Our country, whether people are willing to admit it or not, has deep structural problems that require deep thinking and broad support to solve them. For decades both parties have presided over the emergence of these structural problems and their only solution has always been to throw more debt at it.
I said it before the election and I say it again: Neither candidate and neither party has shown any willingness or capability to address any of the structural problems we face.
They market solutions to fight the symptoms, but not the root causes and in the end accomplish little.
Under Republicans and Bush we ended up with a doubling of the debt and the financial crisis in 2008. Then Democrats presided over another $10B in debt accumulation and $4 trillion in central bank balance sheet expansion with a meager rise in real wages and consumers taking on record debt while all income and wealth benefits went to the top 1% resulting in vast further increases in wealth inequality. Yes things looked better on measures such as unemployment but it was paid for with massive accumulation of debt and artificially low rates. The election of Donald Trump under the banner of populism serves as evidence of the underlying discontentment.
So now Republicans are back in charge and are claiming competence and a willingness to “fix” things. Really? Are they really?
Take health care as an example. The promises given were outlandish, everyone will have coverage, premiums will go down, taxes will go down, Medicare will not get cut and it will be a “beautiful picture”. Sorry folks, but that was all nonsense. Aways has been and if you fell for it you got suckered again.
There is no magic bullet, there is no magic plan, there is only structural reality. And this structural reality says our demographic wave along with our for profit oriented health care system demand certain compromises.
The health care industry is interested in profits first, everything else is secondary. Health care is the field they are in, but they are in the business of profit. Hence, while the developed world has national health care systems with coverage for everyone the US does not. Never had and while Obamacare was a meager attempt at creating one it was fought in every way possible by industry lobbying groups who wanted to protect their profit margins. I get it. Covering people who are a net loss for the industry is counter to quarterly profits. Ultimately Obamacare ended up being a very flawed compromise, but it managed to get millions of uninsured to have insurance.
Indeed while the cost of health care is rising dramatically everywhere in the world it is the US were the costs of medications and treatments are more expensive than anywhere else in the world:
There are many reasons for this, but I can tell you one contributing factor is this:
Big time pig time. It used to be people entered the medical field because they actually wanted to help people in need. Some still do of course, but it’s all about the mighty buck, especially for insurance companies. What is insurance at its root? It’s to provide a coverage pool so people who are faced with an emergency don’t end up getting ruined. Now it’s about squeezing the most bucks out of people by avoiding paying out when possible and to not cover people who are at most risk. Basically making the most money while avoiding providing the services you advertise as much as possible. Swell.
The medical industry is difficult and problematic everywhere, but with its ballooned costs Americans pay much more than people with national health insurance systems and often enough can’t claim they get a lot more as a result. Americans are faced wth an obesity and drug abuse crisis (legal and illegal) and life expectancies for certain age groups are actually regressing. Americans have not gotten healthier over the past few decades yet they spend more for health care and one could certainly make the case that these trends are intertwined.
I use costs as an example and certainly the European health care system has its own issues. Demographics make it a big time challenge everywhere as it is.
But the larger point is this: The US health care insurance system is a complex mess, it’s pricey and the US being a country with a child poverty rate in excess of 20% has major issues in ensuring health care access to its citizens while professionals in the industry are enriching themselves in degrees many Europeans equivalents can only dream of. And let’s be very clear: Access does not equate coverage. In fact, the system is so skewed economically that medical reasons are the number 1 cause of bankruptcy in the Unites States. Getting ill or falling victim to a disease can financially ruin you. A horrid reality about the US health care system. And sadly, many people are perfectly ok for others to suffer that fate.
And with baby boomers retiring and getting old there is an avalanche of millions of older people requiring treatment and care for years to come further straining a system that is already vastly underfunded.
And so, in context, what the new administration actually proposed was actually quite revealing in its intent. What was the intent? Well, precisely the opposite of the promises made. Premiums would go up big time for older people especially, Medicare would get cut by $880B, up to 24 million could lose insurance altogether and the notion of tax credits to use for people who have hardly any income is an intellectual insult. If you make only $20-25K a year (if that) you wouldn’t even have enough taxable income to make use of the tax credit. It’s all BS. That’s the clear message. There are many articles on all this and the CBO analyzed the consequences of the bill proposal, but the gap between the promises made and the details offered instead is pretty glaringly wide.
Was what was proposed better than what existed before? I took a shot at the answer here.
Who would have benefitted? The insurance industry and of course the 1% who will see the most tax benefits from the reversion of Obamacare related taxes. Populism at its finest. Yet even this was not enough for certain forces in the Republican party.
And so this first attempt at major legislation by the new administration failed miserably. But this failure highlighted some important realities:
Republicans were not going to make it better for you, the citizen. And Americans realized this and hence they rejected it and consequently it created a big divide among Republicans. See, despite all the hate you see on the internet Americans are not stupid and they saw this health care bill was going to shaft them and they made their discontentment heard.
And now the pressure to produce results will grow exponentially. After all the mid terms are coming next year and the survival instinct will start taking over.
Health care was the first big promise and it produced nothing and it was not going to structurally improve anything. If anything it would’ve widened the wealth gap furthering its current form.
Now you’ll hear a lot about tax cuts to come. It’s the new QE carrot that’s dangled in front of everybody.
I have no idea how this will turn out, but know that before tax cuts can even be agreed upon there’s this little issue about the debt ceiling and an actual budget with revenue projections and actual cuts that need to be hashed out.
Currently the Treasury department keeps spending cash to keep the debt ceiling flat, but the Treasury department will run out of cash and Treasury Secretary Mnuchin is already on the record saying that it needs to be increased.
His boss had some things to say about that very topic just a few years ago:
If you haven’t noticed by now there is an ever widening gap between rhetoric and reality. It’s easy to make promises:
Do tax cut & infrastructure related tweets carry the same currency? pic.twitter.com/j3rAtrYRY2
— Sven Henrich (@NorthmanTrader) March 24, 2017
It’s much harder to keep them, and the tweet above went after the core question raised in this post: Doubt.
I don’t know when and how people will realize that the promises where indeed empty, but everything so far, from health care, tax cuts, etc. is all geared to even further widen the wealth gap that already exists and continues to widen. People have piled a lot of money into expensive stocks based on certain promises made including 4% GDP growth and “massive” tax cuts. I continue to believe that once reality sinks in people may develop second thoughts and doubt and there will be a lot of money trapped at very high P/E levels that will seek to get out.
I repeat: Neither party has shown a willingness or capability to address the big structural realities we face as a country. And to be fair the problems may only be solvable via massive realignment. But as long as low interest rates, courtesy of the Fed, are permitted to sustain artificial high debt loads both parties are able to get away with accomplishing little on the structural front.
Ultimately the math will force their hands. And doubt, while not yet clearly present in equity markets, is already very much present in the polling:
My premise: You can’t pass any broad based legislation benefitting the top 1% with this lack of broad based support. If anything, you need to be bold and reach across the isle in a big way to create policies that benefit the many and not the few.
Yet I see zero evidence in the current political climate for any of this to happen or ever happening.
Instead all we see is drama of some sort every single day. I don’t need to point it out, you know what I am talking about. But drama can serve a purpose. As long as everyone is engaged in talking about drama there is no time or need to talk about substance and real solutions. And hence drama becomes method. And ever more drama is needed to keep folks distracted from non existent substance. So I fully expect more of it to come.a
In the Final Wave I described the latest charting evidence for why we believe we are in the final phase of the bull market. As I said at the beginning: Our country has deep structural problems that require deep thinking. Does anybody see evidence of deep thinking anywhere? Or even a debate on how to address them? Can a country solve its structural problems without an objective debate and well designed solutions to solve them?
I doubt it.