Obama's Promises Unravel on Obama Care

President Obama sold the Affordable Care Act aka Obama Care to the American people based on four promises. To gain public support for his landmark new entitlement, lacking bi-partisan support and whose content was unknown, the President pledged:

1) If you like your current insurance you can keep it.
2) If you like your doctor you can keep him or her.
3) The ten-year cost of Obama Care will be less than $1 trillion.
4) Obama Care will not add one dime to the deficit.

All four of these promises have been broken according to the administration’s own experts (See: Health and Human Services, Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended  and Congressional Budget Office-Joint Committee on Taxation, Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision).   His fifth promise – universal health care coverage – has long been forgotten. Government studies find there will be thirty million uninsured after a decade of Obama Care.

go to forbes.com

The New GM: It Should Do Well With No Debt

The new GM reported a profit of $2.5 billion for the second quarter of 2011. This compared to a loss of $15 billion in the same quarter of 2010.

Indeed, the new GM appears to be doing a lot of things right. It has reduced its labor force from 263,000 to 208,000. It operates fewer plants. It made slightly more cars, and it has reduced its buyer incentives.

The Obama administration will use this success story as his major economic achievement. He saved GM with the government’s $50 billion bailout. He did not save the shareholders of the “Old GM.” They lost everything.

There is one fact missing in this optimistic story. The $50 billion bailout wiped out $40 billion of GM debt. It is a lot easier to make a profit if you have no debt payments.

In the second quarter of 2011, GM had no interest expenses. Ford, which borrowed money to stay in business, has around a half billion in interest expenses each quarter. The government bailout, in effect, gave GM a huge competitive advantage over its rivals. Without the bailout, GM would be paying more than $2 billion a year in interest costs.  Its second quarter profit would have been $1.7 billion instead of $2.5 billion.

GM now faces an increasingly bleak third and fourth quarter. If its profit drops to, say, $800 million, virtually all of that is due to the bailout of its debt.

Is GM the success story we are told it is?

It’s Not the Tea Party Stupid: Why the Bond Market Does Not Like What It Sees

Those who blame the kamikaze, hostage-taking tea party for ruining the U.S. credit rating do not see what the bond market sees. The last-second budget deal, which was really about nickels and dimes, underscored two things:

 First, it again revealed a political system unable to address the big issues. And if it tries to address them, it is likely to make things worse.

Second, it shows a nation that is no longer able to grow itself out of fiscal difficulties.

Experts know that the deficit and debt figures tossed around in public discussion are only the tip of the iceberg. The real iceberg is the unfunded liabilities of Social Security and Medicare. Their unfunded liability is how much money we would have to set aside to meet the future obligations of these two programs.  Our national debt, which may soon reach the size of GDP (say $17 trillion), is dwarfed by the unfunded Social Security and Medicare liabilities that may have already reached $100 trillion!

The bond market is looking at our deficits and our unfunded liabilities, and it does not like what it sees.  Moreover, it sees that any and all serious attempts to deal with these fiscal problems impose huge costs on potential reformers.

As examples, I would cite:

The savaging of George Bush’s attempt at the start of his second term to reform Social Security via partial privatization.

The demogoging of Paul Ryan’s plan to salvage Medicare and Medicaid by turning it into an insurance grant program.

The passage of Obama Care under the fig leaf of a deficit reduction plan, with all parties understanding it raises unfunded liabilities.

In the past, we have been able to ameliorate deficits and unfunded liabilities by economic growth. There is now doubt as to when or whether we will return to healthy growth. We have an economy that does not lend, does not take risks, does not buy, and is strangled by regulations. We have an administration that is perceived as anti-business and more interested in redistribution than growth and efficiency. If we are doomed to European-style growth, our fiscal woes will grow worse and worse and worse.

The S&P downgrade speaks to all these concerns. It surely did not help that the Obama administration ordered the free coverage of a wide variety of women’s health costs in its latest administrative guidelines for Obama Care. As more of these administrative rulings come out, the colossal unfunded mandates of Medicare will be better understood.

If things are so bad, you might ask, why is our federal government not already paying higher interest rates? The answer is that although things are bad here, they are worse elsewhere. It is like a marathon with some of the world’s slowest runners. We are running very slow but others are slower.

That’s not the way to win a race – by relying on the ineptitude of others.