Health Care Reform as the Spending Canary in the Mineshaft
From the diaries, by Erick.
As the health care industry collectively does a damage assessment of the Pelosi-Kennedy-Obama health care plans to their individual interests, one thing is clear: things have changed radically in the last week:
- hospitals will be facing cuts of billions from Medicare and Medicaid;
- big Pharma is facing a certain drug re-importation fight sooner than later, likely during the health care scrum;
- the doctors are posting with a No to the public plan and irritation on medical malpractice;
- the teabag teams have planned a national no-new-taxes-for-health-care reform day — in every state of the Union;
- the slumber of the anti-tax, pro-business groups was jolted by the U.S. Chamber’s war-cry of No More Mr. Nice Guy, and now the Chamber is ripping the Senate Health Care bill;
- the unions and some employers are spooling to fight the tax on health insurance planned by one Democratic faction, and the White House has announced its opposition;
- the pro-lifers are now scrambling to catch up and be relevant on the most important government program to their interests;
- the Move-On.org crowd keeps sending alerts to its base to hold the liberal’s feet to the fire on the question of a public plan;
- the Heritage Foundation is coming under fire from its friends about their footsie with various aspects of the Democrats plans, especially mandates and the connector idea, which really began when President Obama ran an health care ad quoting the Heritage Foundation in support of one of then-candidate Obama’s Health Care Reform Plans;
- Gun Owners of America is leading the charge against physicians who now feel empowered to ask if their are handguns in the house, and that information making its way into the great medical record computers in the vast U.S. government. GOA is asking its members if it wants their gun ownership showing up in their medical records;
- Speaker Pelosi and President Obama’s commitment to a Public Plan option is being questioned by political moderates in the normally-fawning media; and,
- there is growing consensus among those who are finding problems with the various and wide-ranging proposals that the 180 million Americans who have health insurance should be the real target of the attacks on the Obama plan: specifically, the idea that your health care plan will not change is going to be the focus of some serious and politically relevant attacks (I’ve heard it be told, anyway).
This recalibration of the correlation of forces (in the Soviet military doctrine sense) has been occurring rapidly, and with vigor by those whose interests have been threatened. The speed of the shift among these centers of power and influence reminds me of the words found in the novel The Cobweb: “its amazing what happens when you wait until its too late.” Articles like this, from Reuters, titled: “Votes seen lacking for Obama healthcare program” start being published.
However, this 100,000 foot view of the health care battlefield changes substantially if you view it from the edge of earth’s atmosphere, where China and Japan come more clearly into view. What does China and Japan have to do with the future of the Obama Presidency or health care reform? Plenty.
The really bright political observers are asking the question: Why is the White House trying to pay for this health care reform? This entire pay-for thing is where the center of the opposition has posted in the last week: whose ox is getting gored? Which new tax will pay for it? Why risk the entire health care reform effort on new taxes and billions in cuts?
What possible reason could be more significant or deadly politically, that would force President Obama and therefore (in theory) force Capitol Hill to actually pay for the reform?
The answer is China, Japan, Russia and Brazil and the threat of the collapse of the U.S. dollar.
The problem is not the $1.6 Trillion in new spending for the Senate healthcare plan, in and of itself. The problem is the foregoing economic concerns to-date about the state of the U.S. economy, and debt structure.
These existing concerns are really pretty simple and straight-forward:
i) the printing of money by the U.S. government, see Federal Reserve graph here, oh the horror of it all;
ii) the amount of U.S. Treasury bills already held by these foreign nations (click here); and,
iii) the annual trillion dollar plus (and climbing) deficits now being incurred by the U.S. government.
For example, recently the New York Times reported: “Debt held by the public is projected by the Congressional Budget Office to rise from 41 percent of gross domestic product in 2008 to 51 percent in 2009 and to a peak of around 54 percent in 2011 before declining again in the following years. For all of 2009, the administration probably needs to borrow about $2 trillion.”
“unless the United States can contain its long-term debt and deficits, foreign investors may shun U.S. assets, driving up borrowing costs for the government as well as households and businesses. I am concerned about the long-term issue of our structural deficit and our long-term debt because if we don’t get a handle on that then there’s no doubt that at some point whether it’s the Chinese, the Koreans, the Japanese, whoever else has been snatching up Treasuries are going to decide that this is too much of a risk,” he told Bloomberg.
The triggering event for a global unloading of the U.S. dollar could be a funded (or claimed to be funded plan, which no one believes) $1.5 Trillion health plan, which could also trigger the end of the U.S. government AAA credit rating.
These countries are not just expressing concerns about these trends, they are actively trying to create some other international currency. They are past the point of thinking the U.S. dollar will collapse, they are actively preparing for it to happen, and are on the look-out for the triggering event.
Enter the politically disabilitating Prime Directive on paying for health care reform by President Obama, that is, if you believe that it will be paid for, or that his plan will lower the U.S. government’s health care costs. Some don’t. Some believe that the fiscal claims of the White House on health care are fantasy.
In the current world the U.S. government lives in, 40 cents for every dollar goes towards Medicaid, Medicare or Social Security.
Health care spending and the U.S. debt and deficit trend lines are not just joined at the hip, they are the same two headed monster. This why the real question that is being asked in the capital cities of the nations that hold our debt is: do we believe that U.S. health care spending will go down as a result of President Obama’s $1.5 Trillion health reform plan, or, even if the President wants these cuts, will Congress give them to him?
In other words, is the claim credible? Do these countries want to or are they willing to risk their own financial stability on the promises of fiscal discipline by President Obama and Congress? Just so it’s clear, the risk to these countries, with huge Treasury bill holdings is that when the dollar drops, the value of their T-bill holdings drop too, which will trigger a number of really bad economic effects on their foreign currency reserve holdings, which then triggers other, significant problems — especially if you are an exporter to the U.S.
You know when the Washington Post publishes an article titled “Obama’s Spending Plans May Pose Political Risks” (linked to above) that the concerns are not insignificant. The Washington Post reports “President Obama acknowledged that the long-term deficit and debt that we have accumulated is unsustainable.”
Meanwhile, Newsweek (of all places) is reporting on the two dark spots in President Obama’s polling numbers:
i) 48 percent disapprove of the President’s handling of the deficit;
ii) 51 percent are unhappy with “his control of federal spending.”
Of course, Vice President Biden has weighed in TIME magazine with his usual and helpful approach to his fellow Democrats: the recent stimulus will create 600,000 jobs, not the 3.5 million promised at the time the bill was passed. It is also not helpful when The Telegraph in Great Britain runs articles titled: “US cities may have to be bulldozed in order to survive,” reporting that Flint, Michigan announces that bulldozing vacant properties has become its policy that is exporting to other dying U.S. cities, or that Michigan is reverting to gravel roads in many counties to save money.
There is a growing sense inside-the-beltway (not just among the American voter) of a credibility gap on taxes, spending and the economy. The unemployment rate kissing 10 percent is not helping, either. This article from the Financial Times tracks the hand and glove nature of this recession and the beginning of the Great Depression, but says that the expansion in the money supply will save us. We will see.
The greatest danger for the world’s financial decision makers is that the White House believes its own propaganda, and that the future does not turn out as it is foretold by the White House and Congress, which are pursuing, with some abandon, an ideological course from which they will not be swayed, even in the face of overwhelming political and economic risks. The White House’s answer seems to be to centralize even more control unto itself, asking for the power to seize key U.S. companies.
The future of health care reform is not just a serious question for Congress and the White House, but for the global finance markets. The Russians seem to know the answer themselves already: they radically expanded their own health care spending, and have concluded, in quiet whispers in the Kremlin, that it is like pouring water into sand. The money just disappears. The reason for mentioning this is simple: each country’s own experience with the inability to satisfy its own citizen’s demand for health care dollars will impact how they judge the U.S. health care reform effort, and its fiscal impact on the U.S. budget.
In sum, the future of the value of the U.S. dollar, in part, rests on the fiscal credibility of any health care reform Congress passes. It is the reason that President Obama is insisting that Health Care Reform be paid for by new taxes and spending cuts, and on those claims, rests, in part, the value of the U.S. dollar.