2
   

Increasing federal deficit

 
 
cicerone imposter
 
  1  
Reply Sun 13 Dec, 2009 04:24 pm
@roger,
That's how insurance should work; the people with good health help to pay the cost of the people with poor health; getting everybody insured is the most efficient way to keep the average cost of insurance to a minimum.

The struggle is to get the younger-good health folks to buy into the insurance plan. Any government run health plan must take into consideration that the cost to cover younger folks will always be less than the older folks, and the premiums should reflect this cost difference.

What has happened in Massachusetts universal health plan is that they didn't make it mandatory, so people who didn't purchase health insurance when the plan was implemented later purchased health insurance, took care of their expensive medical bills, then canceled.

The national plan must have ways to prevent this kind of abuse.

0 Replies
 
High Seas
 
  1  
Reply Mon 14 Dec, 2009 01:33 pm
@dyslexia,
dyslexia wrote:

yes, and while the empire did wobble during the Nixon reign It never quite fell.

Nixon inherited 2 black holes from his predecessor (Vietnam and the Great Society) and deserves credit for minimizing both. We're faced with even greater black holes - btw, you'll remember the original worry "Red Storm Rising" - and the combination may be even worse:
Quote:
Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt

Dec 14, 2009

Over the past year alone, the public debt of the United States rose sharply from 41 to 53 percent of gross domestic product (GDP). Under reasonable assumptions, the debt is projected to grow steadily, reaching 85 percent of GDP by 2018, 100 percent by 2022, and 200 percent in 2038.

However, before the debt reached such high levels, the United States would almost certainly experience a debt-driven crisis"something previously viewed as almost unfathomable in the world’s largest economy. The crisis could unfold gradually or it could happen suddenly, but with great costs either way. The tipping point is impossible to predict, but the United States is already hearing concerns about its fiscal management from some of its largest creditors, and the country is uncomfortably vulnerable to shifts in confidence around the world.
http://www.pewtrusts.org/our_work_report_detail.aspx?id=56451&category=604
----------------------------------------------------------------------------------
High Seas
 
  1  
Reply Mon 14 Dec, 2009 01:36 pm
@High Seas,
Note the above numbers only refer to actual issued debt, the actuarial deficit (ie including unfunded obligations) crossed the $60 trillion mark this month.
0 Replies
 
Thomas
 
  1  
Reply Mon 14 Dec, 2009 04:16 pm
@MASSAGAT,
MASSAGAT wrote:
Better value? Can you think of ANY Governmentally controlled group which offers better value?

As it happens, I do think that the US armed forces perform better in the wars they fight than Blackwater's private sector mercenaries do. Similarly for police, firefighters, and municipal services.

But this is not about what I think about public health insurance, or what you think for that matter. It's about what the people who pay the bills and receive the services think. So let's run the experiment, let the people decide with their wallets, and find out. In my view, letting each individual choose between private and public health insurance is almost exactly analogous to letting them choose between private vs public schooling. The only difference is that schooling starts out mostly public, whereas healthcare starts out mostly public.

I suppose you approve of school vouchers, to let the people decide if they prefer public or private schooling. So do I. Why not give people the same individual choice about their healthcare?
High Seas
 
  1  
Reply Mon 14 Dec, 2009 04:40 pm
@Thomas,
Thomas wrote:
.... The only difference is that schooling starts out mostly public, whereas healthcare starts out mostly public.

Several readings of this sentence failed to clarify its meaning Smile
Thomas
 
  1  
Reply Mon 14 Dec, 2009 04:47 pm
@High Seas,
It's a ying and ying thing ....
0 Replies
 
dyslexia
 
  1  
Reply Mon 14 Dec, 2009 04:49 pm
@High Seas,
pretty obvious Helen, the second "public" should read "private".
0 Replies
 
High Seas
 
  1  
Reply Tue 12 Jan, 2010 12:25 pm
@Thomas,
Thomas wrote:

cicerone wrote:
Anybody worried yet?

Certainly not the bond market -- yields on long-term US government bonds remain as low as ever. ....

You're looking at the wrong rates: look at TIPS (inflation-protected-securities totalling $600 billion, i.e. accounting for less than 10% of the $7 trillion Treasury market) had a total return of 12.8% over the past year, while nominal Treasury bonds lost 2.2%. Demand for nominal securities is so bad the Treasury announced yesterday during 2010 it plans to sell close to $100 billion of TIPS - that compares with $58 billion in 2009.

Read the Financial Times today as well:
Quote:
Bankruptcy could be good for America
By Gideon Rachman
Published: January 12 2010 02:00 | Last updated: January 12 2010 02:00

http://www.ft.com/cms/s/0/4d329870-ff1a-11de-a677-00144feab49a.html?nclick_check=1
High Seas
 
  1  
Reply Tue 12 Jan, 2010 12:54 pm
@High Seas,
P.S. the link seems to require registration unless user is logged into the FT database, so here's the complete text of this article:
Quote:
Bankruptcy could be good for America

By Gideon Rachman

Published: January 12 2010 02:00 | Last updated: January 12 2010 02:00

In Winnie-the-Pooh , there is a significant moment when the bear is asked whether he wants honey or condensed milk with his bread. He replies "both". You can get away with this sort of thing if you are a much loved character in children's literature. But it is more problematic when great nations start behaving in a childish fashion. When Americans are asked what they want - lower taxes, more lavish social spending or the world's best-funded military machine - their collective answer tends to be "all of the above".

The result is that the US is piling up debt. A budget deficit of about 12 per cent of gross domestic product is understandable as a short-term reaction to a huge financial crisis. What should worry Americans is that, with entitlement spending set to surge, there is no credible plan to bring the budget deficit under control over the medium term.

The US has formidable strengths that will allow its government to be profligate for far longer than other nations could get away with. But if the US keeps running huge deficits, sooner or later the country will start flirting with bankruptcy. Oddly, it might be best if the crisis came sooner rather than later. For a surprising number of countries, running out of money has been the prelude to national renewal.

The two biggest and most beneficial geopolitical stories of the past 30 years - the spread of democracy and of globalisation - were driven by a succession of states finding their coffers empty.

The background to Deng Xiaoping's liberalisation of the Chinese economy in 1978 was a fiscal and foreign exchange crisis. Finding itself desperately short of cash, the Chinese government was much more willing to embrace heterodox economic ideas that promised to deliver faster growth and higher revenues. The rest is history.

It was the same story when India embraced economic reform in 1991. The Indian government found itself with foreign reserves that were worth just two weeks' worth of imports. The Indians had to send gold to London to secure an emergency loan from the International Monetary Fund. But Manmohan Singh - then finance minister, now prime minister - urged his colleagues to "turn this crisis into an opportunity to build a new India". They succeeded triumphantly.

Or take Latin America in 1982. When Mexico defaulted on its debts in that year, it triggered an economic crisis across the whole continent. But the long-term consequences of that crisis were beneficial. As Michael Reid, author of a recent history, has pointed out, "dictatorships buckled under the opprobrium of economic failure". The Argentine junta fell in 1983; Brazil moved to democracy in 1985.

Disastrous problems with government finances also played a huge role in provoking the reforms that eventually did for the Soviet Union. When Mikhail Gorbachev came to power in Moscow, he was faced with a national debt that almost doubled in his first three years in office. It was those financial pressures that helped to persuade him that economic reform - perestroika - was unavoidable.

By 1989, the whole of the Soviet bloc was struggling under the weight of rapidly increasing foreign debts. Why did the East German government not shoot demonstrators in the streets in October 1989? In large part, it was because it could not afford to. East Germany was on the verge of bankruptcy and desperately negotiating with West Germany for a loan.

These salutary brushes with national bankruptcy do not only happen to under-developed Asian nations, flaky Latin American dictatorships and crumbling communist regimes. The British still shudder at the memory of the UK government having to go "cap in hand" to the IMF in 1976. It was humiliating - but it served a useful purpose. Britain's brush with bankruptcy helped to convince the voters that things really needed to change, and prepared the ground for Thatcherism. France had a similar experience in the early 1980s - when capital flight from the country and collapsing tax revenues forced the government of François Mitterrand to abandon its hard-left policies.

Sometimes, if a government is truly rotten - East Germany in 1989 or France in 1789 - it is a good thing if a fiscal crisis leads to political collapse. But for most normal countries, it is much better to get close to the edge of national bankruptcy than actually to go over the Niagara Falls of sovereign default. As Britain discovered in the 1970s and India found in 1991, looking over the edge can create the atmosphere of crisis that allows governments to win the arguments for economic reform. An actual sovereign default, however, can destroy confidence and trust among citizens and investors for years.

Perhaps the most memorable thing said so far by an official in Barack Obama's administration was the remark by Rahm Emanuel, the White House chief of staff, that "you never want a serious crisis to go to waste". Mr Emanuel was widely condemned for flippancy and cynicism. But an examination of world history over the last 30 years suggests he was definitely on to something. Those much discussed emerging powers, the Brics (Brazil, Russia, India and China) all needed a fiscal crisis to set them on the road to economic reform and national resurgence. America may one day be lucky enough to experience its very own national fiscal crisis. Let us hope it is not wasted.

[email protected]

Copyright The Financial Times Limited 2010.
0 Replies
 
Thomas
 
  1  
Reply Tue 12 Jan, 2010 01:43 pm
@High Seas,
High Seas wrote:
You're looking at the wrong rates: look at TIPS (inflation-protected-securities totalling $600 billion, i.e. accounting for less than 10% of the $7 trillion Treasury market) had a total return of 12.8% over the past year, while nominal Treasury bonds lost 2.2%.

Changes between a year ago and today are old news. They aren't telling us anything about market expectations right now. Judging by the current spread between the yields on TIPS and regular government bonds, the bond market is still expecting low rates of inflation: For 5-year bonds, the yields are 0.19% vs. 2.47%, suggesting an annual inflation of 2.28% expected over the next five years. For 10-year bonds, it's 1.31% vs. 3.71%, suggesting an expected annual inflation of 2.40% over the next ten years. For 30-year bonds, it's 1.95% and 4.62%, for an expected annual inflation of 2.67% over the next thirty years.

In other words, the bond market is expecting that future inflation will remain anchored to its Greenspan-era levels, perhaps even lower. How does that contradict my opinion that the bond market isn't worried about future inflation?

PS: If you are right and I am wrong, you can make a fortune by hoarding TIPS and shorting regular government bonds. So I have to ask: What fraction of your savings have you currently invested in the spread between the two?
High Seas
 
  1  
Reply Tue 12 Jan, 2010 02:32 pm
@Thomas,
Your calculation of interest rates is "not even wrong".

Try to work through your simplistic arithmetic when you write >
Quote:
For 30-year bonds, it's 1.95% and 4.62%, for an expected annual inflation of 2.67% over the next thirty years.

> and see if that works with exponential functions, let alone if it works with a single predetermined sequence of exponents!

Start with relationships between implied forward rates, term structure of interest rates, arbitrage and swaps. You only use simple arithmetic for compounding, but slightly more advanced calculations are involved:
http://elm.eeng.dcu.ie/~ee317/Matlab_Examples/iter/newt_g1.GIF
http://elm.eeng.dcu.ie/~ee317/Matlab_Examples/iter/tutinfo%5B1%5D.htm

Next, try and remember inflation expectations and ex post realized total returns usually differ from the ex ante calculations. I'm really surprised that someone with your education would venture into a subject he knows less than nothing about.
Thomas
 
  2  
Reply Tue 12 Jan, 2010 02:40 pm
@High Seas,
High Seas wrote:
Your calculation of interest rates is "not even wrong".

I'm not surprised, because I wasn't calculating interest rates at all. I was calculating expected inflation.

High Seas wrote:
I'm really surprised that someone with your education would venture into a subject he knows less than nothing about.

And I am really surprised that someone with your education would fail at basic text comprehension.
High Seas
 
  1  
Reply Tue 12 Jan, 2010 02:49 pm
@Thomas,
You write >
Quote:
For 30-year bonds, it's 1.95% and 4.62%, for an expected annual inflation of 2.67% over the next thirty years.

> and really believe you calculated a unique path f0r all the exponents of the implied inflation rate?! Even the stupidest YouTube video on the subject does better than that:
http://www.youtube.com/watch?v=ZPZ9ljWsmDI

I know you personally and have the best memory of meeting you on a few occasions, so don't want to ridicule your posts; I suggest you work out your proposed "calculation" before insisting on it online any more.
Thomas
 
  1  
Reply Tue 12 Jan, 2010 02:57 pm
@High Seas,
Just for comparison: What inflation rates do you think the spread between TIPS and regular government bonds implies? I'm not going to argue about a possible correction to the second digit after the comma. But if you think the spread suggests anything worrying about expected future inflation rates, you're nuts.

High Seas wrote:
so don't want to ridicule your posts; I suggest you work out your proposed "calculation" before insisting on it online any more.

Ridicule away. Just don't be surprised when it reflects more badly on you than on me.
High Seas
 
  1  
Reply Tue 12 Jan, 2010 03:11 pm
@Thomas,
That's just NOT how compound interest works; these are exponential functions, not straight lines. Ask somebody to explain them to you whenever you recover your thinking abilities - or work your way through the links I posted. Bye Smile
Thomas
 
  1  
Reply Tue 12 Jan, 2010 03:17 pm
@High Seas,
So you're chickening out. You're not providing your own estimate of the expected inflation that the spreads between TIPS and nominal bond yields imply. Can't say I'm surprised. Bye. Smile
High Seas
 
  1  
Reply Tue 12 Jan, 2010 03:25 pm
@Thomas,
Well, I hope you recover from the mental confusion that's obviously been afflicting you for a while. Maybe then you'll think to look up "Yields on Treasury inflation protected securities (TIPS) adjusted to constant maturities" (Source: U.S. Treasury). Additional information on both nominal and inflation-indexed yields may be found under "domestic-finance/debt-management/interest-rate/index".

Thomas
 
  1  
Reply Tue 12 Jan, 2010 03:40 pm
@High Seas,
Still no calculation of your own. Still chickening out. Paaaawwwk puck puck puck puck puck....
0 Replies
 
High Seas
 
  1  
Reply Tue 12 Jan, 2010 03:49 pm
@High Seas,
High Seas wrote:

You write >
Quote:
For 30-year bonds, it's 1.95% and 4.62%, for an expected annual inflation of 2.67% over the next thirty years.

> and really believe you calculated a unique path f0r all the exponents of the implied inflation rate?!......

Thomas - truly you've gone overboard. You can't do simple math (see above),
can't do elementary Boolean operations (see here: http://able2know.org/topic/139721-2#post-3862223 )
but you seem to have mastered political correctness, LOL SmileSmile
http://www.consumerfreedom.com/cartoons.cfm?page=2#cartoon129
http://www.consumerfreedom.com/images/cartoons/thumbnails/foodcops_warning_labels.jpg
cicerone imposter
 
  1  
Reply Tue 12 Jan, 2010 04:03 pm
@High Seas,
High Seas, It's expected that inflation will catch up with us sooner or later, and any fixed projections on bond rates cannot anticipate what will really happen - whether on the low or high side. Averaging sounds good, but who knows what bond rates will be five years from now?
 

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