Bruce Bartlett in the Fiscal Times (htp: Michael Panzner) submits a first-class, balanced essay on how the mess can be straightened out.
The key first step, he says, is to introduce honest financial reporting on the basis that corporations have to use, i.e. accrual accounting, for this will reveal the future economic effects of policy decisions made today. Doing so will help policymakers to make sensible adjustments and the public to accept them.
And it's not all bad news: for example, the Patient Protection and Affordable Care Act, signed by President Obama into law on 23 March 2010, is projected to save $15 trillion over the next 75 years. Raising the State Retirement Age and modifying other social benefits could bring the budget back into balance, long-term.
It won't be painless. If America starts to retrench now, the estimated cost is 2.4% of GDP. But delay merely magnifies the problem - a decade of further obfuscation and inaction raises the bar to 3.7% of GDP.
It is most fortunate that the US Government is required by law to produce a financial report of the kind that makes Mr Bartlett's comments possible. This law was signed by President Lyndon Johnson in 1966, one thing at least for which future generations must thank him.
Over the last few years, I have found it far easier to get useful information about the economy of the USA than about that of the UK where I live. Here, the truth seems harder to establish and dissent increasingly crushed. For although there is guff-talk about our being citizens, essentially we are merely subjects whenever it pleases our masters. Absent overruling by the courts of the European Union (itself a highly undemocratic organisation), our civil rights and liberties could be abolished at a stroke by the Privy Council, the legacy of the Anglo-Saxon kings' witan, or committee of high-born advisers (and potential rivals for the throne).
Long live the American Constitution: for all your well-founded instinctive distrust of power and authority, and for all the powerful businesses that lobby against any change that might slow their own accumulation of wealth at the expense of the citizens, Uncle Sam is still a people's government - so long as the people take an interest.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Monday, December 27, 2010
Sunday, December 26, 2010
Long term care, insurance & "Death Panels": fact and fiction
US insurers MetLife (MET) and John Hancock (HPI) are backing out of the long care insurance market, according to an article by Anna K. Pfaehler in Economic Policy Journal today. The former will stop selling new policies at the end of this week, and the latter is asking for a 40% hike in premiums.
Partly this is because insurers' investments have performed poorly in recent years, thanks to the artificially low interest rates to which governments on both sides the Atlantic are now haplessly committed.
But also it will have something to do with the volume of claims, and how long modern medical science can keep the sufferer alive. The Family Caregiver Alliance says that 63% of claimants are over 65 but the rest (37%) are younger. The average stay in a nursing home is 2.44 years, says Long Term Care Link; but over half of inmates are 85 or older, a demographic that is expected to "increase dramatically" in the next 20 years.
I seem to remember an interview with Whoopi Goldberg in which she joked that children are keen for you to pass on "so that they can git yer stuff", but inheritance is certainly an issue, as well as the increasing burden on the State of the elderly poor. Here in the UK, ever since the Community Care Act of 1990, there's been a battle between local authorities who were thereby charged with the duty of providing care, and sufferers and relatives who don't want to pay for it directly.
There is a moral hazard in this financial pressure, and one wonders whether it's a factor in the British Government's seeming reluctance to punish those who "help" relatives to make a quicker end. I think we should resist the temptation and if you possess a Kindle, please read my e-story, "Dignity"!
P.S. Looks as though President Obama is already going down the road towards officially-sponsored euthanasia.
Rolf Norfolk
Disclosure: author of "Dignity"
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Partly this is because insurers' investments have performed poorly in recent years, thanks to the artificially low interest rates to which governments on both sides the Atlantic are now haplessly committed.
But also it will have something to do with the volume of claims, and how long modern medical science can keep the sufferer alive. The Family Caregiver Alliance says that 63% of claimants are over 65 but the rest (37%) are younger. The average stay in a nursing home is 2.44 years, says Long Term Care Link; but over half of inmates are 85 or older, a demographic that is expected to "increase dramatically" in the next 20 years.
I seem to remember an interview with Whoopi Goldberg in which she joked that children are keen for you to pass on "so that they can git yer stuff", but inheritance is certainly an issue, as well as the increasing burden on the State of the elderly poor. Here in the UK, ever since the Community Care Act of 1990, there's been a battle between local authorities who were thereby charged with the duty of providing care, and sufferers and relatives who don't want to pay for it directly.
There is a moral hazard in this financial pressure, and one wonders whether it's a factor in the British Government's seeming reluctance to punish those who "help" relatives to make a quicker end. I think we should resist the temptation and if you possess a Kindle, please read my e-story, "Dignity"!
P.S. Looks as though President Obama is already going down the road towards officially-sponsored euthanasia.
Rolf Norfolk
Disclosure: author of "Dignity"
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Friday, December 24, 2010
On reading Adam Fergusson's "When Money Dies", an account of the German hyperinflation of 1923: Part 1
I am obliged to "Jesse" for publishing via Scribd the text of this book, which first appeared in 1975 and has just been reprinted. As the printed version is 288 pages in length and many readers are pressed for time, I shall attempt a hurried and necessarily partial and imperfect summary of some of the main points:
Chapter One
Paper currency became legal tender in Germany in 1910. When the Great War broke out, the right to exchange Reichsmark notes for gold was suspended. From 1915-1917, the financing of the war was through borrowing, not taxation.
The truth of economic affairs was hidden from the people: the stock markets were closed and foreign exchange rates not published. By the end of the war, standards of living had halved, but many had attributed price rises to shortages cause by war and profiteering.
There were factors other than monetary in the multiple crises that hit the country. After the war, stability was undermined by a militaristic Right that refused to accept responsibility for defeat, and a revolutionary Left inspired and sponsored by the recent events in Russia. A coalition government was formed, with overwhelming popular support, to resist both extremes.
Germany's postwar economy was hit by the loss of her African colonies plus c. 14% of her prewar sovereign territory and the other reparations and unfair trade terms demanded by vengeful victors. Economically crippled, and facing the consequences of 1.6 million dead and 3.5 million other casualties, Germany also had to cope with over 250,000 newly-unemployed soldiers.
Pre-1914, a British pound was worth 20 marks; by December 1918, it was worth 43 marks; by December 1919, 185 marks.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Thursday, December 23, 2010
Will rising interest rates crash the market?
This item may seem to be UK-based, but essentially the situation is much the same on the other side of the Atlantic. It's a story, not about domestic mortgages but about the sleeping bear of the bond market:
The UK's Daily Telegraph reports comments by MPC member Paul Fisher that homeowners should steel themselves for an increase in interest rates, with an ultimate target of 5% (currently the Bank of England's lending rate is 0.5%).
This would be a two-edged sword. It would combat inflation and begin to reward savers; but it would also worsen conditions for business, by reducing the consumer's disposable income and raising the cost of commercial finance (which is already hard to get, particularly for smaller businesses).
The effect on the stockmarket would be negative, as higher costs and lower turnover would squeeze profits; and debt-fuelled share speculation would become more expensive and so riskier for the investment banks, who might give up looking for a bigger fool and race for the emergency exit.
However, there is no timescale given for this process and the article says that the market expectation is that the rate will rise to only 2% within the next two years.
I think Mr Fisher's statement, ostensibly warning borrowers to tighten their belts, is actually intended to be overheard by the bond market, trying to reassure the latter that it won't be ripped-off by inflation.
I also think it's a tactic characteristic of the previous government, namely to make a tentative policy announcement in order to gauge reactions and trim sails accordingly. It's come from a source that can later be spun as having been a personal view or at most, merely a long-term aspiration of the Monetary Policy Committee.
There are dangers in this type of nebulous news management. To me, it's a sign of the real weakness of our current economic position. And if the bond market thinks it's being bluffed because the government hasn't a clue how to proceed, it may decide to call for a show of the cards. Then the rate rise would come, in a quick and uncontrolled way, triggering a crisis that would end in deep recession, or some combination of default and currency devaluation.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
The UK's Daily Telegraph reports comments by MPC member Paul Fisher that homeowners should steel themselves for an increase in interest rates, with an ultimate target of 5% (currently the Bank of England's lending rate is 0.5%).
This would be a two-edged sword. It would combat inflation and begin to reward savers; but it would also worsen conditions for business, by reducing the consumer's disposable income and raising the cost of commercial finance (which is already hard to get, particularly for smaller businesses).
The effect on the stockmarket would be negative, as higher costs and lower turnover would squeeze profits; and debt-fuelled share speculation would become more expensive and so riskier for the investment banks, who might give up looking for a bigger fool and race for the emergency exit.
However, there is no timescale given for this process and the article says that the market expectation is that the rate will rise to only 2% within the next two years.
I think Mr Fisher's statement, ostensibly warning borrowers to tighten their belts, is actually intended to be overheard by the bond market, trying to reassure the latter that it won't be ripped-off by inflation.
I also think it's a tactic characteristic of the previous government, namely to make a tentative policy announcement in order to gauge reactions and trim sails accordingly. It's come from a source that can later be spun as having been a personal view or at most, merely a long-term aspiration of the Monetary Policy Committee.
There are dangers in this type of nebulous news management. To me, it's a sign of the real weakness of our current economic position. And if the bond market thinks it's being bluffed because the government hasn't a clue how to proceed, it may decide to call for a show of the cards. Then the rate rise would come, in a quick and uncontrolled way, triggering a crisis that would end in deep recession, or some combination of default and currency devaluation.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Wednesday, December 22, 2010
Earthquake in Cumbria
There was a minor earth tremor in north-east England yesterday as reported here.
It reminds me of the spoof charity appeal email I received from a Dudley-born friend after the quake there in 2002. It is, as they say, a classic and is preserved on this site. We Brits are never more comfortable than when mocking ourselves. The following is the closest to my memory of the original, though it's been reworked since with regional variations:
At 00:54 on Monday 23 September an earthquake measuring 4.8 on the Richter scale hit Dudley, UK causing untold disruption and distress -
* Many were woken well before their giro arrived
* Several priceless collections of mementoes from the Balearics and Spanish Costas were damaged
* Three acres of historic and scientifically significant litter were disturbed
* Thousands are confused and bewildered, trying to come to terms with the fact that something interesting has happened in Dudley
One resident, Donna-Marie Dutton, a 17 year old mother-of-three said "It was such a shock, little Chantal-Leanne came running into my bedroom crying. My youngest two, Tyler-Morgan and Megan-Storm slept through it. I was still shaking when I was watching Trisha the next morning."
Apparently though, looting did carry on as normal.
The British Red Cross have so far managed to ship 4000 crates of Sunny Delight to the area to help the stricken masses.
Rescue workers are still searching through the rubble and have found large quantities of personal belongings including benefit books and jewellery from Elizabeth Duke at Argos.
HOW YOU CAN HELP
* £2 buys chips, scraps and blue pop for a family of four
* £10 can take a family to Stourport for the day, where children can play on an unspoiled canal bank among the national collection of stinging nettles
* 22p buys a biro for filling in a spurious compensation claim
PLEASE ACT NOW
Simply email us by return with your credit card details and we'll do the rest!
If you prefer to donate cash, there are collection points available at your local branches of Argos, Iceland and Clinton Cards.
It reminds me of the spoof charity appeal email I received from a Dudley-born friend after the quake there in 2002. It is, as they say, a classic and is preserved on this site. We Brits are never more comfortable than when mocking ourselves. The following is the closest to my memory of the original, though it's been reworked since with regional variations:
At 00:54 on Monday 23 September an earthquake measuring 4.8 on the Richter scale hit Dudley, UK causing untold disruption and distress -
* Many were woken well before their giro arrived
* Several priceless collections of mementoes from the Balearics and Spanish Costas were damaged
* Three acres of historic and scientifically significant litter were disturbed
* Thousands are confused and bewildered, trying to come to terms with the fact that something interesting has happened in Dudley
One resident, Donna-Marie Dutton, a 17 year old mother-of-three said "It was such a shock, little Chantal-Leanne came running into my bedroom crying. My youngest two, Tyler-Morgan and Megan-Storm slept through it. I was still shaking when I was watching Trisha the next morning."
Apparently though, looting did carry on as normal.
The British Red Cross have so far managed to ship 4000 crates of Sunny Delight to the area to help the stricken masses.
Rescue workers are still searching through the rubble and have found large quantities of personal belongings including benefit books and jewellery from Elizabeth Duke at Argos.
HOW YOU CAN HELP
* £2 buys chips, scraps and blue pop for a family of four
* £10 can take a family to Stourport for the day, where children can play on an unspoiled canal bank among the national collection of stinging nettles
* 22p buys a biro for filling in a spurious compensation claim
PLEASE ACT NOW
Simply email us by return with your credit card details and we'll do the rest!
If you prefer to donate cash, there are collection points available at your local branches of Argos, Iceland and Clinton Cards.
Bank of America to be hit by Wikileaks
As I relayed here on 1 December, Julian Assange hinted at revelations about a major US bank. Now, according to the London Times, (htp: EPJ) he confirms it's BoA. He's going to be releasing much material next month and if its management is "responsive" there "will be resignations".
Journalists like to hint at causative connections - Yahoo News says "Shares in Bank of America have fallen amid speculation that it was a WikiLeaks target" - but in fact according to Yahoo Finance itself, BoA's shares have been trending down since mid-April and have actually risen slightly in the last week. Perhaps Assange appeals to the chip-on-the-shoulder Robin Hood element in the powerless scribe's psyche.
Men reveal their ambitions in their persons, but their souls in their writing. Assange set out his agenda in a couple of essays several years ago, and if you read with attention they tell us plenty about him. If you'd like to know a little more about how he thinks, I've recently done a little piece here.
That's not to say I trust banks any more. If there were no depositor insurance, I'd have my stash (accompanied by their ATM withdrawal slips) in my workplace locker or something similar. I started to do this when the banking crisis was on, and it seems the Irish are doing it now.
Buy your popcorn and sit down for the bank show overture in January. And, if Seeking Alpha commenter "Savelife" is to be believed, the whole investment and economic Ring Cycle drama over the course of 2011. Maybe it'll be best not to have a front seat.
Disclosure: None.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Journalists like to hint at causative connections - Yahoo News says "Shares in Bank of America have fallen amid speculation that it was a WikiLeaks target" - but in fact according to Yahoo Finance itself, BoA's shares have been trending down since mid-April and have actually risen slightly in the last week. Perhaps Assange appeals to the chip-on-the-shoulder Robin Hood element in the powerless scribe's psyche.
Men reveal their ambitions in their persons, but their souls in their writing. Assange set out his agenda in a couple of essays several years ago, and if you read with attention they tell us plenty about him. If you'd like to know a little more about how he thinks, I've recently done a little piece here.
That's not to say I trust banks any more. If there were no depositor insurance, I'd have my stash (accompanied by their ATM withdrawal slips) in my workplace locker or something similar. I started to do this when the banking crisis was on, and it seems the Irish are doing it now.
Buy your popcorn and sit down for the bank show overture in January. And, if Seeking Alpha commenter "Savelife" is to be believed, the whole investment and economic Ring Cycle drama over the course of 2011. Maybe it'll be best not to have a front seat.
Disclosure: None.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
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