Wednesday, May 11, 2016

The Economy: "5 Charts"; "Why It's Time To Give Up"

"We Need a Complete System Overhaul: 
5 Charts That Blow Up the Status Quo"
by Charles Hugh Smith

"The promises made when there were 7 workers for every retiree cannot be kept when there are only 2 workers for every retiree. In an auto-mechanic analogy, the Powers That be are assuring us those grinding noises under the hood and the black smoke chugging out of the tailpipe are no big deal and can be fixed with a minor tuneup. They're wrong; we need a total overhaul to avoid a total system breakdown.

The grinding noises and black smoke are telling us the engine of our economy is on its last legs. The Powers That Be (Federal Reserve, government at all levels, mainstream corporate media, etc.) have been masking the need for an overhaul with trickery for the past seven years, the financial equivalent of using heavy oil and spray-painting the battery to make it look new. With the tranny and top end about to blow, the Status Quo keeps claiming everything's running great and the new set of sparkplugs and minor valve adjustment (i.e. zero-interest rate policy and more banking regulations) have restored the economy to top performance.

It's all lies, fantasy and propaganda. Nothing has been fixed. Automation has just started devouring human labor/jobs, corporate profits have peaked, the trick of pushing the stock market higher by borrowing money to buy back shares is finally falling apart, the trends of wealth and income inequality are roaring ahead full steam, and our entire system of taxation, entitlements and debt is about to blow up.

As I explain in my new books "A Radically Beneficial World and Why Our Status Quo Failed" and Is Beyond Reform, the big structural trends will destroy the status quo: automation/loss of jobs leads to lower profits and wages which means lower tax revenues while costs of an outsized generation retiring will soar for the next 30 years.

The promises made when there were 7 workers for every retiree cannot be kept when there are only 2 workers for every retiree. As automation commoditizes labor, goods and services, the ratio of full-time workers to retirees will continue to slip: it's already under two-to-one, as there are 123 million full-time jobs and 65.48 million Social Security beneficiaries.

Please glance at the following charts. The point here isn't to play doom-and-gloom; it's to accept the reality that the current set of promises and power arrangements is going to blow up and we'll need a complete overhaul of our system.

Chart 1: Medicare costs will continue skyrocketing for decades:

Chart 2: all three major entitlement programs- Medicare, Medicaid and Social Security- 
are expanding rapidly while tax revenues are stagnating (and could plummet in 
a systemic recession). (For context, the entire defense budget is around $700 billion.)

Chart 3: the inevitable consequence is soaring entitlement deficits for decades:

Chart 4: we are at the base of a steep mountain of government spending:

Chart 5: funding this mountain will require a doubling of federal taxes:

Toss in the crushing burden of skyrocketing debts and the rise of inflation (already running 20% hotter than official statistics) and the meltdown of the status quo is only a matter of time. Anyone who thinks taxes can double and the consumer-based economy will be just fine is delusional. We need a complete system overhaul, and the sooner we face up to this sobering reality, the sooner we can start working on real solutions."
“This Is Why It's Time To Give Up”
by Karl Denninger

"First, from the right: "So far in this campaign season, Americans have heard about building a wall on the Southern border, banning Muslims from America, changing foreign policy strategy in the Middle East, stopping illegal immigration—and how big Donald Trump’s hands are. Yet they haven’t heard much serious discussion about meaningful entitlement reform. It may not bet be the most exciting topic, but it’s on a short list of the most important.

The United States spent $888 billion on Social Security and $546 billion on Medicare in 2015. Health-care costs are skyrocketing. We’re seeing double-digit insurance-premium hikes, with the expectation that they will only get worse unless we seriously overhaul the Affordable Care Act."

In 2015 (Fiscal Year) the Federal Government spent $1,297 billion, or more than double the cited amount above, on Medicare and Medicaid.  I remind you that while there is an offsetting tax receipt for Medicare there is no such thing for Medicaid; it is a pure entitlement. Further, Social Security, as I have pointed out repeatedly, is not insolvent, except in one place- disability, which is ridden through with fraud. Indeed, to prevent the disability fund's collapse Congress has raided the retirement fund repeatedly. This practice must be stopped, and perhaps retirement ages for those under 40 today raised slightly, but the changes required there are modest.

This is not true for the medical side. But what does Fox continue with? "Even so, one thing that’s clear about ObamaCare: repeal is a dead letter, and it should be. The program is in place now, and our task should be how to make it work better. GOP presidential candidate John Kasich has been honest enough to acknowledge this. Over 20 million Americans are now insured because of ObamaCare— that’s a real achievement, but it’s one that we could make more cost-effective. How? For starters, by allowing the purchase of health insurance across state lines, which would dramatically cut costs for millions of Americans. We should also consider insurance subsidies with fixed credits that Americans can use as they see fit— whether on insurance premiums or health services."

None of that will do one damn thing to address the issue- and this is from the so-called "fiscal conservative" side of the aisle, at least in theory. Ok, ok, the guy who wrote it worked for Clinton. And? Fox published it and I note that none of the Republican party hacks, including Paul Ryan and other establishment folks, nor for that matter Trump to this point have come forward with anything that will actually address the problem in any sort of detail.

How about from the left? "But as she tries to clinch the nomination, Mrs. Clinton is moving to the left on health care and this week took a significant step in her opponent’s direction, suggesting she would like to give people the option to buy into Medicare. “I’m also in favor of what’s called the public option, so that people can buy into Medicare at a certain age,” Mrs. Clinton said on Monday at a campaign event in Virginia."

Which does exactly nothing either.

The solution is both obvious and possible: Break the medical monopolies. All of them, using existing US anti-trust law. Jail executives, doctors and administrators that engage in practices that are facially in violation of existing US federal and state consumer-protection laws. That would be virtually all of said doctors, pharmaceutical company executives and hospital administrators, by the way.

If the Federal government won't act there is nothing prohibiting Governors from doing so; they, as the head of the executive in the several states, could start issuing indictments under consumer protection laws that prohibit gouging, discriminatory pricing, delivering goods and services without a quote or exceeding quoted prices and similar, none of which contain a statutory exception for health care that I have been able to find. After the first handful of indictments are handed up all of this crap will stop immediately, as exactly zero of these people are willing to go to prison.

That will collapse the cost of care, including drugs, in a dramatic fashion. Best estimates are that on a blended basis the cost of care would plummet by as much as 80-85%! Yet exactly nobody in the political environment, left, right, Trump, Hillary, Sanders or for that matter any of the third party candidates is advancing this position. Exactly zero sitting Congresspeople are advocating it. Exactly zero mainstream media outlets are debating it. And a number statistically identical to zero of the citizens of this nation, who make possible the very existence of all of the above, are demanding same and willing to back that demand with a cessation of work and mass-protests until it occurs.

Yet if this is not done it is an arithmetical certainty that we will attempt to spend nearly all of the Federal Budget on Medicare and Medicaid within 10 years. This will never happen because it can't, and long before then (likely around the 50% ratio which will breach in about five years at present rates) the federal government's funding model and thus the political system will collapse.Obviously, what collapses at the same time is the economy and probably the reasonably-peaceful social order of the nation.

We must stop this now yet exactly nobody is talking about it, say much less demanding that it happen and taking steps to see that it does. I've been warning of this eventual outcome for a literal 20+ years and putting an expected timeline on it via these pages since 2008. Sadly, that timeline has been tracking almost-exactly as predicted as despite the introduction of Obamacare it has only amounted to forced participation in an economic extraction and extortion scheme guaranteed to collapse not only itself but also the government and economy in general."

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