The Next Phase of Wealth Redistribution: Obamacard (with a ‘d’)

            (Note: this is sarcasm.)

Obamacard is the next logical phase of the far left’s grand plan to fully socialize our society.

Here is how it works.  Every year, after you file your income tax return, the government sends you your Obamacard.  The Obamacard is a required to purchase anything in the United States.  Each card will be set with a “Discount Rate” that will be applied to all purchases made by the bearer of the Obamacard.   Here are an example of possible discount rates:

·        If your income tax return shows that you are living at or below the poverty line, you will get an 80% discount on everything you purchase.  That means that your purchasing power is increased by a factor of five.  You can purchase $50 of goods and/or services for $10.

·        If your income is 400% of the poverty line, you will get a 20% discount.  That means that you can purchase $50 of goods and services for $40.

·        For those between 100 and 400% of the poverty line, your discount will be graduated along a sliding scale. 

·        If you are between 401 and 799% of the poverty line, your discount is zero.  You pay full retail price. 

·        If you earn 800% of the poverty line you will have a negative discount rate of 20% (you pay 120% of full retail price).   That means that to purchase $50 worth of goods and services, you will pay $60.

·        If you are above 2,000% of the poverty line you have negative discount rate of 300% (you pay four times the full retail value).  To purchase $50 of goods and services, you will pay $200.

·        For those between 800 and 2,000% of the poverty line, your negative discount will be graduated.

·        Note:  A more preferred method would be to only issue cards with positive discount rates and let the seller of goods and/or services determine the required mark-up to include in their base price so that their overall profit margins remain the same (as the health insurance companies determine the rates to charge on the Healthcare.gov website).  If this method is chosen, we would need to tax everyone making over 800% of the poverty level a federal sales tax of 5%.  This tax revenue would be available to sellers with more low-income customers than they had planned for in their base price calculation (similar to the reinsurance tax of Obamacare).

The extra costs paid by the high earners will be used to pay for the discounts received by the needy.  Every American should be excited to use their new Obamacard.  The card will end poverty in America without having to pay taxes.  Finally, we have a means to redistribute wealth without taxing the rich.

Obamacard is a fine demonstration of America’s ingenuity.  For too long, we have been following the lead of Western Europe on how to socialize America.  Now, through true American ingenuity, we have developed a new method to redistribute wealth without government imposing new taxes.  In fact, the redistribution of wealth is purely voluntary.  If you are one of those individuals with a negative discount rate, you do not have to purchase anything.  It is your choice to buy things.  And, if you choose to buy things, you are voluntarily subsidizing those that receive a positive discount.

Can it pass in Congress?  It does not need to.  It can be argued that everything we purchase has an impact on our health.  Therefore, Secretary Sebelius can issue regulations under the Obamacare law (the Affordable Care Act) to require the implementation of this new Obamacard plan.  In fact, the principles of Obamacard are identical to Obamacare.  So it is truly just an extension of the Obamacare law.

Uh oh: what if there is an individual mandate that requires you to purchase something.   Darn; it seemed so perfect at first.

Now start humming the Twilight Zone tune (do-do, do-do, do-do, d0-do………)

Obama’s Favorability Ratings are Cumulative

            President Obama has hit his personal all-time low in favorability ratings this week.  The low ratings are a reflection of pent up demand.  For too long, Americans have been giving him the benefit of the doubt.  Finally, his performance is being seen in the perspective that it deserves – incompetence.

Oprah Winfrey claims that his plummeting ratings are a result of racist Americans.  It is a shame that Ms. Winfrey did not state her view of the racist America years ago.  Had she done so, she would not have been made a billionaire by white Americans – and her current comments about race in America would not have been covered by the media.  Yes, Ms. Winfrey, there are still racists in America and there always will be.  However, America in general has out grown racism. Your enormous wealth and Mr. Obama’s presidency are clear examples of this truth.

The first indication of incompetence appeared during the BP oil spill in the Gulf of Mexico.  The President stood by and watched the BP management team handle what was an abomination of crisis management.  The President loves to appoint Czars for many things, but while the BP oil spill dragged on and on, he did nothing.  If ever there was a time to appoint a general or admiral to take over a disaster, the BP oil spill was it.  Unfortunately, the President does not manage proactively.

In the past year, he as stated the following:

·         He heard about the IRS discrimination scandal in the same news reports that the rest of America receives.   The President did not know anything about it and was astounded to learn of the issue.

·         The Benghazi attack was caused by a spontaneous reaction to a hideous video.  It was NOT a preplanned terrorist attack.  The President stuck to this story for weeks while the media told Americans that it was a preplanned terrorist attack.  The President “did not know” has become a standard line for all controversial issues. 

·         Subsequent news reports on Benghazi informed America that people inside the administration knew that the attack was coming.  Yet, the President did not fire anyone for not telling him.  You cannot state “I did not know” and not take actions to correct you ignorance.  By not taking action, you set yourself up for more “I did not knows.”

·         The President “did not know” about the Justice Department’s fast and furious program that flooded the illicit gun dealing market with firearms that, by design of the program, made their way to Mexican drug cartels.  It was not the intentional design of the program, but an unintended consequence was that a border control agent was killed with one of the guns our government placed into circulation.  No one was fired for not informing the President.

·         The President “did not know” about the Justice Department’s wire taping of American journalists.  Nor was anyone fired.

·         The President “did not know” that our fallen military men were not receiving their death benefits during the government shutdown.  Once he did know, he did nothing about it.

·         The President “did not know” that the NSA was spying on American citizens.

·         The President “did not know” that the NSA was spying on the leaders of our allies.

·         During the Republican caused shutdown, the administration went out of its way to make the shutdown more painful than it should have been.  Open air monuments in Washington, DC were shutdown at a cost greater than the cost of keeping the monuments open.  The President did nothing about this.

All of the above “I did not knows” and lack of corrective actions were taken in stride by the American public.  A majority of Americans gave the President the benefit of doubt (maybe he really did not know).  Many thought that the President was incompetent but that he was well intended and therefore he maintained his positive favorability ratings.

Things have changed. The President has stated that he “did not know’ about crucial elements of his own law; Obamacare.

The President did not know that millions of Americans would have their existing health insurance plans cancelled as a result of the new law.  At first, the administration said that those plans were substandard and that the Americans that had those plans would be much better off with a new plan obtained through the Healthcare.gov website.  This story line appears to say: We knew it – but we also knew it was better for those Americans losing their substandard plans.  Once the President became aware that Americans do not like being spoken to in condescending tones, the President blamed the insurance companies.  Then Americans learned that the new law forced the insurance companies to cancel the plans.  Finally, the President (almost) apologized.  The President never said he knew that the plans would be cancelled; even though several interviews with the President’s advisors indicated that the cancellations were part of the overall Obamacare plan to get more people onto the new exchange for risk sharing purposes.  Rather, the President said that the following:

“I am sorry that they, you know, are finding themselves in this situation, based on assurances they got from me.  We’ve got to work hard to make sure that they know we hear them and that we’re going to do everything we can to deal with folks who find themselves in a tough position as a consequence of this.”

The above apology does not indicate the President knew that the cancellations were going to happen.  In fact, prior to this inadequate apology, the President asserted that there was a grandfather clause in the Obamacare law that allowed the cancelled plans to remain in place.  Of course the media educated Americans that the grandfather clause was so strictly written and then supplemented with regulations that no plan could actually qualify for grandfathering.  Somehow, on the President’s signature achievement, he “did not know” that cancellations were coming to millions of Americans.  This “I did not know” was tough to swallow for most Americans.

Not to worry about the cancellations.  The President was going to fix it.  His fix consisted of politely requesting the insurance companies to reissue the cancelled plans (in violation of federal law) for one year.  First of all, one year does not keep the promise the President made.  Secondly, the President “did not know” that his polite request was almost impossible for the insurance companies to carry out on such little notice.  Americans knew his fix was too little, too late.  And, Americans did not view this charade of a fix as well intended.

Then there was the blunders of all blunders; the Healthcare.gov website.  The President claimed that he “did not know” that it was going to crash and burn upon launch.  Then the media uncovered an internal White House email that stated that there were concerns that the website would in fact crash and burn upon its launch.  The email was written one week before the launch.  The email was not between junior staffers.  It was the discussions of senior staffers.  Why did they not tell the President?  Why hasn’t the President fired them for not telling him?

The President’s incompetence has been tolerated for a long time.  In private business, such incompetence would never have been tolerated.  In private business, the CEO is responsible to know (or should have known) about monumental issues facing the organization.  Americans did not apply this rule to the President of the United States because people thought he was well intended – AND (contrary to Ms. Winfrey’s assertions) because people wanted him to be successful.  Now Americans are feeling the reality of Obamacare and they are not sure that the law is well intended.  The cover story of this week’s edition of Time magazine is “Broken Promise.”  I have not yet read the story but I assume it is about the President’s promise that: “If you like your health care plan you can keep it. Period.  If you like your doctors, you can keep them. Period.”  The President made this promise numerous times during his campaigning for reelection and while he was selling the Obamacare law to Americans.  The article may (as I said, I have not read it yet) also be about the broken promise of Mr. Obama’s presidency.  America was longing for a true statesman, a uniting force; someone that could fix Washington.  America now realizes that the promise that was created about Mr. Obama’s presidency was a fallacy.  Yes, Mr. Obama can deliver a great speech – but he cannot manage his way out of a paper bag.  Worse yet he has become the Chief Excuse Officer – “he did not know” and when he finds out, he does nothing.

True CEO’s do know.  When they are surprised, someone gets fired.  Before becoming President, Mr. Obama has held positions of teacher, community organizer, state senator, and United States senator.  Has he ever had to fire someone?  It is very unlikely.  He may truly “not know” that firing people is a part of being a strong leader and manager.

The President’s unfavorable ratings were a long time in the making.  It will be a long time for them to recover – if it is even possible now.  People do not like to be burned more than once and if you count all the “I didn’t knows” and the lack of corrective actions; the President is well beyond his limit of good faith.

Note to Ms. Winfrey: I am not a racist but a concerned American that believes that I have a constitutional right to express my views without being called a racist.

What Will Obamacare do to The Economy?

           Anecdotal information is dripping out of the Obamacare faucet.  Three-hundred-thousand Floridians have had their health insurance cancelled because it does not meet the new Obamacare standards.  Another one-hundred-sixty- thousand Californians have heard the same news.  Story after story tells of some individual learning that their existing coverage is no longer available and their new options are tens or even hundreds of dollars per month more than their old plans.

Last night on Fox news, Megan Kelly claimed to have an IRS bulletin dated from July-2010 that estimated between forty and seventy-percent of individual plans would be cancelled when Obamacare is implemented.  This was estimated to mean that somewhere between ten and sixteen million people will have their insurance cancelled before the end of the year.  These are only the people that purchase health insurance for them selves.

A few nights ago, Kirston Powers of Fox news reported that her health insurance plan (in New York State) had been cancelled.  She went onto the Obamacare website and found a replacement.  She stated that her monthly premium changed from $150 to $290.  Ms. Powers further stated that she is happy to pay more for her health care if that meant that some other Americans would be provided with health insurance at rates that they can afford.  I applaud Ms. Powers for her generosity.  But, she did not decide on her own to make a contribution to the community clinic.  The new law is taking that extra one-hundred and forty bucks a month from her whether she is happy or not.  Furthermore, is it just me, or has nobody else heard of the good stories about somebody having their premiums reduced on the Obamacare exchange?  Yes, I have heard that some people that could not get insurance before, due to pre-existing conditions, have finally been able to obtain health insurance.  That is good.  However, I am thinking that that is where Ms. Powers’ one-hundred-forty dollars per month are going – to cover the costs of the high-risk-new-enrollees. 

When I think about that from an actuarial viewpoint, I think that everybody (on average) is going to have to pay more for the high-risk-new-enrollees.  Is there any other extrapolation that can be made?

  Are things better for employees who get their health insurance from their employers?  Not that I have heard.  There have also been stories of companies informing their employees of large increases to their paycheck deductions for health insurance due to the new Obamacare requirements.  Very large companies that are self-insured do not have to abide by the Obamacare rules, so their employees will not (presumably) see large increases in their paycheck deductions.  At least I do not think so.  But, I do not know.  Do you?

We are rolling out the largest government program in generations (maybe the largest ever) and I do not know where to look for the answers regarding its impact on the economy.  Is healthcare going to cost every worker more – while more Americans get free health care?  Where is all the tax money coming from for the health care tax credits being given to anyone earning less than 400% of the poverty level?  Will the smaller paychecks result in an economic slowdown?  And, at this point in our non-recovery, recovery; will this added slowdown be enough to push us into another recession?

I watched the White House daily press briefing yesterday and heard The President's Press Secretary, Mr. Carney, admit that, yes, some people (contrary to the President’s promises) will not be able to keep the health plans that they were happy with.  However, Mr. Carney pointed out that the plans involved were inferior and that, in the long run, the people that lose those plans will be better off.  Really?  Who makes that choice for the individual – the President, our government, the insurance companies?  Whoever the decision maker is; are they considering what the individual can afford? Or; what each individual wants to purchase?  Maybe when we are nearing sixty years of age, we do not want maternity benefits or free contraceptives.

By the way, those poor employees at the self-insured companies will be stuck with what the President’s spokesman, Mr. Carney, has stated to be inferior health insurance plans.  But, they will not have to pay more for them.  Nor will hey help shoulder the cost of the high-risk-new-enrollees.  You see; the really big corporations (that are self-insured) and their employees are exempt from Obamacare.  Therefore, the individual purchasers and the small to mid-sized businesses of America are shouldering the load.

I am very confused by the slow drip of anecdotal information.  Please somebody provide a macroeconomic impact statement of what this new law is going to do to us.  When I extrapolate the anecdotal information on my own, I do not see a happy ending.  Am I wrong?  I hope so, but nobody is talking.  Is this not the eight-hundred pound elephant in the room?

Republicans Look Angry

            This week’s congressional oversight hearings on the Obamacare website debacle provided a lot of theatre but no answers.  I particularly enjoyed the one Democrat Representative that called the event a “monkey trial.”  He was pretty close in his assessment of the hearing.  The underlying problem of the failed website was never uncovered, a timeframe for fixing it was not drawn out, and no one was identified as accountable.  What was the purpose of this hearing?

The only result of the hearing was the Republicans ranting that the failed website is symbolic of the entire Affordability Act – which they claim is not ready for prime time.  The Democrats on the other hand spoke of the wonderful outcomes many Americans are experiencing.  The Democrats provided anecdotal accounts of constituents with pre-existing conditions finally being able to obtain affordable health insurance.  The Republicans provided anecdotal accounts of people having their monthly rates being doubled and tripled.  The man on the street watching this hearing walked away not knowing whether Obamacare is a good thing or a bad thing.  What that man on the street did walk away with was a perception that the Democrats were optimistic and willing to “fix it not nix it” and the Republicans were angry, pessimistic and ready to pull the plug.

The entire Republican caucus (Senators and Representatives alike) need to hire a public relations firm.  This PR firm should hold a mandatory meeting every Wednesday night for all the Republicans to attend.  At that meeting, a review of the past week’s performance should be reviewed.  All the PR firm would have to do is show a few clips of news footage that depicts how angry the Republicans appear.  Then, the PR firm can offer an example of how the same message could have been delivered without appearing so negative.

“If we delay the implementation of Obamacare by three months we should be able to make it more successful” sounds so much better than “This whole program is a debacle and it must be delayed until we can figure out whose head has to roll.  We should also consider repeal and replacing the whole thing.”

The mid-term elections are only a year away.  It’s time for a kinder, gentler Republican Party to take center stage.  Principles do not need to be compromised – but the message has to be delivered much better than it is now.  Let us not forget how the message was sent and received during the 2012 presidential election.  Do the Republicans really want to alienate the majority of voters again?

The Obamacare Website is a Trojan Horse

           The website is not the story.  If the website never works – who cares, fill out an application, mail it to the Obamacare administrator, they will mail you back your options  You pick one of the options, mail back the form and wala, you have Obamacare insurance.

The website does demonstrate just another case of the administration’s incompetence but it will not have dire consequences for the Affordability Act.  I am a techie and (only from the news sound bites) I believe that the problem with the site is most likely, the attempt to validate each applicant’s income.  I do not know how they do it, but my guess is that they are taking an applicant’s information and querying the IRS’ database AND states’ databases.  The IRS database has old information with regard to an individual’s income.  Businesses only file once per year reports on each of their employees’ earnings.  The states, however, have quarterly income reports on each employee.  At least in Pennsylvania where I conduct business, I have to file a quarterly unemployment tax return that lists each employee by name, with their earnings.  A web server (the computer that hosts the Obamacare computer system) has to go out and request individuals’ income verification information from various sources.  The webserver may have been designed to handle all the volume of traffic that Obamacare is generating – but have the states systems been designed for the same volume?  If this is the problem, the answer is easy, replicate the states’ data onto the Obamacare web server.  Wala, problem solved.

But the website is NOT the story.  No matter what the technical problem is – it can be fixed.  The story is the hundreds of thousands of Americans that are receiving letters from their current health insurance companies telling them that there existing insurance plans are no longer valid under the Obamacare rules.  Obamacare requires that you get free contraception, free mental health benefits, and other benefits that you did not have in your old plan.  So you can now upgrade to the new Obamacare compliant plan.  AND, it will only cost you double what you used to pay.

This is the story. Senator Manchin (Democrat from West Virginia) stated that: “Affordable (in the Affordable Care Act) was not supposed to mean you pay more and get less.”  Yes, if you do not want the extra benefits Obamacare throws in, and your deductible goes up, you are getting less – but paying more.

Remember the sales pitch from the President?  “If you like your existing insurance plan and you like your existing doctors, nothing will change. Period!  End of Story.”  We should also remember Representative Pelosi’s statement: “Everyone will pay less for health insurance.”  Three-hundred-thousand people in Florida having been told that they can no longer have their existing insurance plans.  The same has been reported for one-hundred-fifty-thousand people in California.  This is just the start of such notifications.  There is a very good chance that Obamacare could result in less people having health insurance NOT more – as the President promised.  At the very least, the average cost for American health insurance will significantly increase.

Representative Pelosi was more accurate when she said: “We have to pass the bill before we will know what is in it.”  She was right – and now we are finding out what is in the bill.  And, it is not pretty.  I was aware that the Medicaid role was supposed to be expanded by 30 million.  Bit, I did not know that there were going to be subsidies to individuals that make less than 400% of the poverty level.  How much more debt can we afford?

Back to the website: if you were looking to purchase a car, would you not consider a Ford because their webpage was temporarily unavailable?  The cars are great, who cares about the website.  In Obamacare’s case, the product is flawed – so who cares about the website.

The administration is probably very pleased that the website is so horrendous.  The news coverage of the website is the Trojan Horse covering up the real story – that the Obamacare product itself is severely flawed.

With all that negativity about the website and the Affordable Care Act stated.  I have one surprising observation to add.  I do not believe that the Affordable Care Act should be delayed.  The uncertainty of whether or not this law will ever become reality, and what its actual impacts will be, have been the main driver of our jobless recovery.  We need to implement Obamacare so we know what it is, fix it, and allow businesses to figure out how to run their businesses (and hire people) in this brand new world.  It is not going to be a smooth ride – so let us get it over with as soon as we can.

Does the Tea Party Diminish the Republican Brand?

         You bet it does!

The day after the government shutdown was ended and default on our national debt was avoided; Bing.com’s headline news story was of “Civil War in the Republican Party: Business Versus the Tea Party.”  The story noted that the Tea Party was planning to target every Republican running for reelection in 2014 who had voted for the bill to keep our country solvent.  The story also noted that the National Chamber of Business was going to support those moderate Republicans against any Tea Party preliminary challenger.

Just the fact that there will be unnecessary, hard-fought preliminaries will hurt the Republicans’ chances in the general elections.  In addition to squandering money that would be better spent fighting their Democrat opponents, the blood drawn during the primaries will hurt the Republicans.

But, the real damage to the Republican brand is the no-compromise, my way or the highway reputation that it now carries.  The Tea Party is proud of this reputation – but it is not how Americans want their government to work.  It is exactly the cause of our government not working.  While the Tea Party attempted to portray President Obama as intransigent during the government shutdown, most Americans saw the Republican Party as the obstructionists.  The polls do not lie.  Republicans have been damaged.  Unfortunately, most Americans do not understand the difference between the Tea Party and the Republican Party.  How could they?  The Republican Party has allowed the Tea Party to take control of the Republican Party.

It is the Republicans’ Shutdown but it will be the President's Default

            Senator Cruz and the Tea Party bear full responsibility for the government shutdown.  To attempt to alter Obamacare using the measure of putting hundreds of thousands of people out of work was wrong.  However, the President owns the financial default – should it actually occur.  The President also owns any credit downgrade that will most likely occur whether or not we default.  The recession that will follow will also be the President’s recession.

The President should not have been fear mongering over the possible default.  Instead he should have stated, long ago, that he would issue a Presidential Order to assure that the 14^th Amendment of the Constitution is not violated (that amendment requires that all debt and obligations of the United States shall “never be questioned”).  Yes, the Tea Party would have yelled “Constitutional Crises” but the American people would have backed the President.  The House of Representatives probably would have gone so far to impeach the President.  But the Senate would not have ratified such an impeachment.  In the end, the President would have saved the United States from the embarrassment that is playing out across the world.

The President also owns the default and/or credit downgrade because HE IS THE PRESIDENT OF THE UNITED STATES.  He should be a leader that, when necessary, slaps heads to get things done.  The President deliberately chose not to lead so that the Republicans could dig them selves such a large hole that they will be rendered impotent in future negotiations.  The President will most likely succeed in his political motives of splitting the Republican Party.  It is a near certainty that Speaker Boehner will allow the senate bill to be brought to the floor of the House for a vote.  The Speaker will courageously break the “Hastert Rule” that a majority of the majority must support a bill in order to bring it to a vote.   Then, the senate bill will pass with all 200 Democrat House members and some Republicans; but with no Tea Party members.  The split in the Republican Party will be etched in stone by this vote.

Congratulations, the Republicans are in retreat.  No thank you for America’s retreat.  Americans are now looking forward to all of this repeating during the Christmas holidays.

The Obvious Shutdown/Fiscal Solution

            The House of Representatives went home to enjoy the three-day, Columbus Day holiday weekend.  The Senate stayed in Washington and attempted to reach a compromise on our national budget and our national debt ceiling.  The absence of the House of Representatives was accompanied by the absence of vitriol rhetoric from the far-right Republicans.  It felt as if a cease fire had been agreed to – the Democrats and the Republicans were actually talking to each other.

That perceived cease fire gave the hope that cooler heads might prevail.  And, Senators Reid and McConnell were working feverishly to do just that.  Then our Representatives returned.  They immediately went to work and passed a bill that includes items that they know the President will not accept.  The bubble of hope came to an end.  Our Representatives are back and so is gridlock.

It does not matter anymore.  Politicians have already pushed us back into a recession.  The credit agencies will no doubt lower our credit rating.  On August 5, 2011 Standard & Poor’s lowered our debt rating and listed the items that would cause another credit lowering.  Congress and the President have fulfilled every one of those items (see previous blog).  The difference this time is that the Chinese, who are estimated to hold $2 trillion of our $17 trillion debt, are seriously considering parking their money in Euros rather than dollars.  This time, interest rates will rise.  This time the fragile recovery will be shaken.  And, worse of all, this time is again setting up another next time – in three months.

Both the Senate and the House’s bills fund the reopening of government until mid-January, and raise the debt ceiling into February.  Neither bill does anything to address our fiscal problems other than to pledge (yet again) to solve those problems before the next deadline.  Haven’t we seen this movie?  Is there ever going to be a happily ever after?

The solution is so simple and obvious that the vast majority of Americans know what it is – and they want it.  The solution is:

Pass a bill that states:

o       We must create a trajectory to a balanced budget.

o       We have to get to that trajectory through a reduction in spending of $2 for ever $1 of new taxes. (Assuming that we are spending $1 trillion more than we take collect in taxes each year, this means, $667 billion of spending cuts, and $333 billion of new taxes.)

o       Until the specifics of spending cuts can be agreed to so that strategic cuts can be made (funding items that promote economic growth, while not causing too much pain to the needy as the Democrats say they can do), across the board cuts (like the Sequestration) will continue.  However, they may need to be even deeper than the Sequestration to obtain the needed savings.

o       Until any tax reform plan that may close loopholes, reduce marginal tax rates and still somehow raise revenue (as the Republicans say they can do), taxes will be raised on every American making more than $100K by whatever percentage is needed to obtain that $1 of revenue for every $2 of spending cuts.

There, that is it.  It is simple.  It addresses the legitimate concerns raised by Standard and Poor’s.  And, until our politicians can work together to come up with a more thoughtful solution, it provides a crude solution.  The crude solution provides the incentive for Democrats and Republicans to work together on a better solution.  What this solution does not include is another deadline.  Instead it creates a constant low-level headache that Congress can make better.  Congress can make the headache a little better, but it cannot eliminate all of our pain.  We have created a mess of our fiscal house and it is time to pay the reaper.  The good news for Congress is that Americans know the problem – and are willing to compromise (which will mean equal sacrifice for everyone).

The above solution purposely leaves the details for later – but it defines the fiscal end-game.  The insanity of not defining the end-game (as is done in the currently proposed dueling bills) does not provide any confidence in our great nation.  Standard & Poor’s have already told us that the fiscal end-game must be agreed upon.

The sacred cows still need to be dealt with; the Democrats sacred cow is entitlement programs; the Republicans sacred cow is taxes.  The vast majority of Americans know that these sacred cows have to be adjusted.  The vast majority of Americans fully understand mathematics.  The above solution is the articulation of every American’s hope.

United States Sovereign Debt Credit Watch

            On August 5, 2011, Standard and Poor’s (S&P) lowered the long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA'.  S&P released the following statement to support their downgraded credit score:

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”

Standard & Poor’s August 5, 2011, statement could be copied and pasted into a new press release today, tomorrow, or next week.  Unfortunately, we have made no progress since August 5, 2011.

“…the fiscal consolidation plan that Congress and the Administration recently agreed to falls short…”  That plan was the Sequestration plan that included across the board spending cuts that the Democrats now want to reduce.  In addition, the Republicans (and some Democrats) are pushing for a two year delay in the medical device tax. 

 “…the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened…”  The current gridlock in Washington makes the gridlock of August, 2011 appear like a period of bi-partisanship.

“…we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic…”   This is one area where the view has most likely not changed.

“…The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory…”  Less reduction in spending is exactly what the President is pushing.  Higher interest rates have already occurred in the short-term bond market as concerns over default have been heightened.  A higher general government debt trajectory will most likely occur as a result of the increased spending, reduction in taxes, increased interest rates and the increased cost of the Affordable Care Act.

There is no more to be said.

Congress Took the Weekend Off

            Yesterday I blogged that nothing short of a bill signed into law before 9:30 AM EST Monday could rebuild the market’s confidence sufficiently to prevent a massive sell-off.  Well Monday is Columbus Day; which makes this a three-day, holiday weekend.  And guess where the members of the House of Representatives are?  They are at home, enjoying the long weekend while our government is shut down and our national credit card is about to hit is max out.  Yes, they will get paid for the holiday as workers in the hospitality industry near our national parks are laid off due to the inability of tourists to visit.

The Senate stayed in Washington this weekend.  The Senators should be thanked for their honest effort.  However, the story is not about the Senate.  Everyone knows that the Senate has the decorum to work in a bi-partisan manner.  The headline of the weekend is that talks between Speaker Boehner and President Obama have broken off.  The House will not be open for business until Tuesday afternoon and Treasury Secretary Lew has told us the United States will no longer be able to borrow any money beginning on Thursday, October 17^th.

Emotions between the Tea Party members of the House and the White House are raw.  The House needs one more round of venting their frustration before cooler heads will prevail.  That means no bill can become law until Thursday at the earliest.  That is the best scenario and it butts way too close to the deadline Mr. Lew established.  The credit rating of the United States will be lowered yet again.

Last time we had a raise-the-debt-ceiling fight (August, 2011) Standard & Poor’s (S&P) lowered our credit rating from AAA to AA+. S&P lowered the rating four days after Congress had passed the bill to raise our debt ceiling.  The other two rating agencies, Fitch Ratings and Moody’s did not lower the United States rating – they continue to this day to rate the United States credit with a triple-A score.  However, both Fitch and Moody’s did change their outlook on the US credit rating from positive to negative.  Moody’s did this on 6/2/2011 and Fitch did it on 11/28/2011.

It will not take until four days after the eventual bill that raises our debt ceiling for Fitch and Moody’s to lower our credit score.  If you are an investor, you should have taken all your money out of the stock market on Friday when the White House delayed their daily press briefing until after 4PM so that their bad news would not impact the market.  They were hoping to create good news over the weekend so that the markets would not crash and burn.  Have you heard any good news?  No good news most likely means Fitch and Moody’s have to lower their score before Thursday comes.

The previous blog entry describes why Congress’ inability to function will have a devastating effect on a county that is about to implement the largest social program since Medicare – and the most complicated ever.  Washington’s inability to function in a time of great change portends huge problems in the market without the ability to make the necessary policy adjustments to maintain a stable market.  We deserve to have our credit rating lowered – and it will be soon.

I hope the Representatives have a very happy Columbus Day.

 

Focus is on the Senate – Are You Joking?

            Fear is creeping in.  To allay this fear, the Senate is pretending to be taking over the shutdown/debt ceiling negotiations.  An attempt to strike a bi-partisan deal (in the Senate) before the markets open up Monday morning is now under way.  Who cares if the Senate develops a bi-partisan plan?  The President has bloodied the noses of the House Republicans and they are holding a grudge.  They may be putting their egos ahead of what is good for America – but that is where we are.

Furthermore, the markets have already been spooked.  Nothing short of a bill signed into law before 9:30 AM EST Monday can rebuild the market’s confidence in the United States government.  Nobody knows what problems will be caused in the economy due to the implementation of Obamacare – but everyone knows there will be problems.  Does anybody have confidence that our government can take the steps necessary to mitigate any economic damage or to correct the unfairnesses that are sure to be found during Obamacare’s implementation?  No!  Everybody expects the problems to be used as headlines for the “I told you so” stories and then used as bargaining chips to whittle away Obamacare – not to help settle out market disruptions.  Our government is broke.  This is not an atmosphere that promotes economic stability.  Forget about economic growth.

The above paragraph predicts despicable behavior; behavior that would put a politician's ego ahead of what is good for America.  Hmm, sounds like what the Democrats have done the past two weeks with the Republican created government shutdown.  Could anyone have imagined that the families of our fallen military personnel would be used as political pawns?  Just imagine the politics that will be played with Obamacare's implementation.  Maybe a drastic social change such as Obamacare should not be rammed through without bi-partisan support.

The Tea Party has one more punch to throw before they get knocked out.  They will say that the President said he would negotiate; they were prepared to negotiate – but the President reneged on his promise to negotiate.  With their egos clinging on the ropes, the Tea Party will make one more attempt to somehow diminish Obamacare.  They will pass a bill to reopen the government and to increase the spending limit – but that bill will include some restraint on Obamacare.

Poor old Speaker Boehner will have to allow one more stupid vote on yet another stupid bill.  He has to do this so that the Tea Party finally hears the roar of America’s outrage over their self-righteous insensitivity.  Those roars will be heard, the Tea Party will let go of the rope and fall onto the ring.

After this one last Tea Party indignity, Speaker Boehner will hold a vote on whatever bi-partisan plan that the Senate has developed.  The bi-partisan bill will pass in the House with all the Democrats (200) and slightly more than a majority of the Republicans (only 17 of the 235 are needed).  The vote will identify which Republicans will soon leave the Party to officially form their own Party.  The Tea Party will become an official party in American politics.  Then it will experience a slow death over the next five years and vanish.  The will be remembered as the 21^st century’s version of the Bull Moose Party.  During these five years, the Democrats will govern with moderate Republicans and progress will be made.  The kinks in Obamacare will be ironed out in a spirit of cooperation within this new coalition.  (Contrary to the predictions above that assumes the Tea Party stays entrenched within the Republican Party – which of course is more likely.  Please allow me to daydream into some fantasy world of optimism.)

Continuing my optimistic fantasy:  The Republican Party will grow in numbers as the moderate conservatives who have been dismayed with the Party’s dance to the far right will come back home.  Eventually, the Tea Party will learn of the need to compromise and will rejoin the Republican Party as well.  This situation will make it difficult for the Republicans to win the presidency in 2016.  That means that the Democrats will appoint several new members to the Supreme Court.  A strong majority of liberals on the Supreme Court is not good.  Maybe the new coalition will agree to more moderate appointments.  I hope so.

Consider the above discussion the spaghetti map of possible hurricane strikes.  The spaghetti lines show that the damage may be in one area or another – but damage will occur.  That is where we are; economic damage is guaranteed, how it unfolds is yet to be determined.

The Shutdown-Showdown and the Cruzification of the Republican Party

            Whoever coined the term “Cruzification,” congratulations!  It captures the Republicans conundrum.  However, there is noting Christ-like about the Republicans behavior.  The Cruzification the Republicans are about to endure is their own fault.

Here are the priorities that the President is addressing during the current debt-ceiling/shutdown negotiations: 1) the American people, 2) the world economy, 3) our long-term debt problem, 4) maintaining Obamacare on its current course, 5) assuring that he never has to submit to the Tea Party’s demands again.

The Republicans first stated that their only priority was to kill Obamacare.  This position caused the government shutdown and the Republicans favorability ratings fell to historical lows.  The Republicans then decided that all they wanted was to negotiate with the President.  In turn, the President said he would negotiate only if the Republicans pass a no-strings-attached continuing resolution (to reopen government) and a no-strings-attached increase to our debt ceiling (to allow the United States to borrow the money it needs to keep spending more than it taxes). 

The President’s “no-negotiations” and the Republicans “we just want to talk” was last week’s standoff.  Americans were rightly frustrated.

To cool down the situation, the President said he was willing to talk to the Republicans.  The Republicans took this to mean that the President was willing to negotiate – he is not.  The President re-affirmed that he will only accept clean (no-strings attached) bills to reopen government and to raise our debt limit.  The President has been very clear that he will not discuss other issues until after the passage of these clean bills.  If the Republicans would offer solutions to our debt and spending problems, the President would probably consider them.  However, the Tea Party cannot control themselves and they will surely push for a major slap-down of Obamacare.

The Republicans have not been listening to the President.  They (or at least the Tea Party) believe that they are now negotiating.  Republican Congressmen are drafting legislation to define the strings they want attached to the bills.  Unfortunately, there are ideologues in the Tea Party that do not understand public opinion, do not understand that they are hurting America and do not care.  They believe that their cause is so pure that they are doing what is right for America.  It would appear that the title “Tea Party” is a synonym for self-righteousness.

Next week the Republicans will state that the President has reneged on his offer to negotiate – when he never offered to negotiate.  The Republicans will allow themselves the delusion that they are right and that the President’s “not negotiating” will “poll” well for the Republicans.  The Republicans do not get it – Americans do not care about the sausage making.  Americans just want solutions.

The President could have achieved all his priorities except his last priority (removing the Tea Party’s influence) through the normal course of business.  However, the Republicans did not want to follow the normal course of business.  They wanted to inject Obamacare into the budget and debt-ceiling bills.  This gave the President the opening he needed to cut the legs out from under the Tea Party (and the Republicans).

Americans are blaming the Republicans for the government shutdown and for the potential to default on our debt.  Therefore, the President is holding all the cards.  He can push this battle right to the edge of the cliff and wait for the Republicans to blink.  Unfortunately, the self-righteousness Tea Party Republicans will not blink.  The stock market will drop two-thousand points, Americans will be distraught and the Republicans will be rendered impotent.

Another possibility is that Speaker Boehner will blink before this catastrophe occurs and allows a vote to be taken in the House.  If so, enough Republicans (and all 200 Democrats) will vote for the President’s “clean bills.”  Either scenario will split the Republicans along their intra-party lines; Tea Party versus non-Tea Party members.  The Republicans will not reunite after this event and by default; the Democrats will be the majority in the House.  There will no longer be a divided government – just a divided party.  The Tea Party will never again be able to hold the President “hostage.”

The President can do this because he also has another card up his sleeve – the Executive Order card that will prevent the United States from defaulting on its debt.  The President has repeatedly stated that he does not hold such a card – but he does.  He just doesn’t want anybody to believe that he would use it.  After all, his priority is to tear apart the Republican Party.  So after the market crashes but before the United States defaults on its debt, the President will use the Executive Order card.  The sun will rise in the East the following day and the President will be sitting on solid ground.

The President knows very well that the entire country will support him if and when he issues an Executive Order to assure that the 14^th Amendment of the Constitution is not violated.  That Amendment states that the debt of the United States shall not be questioned.  This will result in some Tea Party Republicans accusing the President of violating Article 1, Section 7 of the Constitution that requires the House of Representatives to appropriate all funds to be spent by the federal government.  The media will sell their products by claiming that we are experiencing a “Constitutional Crises.”  The Republicans will impeach the President in the House of Representatives.  The impeachment will not be ratified in the Senate and, in the end, the American people will think even less of the Republicans then they do now (if that is possible).

One way or the other, the Republicans will lose this fight (actually they have already lost).  The world economy will lose as well.  Even though the United States will never default on its debt, just getting close to the possibility of default will cause another lowering of America’s credit rating.  This time, the lower credit rating will result in higher interest rates.  The government shutdown will also impact economic growth.  The combined effect of the shutdown imposed slowdown, and higher interest rates will push us back into a recession.  With the rest of the world economy so fragile, the American recession will have a domino effect on the rest of the world.

The President must be assessing the very situation that this blog describes.  If so, he must be calculating that the power that he will derive from the decimation of the Tea Party will be so enormous that he will be able to push through legislation to rescue the economy - can you say stimulus number two?

It is so frustrating to watch the silliness in Washington – especially when you know how it will end.  Unless; a Republican leader will stand up and reign in the Tea Party.  Or, Senator Cruz stands up and capitulates.  Assuming Senator Cruz will not capitulate, another Tea Party leader (say Senator Paul) could make a speech that sends the message that it is okay to let the clean bills go through without any Obamacare stipulations at this time; one of those “live to fight another day” speeches.