to be contemplating strategies that involve allowing most or all of the policies to change at year end, as a means to achieving their ultimate policy goal. Stunning! Sure enough, as debate on the fiscal cliff gets underway in earnest, the tone of rhetoric has predictably worsened. We suspect the only way they will ever agree is after the market makes it clear that any other path is unacceptable.

There are a number of cultural and governmental impediments to prosecuting WCCs. One of which is the corrupting influence of money to neuter regulations and to co-opt politically appointed regulators and prosecutors. Another is perception. Wealth in our country is equated with royalty or a high station in society, so people have a hard time seeing the white collar criminal as the deviant that he is. People have a hard time wanting to punish someone who looks nice, has nice clothes, drives a nice car, lives in a good neighborhood, went to a prestigious school, belongs to exclusive clubs, etc. vs. someone who does not have those things. If you're poor in this country, that's almost a crime in and of itself to some people. Conversely, rich people have all sorts of credibility, whether its deserved or not. Why should I listen to an actor about a topic that's not related to acting? Sure, he may have some interesting things to say, but he shouldn't be given automatic credibility on the subject and yet many people do just that. Romney became rich bankrupting companies and selling their assets and yet people look to him to "run our economy"? What politician can ever say that they can run an economy? The Soviets tried to do just that and look what happened to them.

Another reason WCCs may not be prosecuted is that individuals, organizations, governments, and even society at large may be vested in the criminal activity either wittingly or unwittingly.

The health of the economy is driven by after tax income. We need a big tax increase that does not reduce current income. My plan.

“What I was looking at was a tussle between two groups of mass-men, one large and poor, the other small and rich. As judged by the standards of a civilised society, neither of them any more meritorious or promising than the other. The object of the tussle was the material gains accruing from control of the State’s machinery. It is easier to seize wealth than to produce it; and as long as the State makes the seizure of wealth a matter of legalised privilege, so long will the squabble for that privilege go on.”

Alfred Jay Nock - Memoirs Of A Superfluous Man - 1943

This one is tough: Krugman or CNBC... Krugman or CNBC... Hmmm.

For those Americans earning between $34,500 and $106,000, the real-world middle class tax burden in high-tax locales is 15% + 25% + 5% + 15% + 15% = 75%. Yes, 75%. Before you start listing the innumerable caveats and quibbles raised by any discussion of taxes, please hear me out first. Let's start by defining "taxes" as any fee that is mandated by law or legal necessity. In other words, taxes are what is not optional.  If we include all taxes, the real-world tax rate is much higher than the "official" income tax rate.

Potential employers have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees. We know you're hard-working, motivated, tech-savvy and willing to learn. The reason we can't hire you has nothing to do with your work ethic or skills; it's the high-cost of the Status Quo, and the many perverse consequences of maintaining a failing Status Quo. The sad truth is that it's costly and risky to hire anyone to do anything, and "bankable projects" that might generate profit/require more labor are few and far between. The economy is different now, and wishing it were unchanged from 30 years ago won't reverse the clock. We have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees except in sectors that are largely walled off from the market economy: government, healthcare, etc. But these moated sectors cannot remain isolated from the deflationary market economy forever.

A full Q&A on what just happened from the WSJ's Lousie Radofsky.

Here we go:

• OBAMA'S HEALTH-CARE OVERHAUL UPHELD BY U.S. SUPREME COURT
• 5-4 decisions, with Roberts joining the court's liberals.
• Court says federal government can’t threaten to withhold money from states that don’t fully comply on Medicaid extension
  
• CHIEF JUSTICE ROBERTS SAYS MANDATE IS NOT A VALID EXERCISE OF CONGRESS' POWER UNDER COMMERCE CLAUSE AND NECESSARY AND PROPER CLAUSE
• HEALTH LAW'S MEDICAID EXPANSION LIMITED BY U.S. SUPREME COURT -RTRS
• ROBERTS, JOINED BY TWO JUSTICES, SAYS MEDICAID EXPANSION VIOLATES CONSTITUTION -RTRS
• FOUR JUSTICES DISSENT, SAYING THE PATIENT PROTECTION AND AFFORDABLE CARE ACT GOES BEYOND -RTRSCONGRESSIONAL POWERS UNDER CONSTITUTION -RTRS
• ScotusBlog conclusion: So the mandate is constitutional
• The bottom line: the entire ACA is upheld, with the exception that the federal government's power to terminate states' Medicaid funds is narrowly read
• The ACA is upheld as a tax, not a penalty