Thursday, July 12, 2012
Random ruminations from your resident curmudgeon...
The federal government consistently tells us that the Social Security Trust Fund (SSTF) has enough money to stay solvent until 2033, at which time the fund will not have enough money to pay full benefits. Once this happens, benefit payments will automatically be cut 25%. However, a recent analysis of the fund by Bruce Krasting shows that the SSTF is in danger of reaching the deficit position by 2015. How will this occur? We are all aware that as the baby boomers, which represents the largest demographic in the American population, reach retirement age in increasing numbers the outflows from the SSTF will exceed the inflows from taxes that are collected from a smaller work force. Adding to this problem is the high level of unemployment that has persisted over the past four years and has meant a lower level of taxes that flows into the trust fund. However, one of the greatest threats to the SSTF is the Federal Reserves zero interest rate policy (ZIRP). Here is how that effects the fund: in June of each year, the SSTF reinvests a significant portion of its investment portfolio by investing in special interest Treasury Securities. The interest rate on these bonds is set by a formula that was established in 1960 and is designed to insulate the fund from dramatic swings in market rates by taking an average yield on Treasury Bonds for the past three years. How has that affected the fund? This year, $135 billion of bonds was renewed at an interest rate of 1.375%. That same block of bonds had an interest rate of 5.64%. See the problem? That drop in interest rates cost the SSTF $5.7 billion annually. These bonds have a 15 year maturity, so the fund will be out $86 billion over the life of the bonds. Now the Fed has committed to keeping interest rates at or near zero through at least 2014, and over that period of time, the SSTF has $543 billion in maturing bonds with an average yield of 5.6% If those bonds are renewed at a comparable interest rate, the annual drop in income is $23 billion and $350 billion over the 15 year life of the bonds. The trustees of the SSTF project they will get an average yield of 4% on these maturing bonds. This is a pipe dream, and it is going to affect approximately 72 million people much sooner than anyone is admitting. So the next time you hear that the fund is solvent, know that you are not hearing the truth. And denying these facts is going to be painful for a lot of people that depend on these payments to make ends meet.
Bungee jumping is suicide for indecisive people.
Now that Obamacare is the law of the land, we are beginning to see some of the affects. Perhaps the most startling is the affect on doctors. According to the non-partisan Doctor Patient Medical Association (DPMA), 83% of American physicians have considered leaving their practice because of Obamacare. The DPMA found that the majority of doctors do not believe Obamacare will lead to better access for the majority of Americans. "Doctors clearly understand what Washington does not- that a piece of paper that says you are 'covered' by insurance or 'enrolled' in Medicare or Medicaid does not translate to actual medical care when the doctors can't afford to see patients at the lowball payments and patients have to jump through government and insurance company bureaucratic hoops," said Kathryn Serkes, co-founder of the DPMA. Here is the other problem: even if no doctors do not quit their profession, the United States will face a shortage of 90,000 doctors by 2020. By 2025, that shortage grows to 130,000, according to Len Marquez of the American Association of Medical Colleges. Our country is experiencing a perfect storm in health care: an aging physician population that is not being adequately replaced, and an influx of new enrollees that will come into the system under Obamacare. Government interference in the healthcare market has created and will aggravate serious problems in the delivery of medical services. And the best healthcare delivery system in the world is going to suffer, and we as end users will be the worse off.
I saw a pregnant lady on a bus reading a book entitled "What to Expect". I tapped her on the shoulder and said, "A baby."
President Obama recently proposed extending the current tax cuts only for families making less than $250,000 per year. That plays into the Democrats mantra of "taxing the rich" and playing the class warfare card, but if this were to pass and taxes were raised on those making more than $250,000, the results would be disastrous. Why? Because the impact on small business would be devastating. According to the Small Business Administration (SBA), 99% of the small businesses in the United States will see a tax increase. "So what, they are businesses, they can afford a tax increase," some may say. Consider this: 85% of the workers in the U.S. are employed by small businesses. Think these employers are going to be in a mood to hire new people when they see their taxes jump significantly? Most small businesses are S corporations or Limited Liability Corporations, meaning that income flows through to the owners to be taxed at personal rates. Those entrepreneurs that risk capital to hire and expand their business are going to see more of their profits sucked away in higher taxes if Obama's proposal were to pass. That means less money to hire new employees and expand their business. Do you believe that is a formula to get our moribund economy back on track? Neither do I. The detrimental impact on the economy will be measured in lost jobs, higher unemployment, and no growth. Don't fall for the populist rhetoric. The job creators in this country do not need this type of "gift" from Washington.
I'm a pretty down to earth guy because of...well, gravity.
And that my friends, is my view.