Oct 31 2009

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“Sleight of Hand”

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  • Just as the nation was preparing for Halloween, the Obama administration and Congressional Democrats were playing Three Card Monte on economic indicators and health care reform.
  • The first news was good, at least on paper.  The US economy, as measured by total output of goods and services or Gross Domestic Product (GDP), was up 3.5 percent in the third quarter of 2009, after three out of four dismal quarters of negative growth. President Obama and leading Democrats in the Administration and Congress were quick to take credit for the turn around.1
  • But it is unclear whether this news is a blessing or a bane.
  • Christina Romer, Chairperson of the President’s Council of Economic Advisors said, “Analysis…indicates that the American Recovery & Reinvestment Act of 2009 (ARRA) contributed to real GDP in the 3rd quarter.  This suggests that the absence of the Recovery Act, real GDP would have risen little if at all this past quarter.”2
  • So, um, without the government spending of the Recovery Act, there would be no growth?  What kind of path are we on to generating sustainable private sector growth if the only gains come with temporary government assistance?.
  • And as there is so much Recovery money out there, we need to be specific on the current gains.
  • 1.7% of that 3.5% in economic growth can be attributed to the famed, “Cash for Clunkers” program where the US government subsidized citizen to turn in perfectly good cars for more fuel efficient models, resulting in a temporary boost in the union-run auto industry.
  • But consider, a report issued by auto industry expert, Edmunds.com, indicating that the Federal government spent $24,000 each for the extra 125,000 cars purchased under the “Clunker’s” program.  Is this the kind of value for money you were expecting with your tax dollars – and for a temporary bump in production in any event?3
  • An additional 1.6% of the increase in GDP can similarly be credited to the first-time home buyer’s tax credit of up to $8,000, which artificially and temporarily inflated the residential housing market.  Congress is seeking to extend the program. Meanwhile, non residential structural investment was off 23%.
  • Not to beat a dead horse, but no one has yet come up with a meaningful response to mortgage holders who continue to pay on time, but whose mortgages are getting ready to reset, causing a cascade of additional defaults, with all the negative impact on housing values and the market and the added on consequences to the economy.
  • Exports were up this quarter; very good news for the US manufacturing industry. But that was mostly on the dangerous weakness of the US dollar, which makes US products more competitive abroad.
  • While exporters are getting a reprieve, the longer-term consequences of the Federal Reserve printing money as if it grew on trees to finance Obama government expansions has yet to be felt. The longer term inflationary pressures of this policy won’t be seen for months and they will not be pretty, for exporters or businesses still thirsty for credit, that will inevitably have to cost more as interest rates are raised to contain inflation, potentially choking off any genuine economic recovery.
  • Add it up and unfortunately you see that the US has not seen the end of recession, but instead, one quarter of US government pump-priming that artificially jacked up production numbers. Since the growth was not organic to the private-sector, it is not sustainable without continued government action, which is a business line the government should get out of if it ever wants to try and control the federal deficit and debt.
  • So, under those circumstances, do you believe all this is money well spent?
  • Certainly the growth is not reflected in the efforts of the massive and wasted $787 billion stimulus bill passed last February.  You remember, the one that promised to keep unemployment under 8%? According to the Associated Press, the first tranche of 30,000 jobs created by $16 billion in Stimulus spending was actually inaccurate.  “The government’s first accounting of jobs tied to the $787 billion stimulus program claimed more than 30,000 positions paid for with recovery money. But that figure is overstated by least 5,000 jobs, according to an Associated Press review of a sample of stimulus contracts.”
  • By the way, if you do the math that works out to about $530,000 per job “created or saved.” At those rates, Obama’s job creation efforts ironically mirror the very financial packages of Wall Street executives that liberals find so offensive and Obama is determined to limit.
  • Remember also that POTUS promised three million created or saved jobs as a result of his Stimulus – 3,000,000.4
  • It is surreal.
  • In the real world of provable statistics, the Department of Labor’s, Bureau of Labor Statistics (www.bls.gov) is about to announce October’s unemployment rate, which if indicators are accurate, will top 10%. This will be an increase to theover three million Americans who have lost work since Barack Obama became President.
  • That is the real take away from today’s economic news; a trillion dollars spent and unemployment keeps increasing while economic growth is flat or fleeting.
  • On the very day the Administration was taking credit for economic recovery, Nancy Pelosi announced the House version of the healthcare plan.
  • What is sad about the plan aren’t its core elements, which have been known for months, but rather the fact that rising public opposition – through town halls and protest marches, to the regular polling from a broad spectrum of reputable institutions – have had so little impact on the final result.
  • First there is the phony budgeting. The plan comes in at $894 billion. It contains the same gimmicks as the Senate; front-loading premiums and taxes for years before actual care is provided in a ten-year period, to artificially move the numbers under $1 trillion.
  • And of course, the Pelosi plan does not count the $250 billion in guaranteed payments to doctors who provide Medicare, which was roundly defeated in the Senate when “Risky Reid” tried to slip the payment through the Chamber as a separate bill last week.
  • Also, the House bill, like its Senate counterpart, calls for $500 billion in cuts to Medicare. The Federal government has never, never cut $500 billion out of anything.
  • For those unschooled in the ways inside the Beltway, a “cut” is deemed to have occurred if legislators reduce the increase an agency is requesting for the next fiscal year. To put this in perspective, let’s say that you are spending $100 in monthly incidentals – coffee, lunches out, etc. You tell your spouse that you need more – the soy lattes can be so addicting – and so you propose to spend $120 a month; a 20% increase. After much haggling, you mutually agree that you will spend $110 per month, or a 10% increase.  Ah, but alas in government terms, this isn’t an increase; in the world of government you’d be complaining to your friends that your spouse cut your expenses by 50% (because only half your increase was agreed upon).
  • So are the ways of Washington.
  • On the other side of the ledger, of course, are tax increases. If you make more than $500,000, you will be taxed. If you are a medical device manufacturer – the innovators who are the backbone of our second-to-none health care equipment quality – you will be taxed.  If you don’t have health care, you will be taxed. If you are a business owner and you don’t provide insurance for your employees you will be taxed.
  • Whatever happened to POTUS’s promise not to tax the middle class?
  • Do take note, by the way, that the Pelosi plan anticipates no additional taxes or reductions on the “Cadillac” health insurance programs of organized labor.
  • For those on the lower end of the wealth spectrum, there will be subsidies to purchase insurance.  People who earn up to 150% of the poverty level will be eligible for Medicaid – a program scheduled for bankruptcy between 2015 and 2017 because it cannot adequately cover the cost of people that are already enrolled.
  • And of course there will be a Public Option. Not as robust as what was originally anticipated; doctors get to negotiate reimbursement rates where before, liberals wanted to simply dictate terms on how much doctors could charge.  The Speaker says this will spur competition, but in reality, it only creates another government run health care entity.
  • Can anyone tell me with a straight face that Medicaid, Medicare or the VA deserves awards in excellence for the service they provide?
  • But the plan is more ominous in its whole than its details. The tax increases on the wealthy and workers/businesses, combined with the stipends and new Medicaid eligibility for low income workers, represents one of the greatest wealth transfers is modern American history.  It is simply unprecedented.
  • And for you seniors out there, you just lost your privileged place in society to the young and the healthy. If Congress makes even a half- hearted effort on its promise to cut Medicare, to be meaningful, do you honestly believe that it is going to be targeted on waste, fraud and abuse and not rationing?
  • Better schedule that hip replacement pronto.
  • In addition, the House bill would unleash the Federal Trade Commission (FTC), at its own prerogative, to conduct investigations of the insurance industry to assess “anti-competitive” behavior.
  • Now remember, under the proposed public option, doctors get to negotiate their rates with the new public option entity, and ostensibly private insurers will compete with that entity.  Imagine the reaction when those activities are at the mercy not of the free market, but federal regulators?
  • And oh, the House leadership hasn’t worked out provisions yet on public funding for abortion or eligibility for illegal aliens for the program. Pelosi says the House bill will extend coverage to 36 million people; at least a portion of these – based on dueling statistics are illegals.
  • In sum, you have a health care proposal that is advertised at less than half its cost. You have tax increases on businesses and individuals during economic uncertainty, undermining incentives to create and grow in the private sector. You have vast new bureaucracies and mandates; federal agencies criminalizing the market mechanism. And you are effectively stripping older Americans of coverage to provide it to the uninsured, under insured or people who simply should be getting insurance from their home countries.
  • Expanded access, affordability and quality?
  • Nonsense. This bill is a recipe for disaster.
  • No better terror could be unveiled right before Old Hollow’s Eve.
  • Happy Halloween.

1. Bloomberg News 10-29-09

2. White House Press Release 10-29-09

3. CNN Money 10-29-09

4. New York Times 1-11-09


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