Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Thurs 07.30.2009
A One World Currency is Inevitable I know it sounds impossible, but the world is being forced to a point of having to implement a one world currency. Or at least a one world currency among the major economies – maybe Tunisia might escape. Started with the USD. Why do I say that? Well, if you follow the evolution of the USD since roughly the end of WW2, it gradually became the world reserve currency, and that was intended. It started with the Breton woods agreement, and also during WW2 when the European allies currencies were collapsing as Hitler was conquering Europe.
U.S. Dollar Dying, Gold Gleaming Washington’s $2 trillion deficits, record-shattering borrowing by the U.S. Treasury and seemingly endless money-printing at the Fed make a decline in the value of the greenback a virtual certainty. In our view, the only question that remains is the timing: WHEN will the dollar decline begin? To get an answer, take a look at the historical cycle in the U.S. dollar to the right. Note how closely the actual value of the dollar (the black line) has followed its historical cycle based on data going all the way back to 1912 (the red line).
China, Dubai join hands to boost gold trade China, which is emerging as the leader in gold consumption almost beating Indian for the top slot, now eyeing Dubai to boost its yellow metal trade. In an apparent bid to win the numero uno position in gold consumption, China has started exploring opportunities in Dubai. China’s efforts bore fruit when the DMCC participated in the Asia Gold Focus 2009 Conference in Guangzhou, China, where investment strategies for the Dubai gold market was highlighted. At the meet, it was observed that Chinese gold and jewellery manufacturers are increasingly eager to work closely with Dubai-based companies.
Gold Lacks Relative Strength Gold is not going to breakout anytime soon. Its relative strength or lack thereof, is the chief reason. Gold has been rising recently, only due to the positive tide in most markets. In the chart below, you can see that the various ratio charts have formed a negative divergence to Gold. Gold has not only been weak against commodities and stocks but also foreign currencies. On the positive side, the ratio charts have formed a serious long-term positive divergence. Relatively speaking, Gold has bested its 2008 highs in most forms, but not in US dollars.
D-I-V-O-R-C-E price relationship between gold and silver Gold will still be gold, of course, and will remain as it has been since the dawn of civilization, valued by the world's inhabitants for its beauty and rarity. As will silver. Each will exist forever, as they have existed through the ages. Each will rise and fall in price based upon supply and demand and investment flows and the presence (or absence) of manipulation. Nothing can change that. What will change is the price relationship they have shared in everyone's living memory. They are about to begin separate journeys. . . . . . . . . It is the coming end of the silver manipulation that will set silver free to begin its own new price life.
The Coming Market Crash A year ago at Cambridge House when asked whether the economy was going to rebound I responded, "That light at the end of the tunnel is just the next train. Get out of the way!" Another commentator on stage, who helped manage about $10B at the time, responded that things would get better and not to worry. What happened? Lehman Brothers, AIG, Fannie Mae, Freddie Mac, Bank of America, Merrill Lynch, Citigroup, the Adjusted Monetary Base exploded from $800B to $1,800B as the Federal Reserve fails with quantitate easing, unemployment began to soar and the DOW crashed from 12,000 to 6,500 or 13.95 gold ounces to 7.
After the fall The collapse in world trade has stopped, but there is no sign of a recovery WORLD trade has been one of the worst casualties of the global economic slowdown and the source of some particularly startling figures. Towards the end of last year trade all but collapsed. According to the World Bank, the value of exports from a sample of 65 countries accounting for 97% of world trade rose by 20.2% in September, compared with a year earlier. But by November exports were worth 17.3% less than a year earlier, before slumping by a whopping 32.6% in the year to January. In March the managers of South Korea’s Busan port, long one of the world’s busiest, said that it had run out of space to store nearly 32,000 empty containers. The Baltic Dry Index, which measures demand for the ships that transport bulk goods such as iron ore or coal, fell from 11,793 at the end of May last year to a pitiful 663 in early December.
Ben Bernanke - "I Am Answerable to the American People."
Niall Ferguson: Is U.S. - China Economic Marriage on the Rocks? As the Chinese strategy was based on export-led growth, they had no desire to see their currency appreciate against the dollar. So they intervened consistently in currency markets, and as a result have now got international reserves totaling $2.1 trillion. Around 70 percent of these are in dollar-denominated securities, and a large proportion of these are in U.S. government bonds. The unintended effect of this was to help finance the U.S. current account deficit at very low interest rates. Without that, it's hard to believe that U.S. financial markets would have bubbled the way they did in the period 2002-7. The big question is now whether or not Chimerica is a marriage on the rocks.
Washington learns to treat China with care The economic crisis has shifted the balance of power, so the U.S. has stopped lecturing its biggest lender America met with its lead banker this week and was forced to answer plenty of tough questions about its spending habits. "Attention should be given to the fiscal deficit," China's finance minister, Xie Xuren, warned the U.S. And while U.S. officials gamely lobbed back the by-now-familiar refrain that China needs to boost its domestic consumption, rather than relying on exports to the U.S. for growth, it was clear which side was playing defense at this latest round of the three-year-old Strategic and Economic Dialogue.
China Seeks Assurances That U.S. Will Cut Its Deficit China sought and received assurances from the Obama administration that the United States would reduce its budget deficit once an economic recovery was under way, a senior Chinese official said Tuesday at the end of two days of high-level talks between the countries. “Attention should be given to the fiscal deficit,” said Xie Xuren, the Chinese finance minister. He said Treasury Secretary Timothy F. Geithner had assured the Chinese that once the economy rebounded, the deficit would gradually come down from its current record levels.
Chinese bubble fears as funds flow into IPOs Shares in Shanghai and Hong Kong tumbled on Wednesday as investors snapped up two newly listed mainland construction groups while selling down the rest of the market after reports that China’s central bank might rein in bank lending. Shares in China State Construction Engineering rose by as much as 90 per cent on their debut before closing 56 per cent stronger in Shanghai. China’s largest housebuilder had last week raised Rmb50.2bn ($7.34bn) in the world’s biggest initial public offering since Visa raised $19bn in March 2008.
USGovt Yuan Bond Threat The tables are fast turning against the deeply indebted USGovt officials. USA Inc is in deep trouble. Its productive engines in both finance and industry are either wrecked or sputtering, even as its debt burden grows exponentially. Debt default litters the landscape. Next its sovereign bonds will be have to be sold to some extent outside the US$ Sphere, which will put at great risk its stock, namely the USDollar itself. Let’s call them USGovt Dragon Bonds. The custodians desperately seek creditors to supply much needed capital in order to fund the gigantic and growing USGovt debts, which by the way are grossly understated. The last resort is to monetize the USTreasury Bond issuance, a process well along. With the aid of the USDollar Swap Facility, the USFed has been able to secretly bid on USTBonds from foreign soil, have it appear like foreign bids, and conceal the continued and broadening monetization initiative. The United States is boldly defying the creditor nations, printing money, and buying its own debt.
China Debt Bubble Looming According to the latest reports from China, the country’s GDP is growing at 8% a year. This is an amazing achievement and helps to bolster the argument that China will help lead the global economy out of its recession. Since it looks like exports will be the major driver of growth for the U.S., selling goods and services to many emerging economies like China it pays to dig a little deeper to understand this growth phenomenon.
How do you say 'bubble' in Mandarin? Chinese stocks are on fire and banks are lending like there's no tomorrow. Sound familiar? But China needs to remain healthy. The U.S. can't afford for it to slump. Is the Chinese economy in the same state as the American economy was in the summer of 2007? In other words, all pumped up and ready to pop? If so, it might be time to learn how to say bubble in Mandarin. And that could be bad news for those hoping for a sustainable U.S. recovery. The Shanghai Composite Index plunged 5% Wednesday, while Hong Kong's Hang Seng dipped nearly 2.4% on growing concerns that China's robust period of growth could soon stall.
Banks Reopen Global Casino Investment banks, of all things, are making serious money again, thanks in part to government aid. Ironically, they are benefiting from the crisis they helped to create. As profits go up, so do salaries -- only this time, it's the taxpayers who are shouldering the risks. Anshu Jain, 46, listened stoically and silently to the remarks of shareholders at the annual meeting of Deutsche Bank at the end of May. Many were troubled by the fact that the bank had reported its biggest ever loss in 2008, €3.9 billion ($5.6 billion), for which Jain, as its top investment banker, was responsible.
Federal Reserve for Dummies
Treasury finally getting tough on banks A $340 million warrant repurchase from credit card giant AmEx shows the Treasury, under pressure from Congress, is holding big banks' feet to the fire Don't look now, but the government has actually strung a couple modest victories together in its dealings with big banks. American Express, the New York-based credit card giant, said Wednesday it paid the Treasury Department $340 million to repurchase the warrants the bank issued in January after borrowing $3.4 billion under the Troubled Asset Relief Program. AmEx was among 10 banks that repaid their TARP loans last month. The government accepted the warrants, which confer the right to buy shares later at a specified price, to compensate taxpayers for the risks they took on in the bailout of the financial system.
Barney Frank Threatens Banks If They Don't Modify More Mortgages You have to love Barney Frank's bull-in-a-China-shop approach to dealing with the financial crisis. When he's not busy getting into fights with Erin Burnett on CNBC, he's not afraid to wield a big stick (and speak loudly) to get his way. Yesterday he was banging away at bonuses again. The latest: he's pissed at the banks for not doing more on the loan modification front.
Street Fighting Man Longtime readers know my standard response to questions about the severity of the Greater Depression: It's going to be worse than even I think it's going to be. "Coming Collapse" books will undoubtedly accumulate into an entire genre in the next few years, as they did a generation ago. This time it's not just fear mongering, although things won't get as bad as in James Kunstler's book The Long Emergency and certainly not as rough as in the movies Road Warrior or I Am Legend. But it's a good bet that a lot more is going to change than just some features of the financial system. Let's engage in a little speculation as to the shape of things to come.
Insiders are selling Corporate insiders more bearish than at any time in nearly two years Corporate insiders have recently been selling their companies' shares at a greater pace than at any time since the top of the bull market in the fall of 2007. Does that mean you should immediately start lightening your equity exposure? It depends on whom you ask. But, first, the data. Corporate insiders are a company's officers, directors and largest shareholders. They are required to report to the SEC whenever they buy or sell shares of their companies, and various research firms collect and analyze those transactions.
Obama and Company say... All We Need Is A Little Help From Our Foreign Friends. . . . At the end of its 2008 fiscal year, ending in September, the government reported that foreign creditors held 48% of US public debt. In dollar terms, that was $2.8 trillion in IOU’s. What’s more, they absorbed 74% of the $765 billion borrowed by the US government in 2008. But that’s nothing new. Foreign creditors have been on a buying extravaganza since 2002, sucking up 73% of public debt net new issuance over that period, a whopping $1.8 trillion of government IOU’s.
Obama defends record on economy President Obama said during an appearance in North Carolina on Wednesday that the United States may be seeing the "beginning of the end of the recession" as he gave an impassioned defense of his administration's response so far to the economic crisis. Mr. Obama also gave Congress a new deadline to finish a bill on health care reform, saying he expects a vote on final passage by late September or mid-October. The president told a town hall meeting in Raleigh that he was "startled" by a Newsweek magazine cover that said "the recession is over." The president said that while government action has "stopped the free fall," the country still is shedding jobs and that "tough times aren't over."
Rachel Maddow: Rep. Barney Frank Takes On Credit Card Cos.
Fed Exit Strategy? Federal Reserve chairman Ben Bernanke used this week as an opportunity to address the Fed's exit strategy of removing the bank reserves that have been pumped into the banking system since September of last year. Of course, this will not happen until the Fed and our political leaders feel that both the banking system and the economy is on considerably sounder footing and tighter monetary policy is less likely to toss the economy back into the ditch. I say political leaders because the Fed has lost a considerable amount of its "independence" and pressure will be a tool wielded by our politicians (especially as elections near). Given the events of this week, it is a good opportunity to review the state of the Fed balance sheet, some if its recent operations, and a few key items in Bernanke's plan to drain reserves from the banking system at the "appropriate time". I will begin with a little background info that you can also find in previous articles, but presented a bit differently here.
Bernanke's dilemma: Ignore politics Why the Fed chairman should ignore Congress and start tightening up soon. After two years of pumping money into the financial system to keep the economy afloat, Fed Chairman Ben Bernanke will have to reverse the process or risk an opposite problem: inflation. After much anticipation, he announced in July the Fed's "exit strategy" from its vast intervention, declaring it will happen "in a smooth and timely manner." It's reassuring that Fed officials are aware of the inflation risk, but their program is unlikely to succeed. Much research shows that it takes about two years for anti-inflation policy to work. That means the Fed needs to start now and stick with it.
Dead Banks Walking In recent weeks, the financial world has been dazzled by strikingly high earnings reported by our leading investment banks... or at least what we used to call investment banks. The numbers are reminiscent of another era - the one that came to a crashing end last September. Today's euphoria was keyed to the record $3.44 billion 2nd quarter profit announced by that branch office of the Treasury Department also known as Goldman Sachs. Wells Fargo, JP Morgan Chase, and State Street also chipped in with strong numbers.
Kucinich: the Federal Reserve is paying banks NOT to make loans to struggling Americans!
Dudley says credit to remain tight William Dudley, president and chief executive of the Federal Reserve Bank of New York, sought to dispel fears of ?rising inflation on Wednesday, while playing down prospects for a speedy economic recovery in the US. Mr Dudley’s remarks came against a backdrop of concerns that the expansion of the Federal Reserve’s balance sheet, easy monetary policy and aggressive fiscal stimulus would inevitably undermine the value of the US dollar. Mr Dudley also offered a fairly downbeat economic vision, noting that weak income growth would limit the pace of consumer spending, historically the biggest source of growth in gross domestic product. “Credit availability will be constrained for some time to come and this will limit the pace of recovery,” he added.
US regulator criticises Obama bank plan he Obama administration’s plan to give US states more power to protect consumers from unfair banking practices would make it more difficult and costly for large lenders to operate across the country, a financial regulator has warned. John Dugan, who oversees national banks as comptroller of the currency, told the Financial Times that the proposals to create a federal consumer protection agency and give states more leeway to crack down on unfair practices would have negative “ramifications for companies operating across state lines”.
Five U.S. Banks Are Too Big to Exist Fitch Ratings released a stunning report a few days ago which disclosed that just five banks (all U.S. banks) hold 80% of all derivatives risk: Bank of America (BAC), Goldman Sachs (GS), JP Morgan (JPM), Morgan Stanley (MS), and Citigroup (C). Keep in mind that the global derivatives market has a notional value somewhere around 30 times global GDP. Put another way, each one of these five banks has derivatives risk that is much greater than the entire value of global GDP.
CFTC Conceals the Real Problem, the Infinite Dollar Today's hearing by the U.S. Commodity Futures Trading Commission to discuss speculation in futures markets is a sham, a kangaroo court. Notice that the concern of the CFTC is only why oil went up last year. The commission has no concern as to why oil fell so abruptly from $147 down to $35 even though Don Coxe was widely quoted at the time as saying the government had instigated a massive takedown. The commission's focus is on commodities of "finite supply" and preventing speculation.
Big Brother's House Big Brother (FINRA) has given Wall Street firms the cover to restrict ProShares, Direxion, Rydex and PowerShares products from use by their clients. This is being done under the guise of protecting them but that’s a smokescreen. You see, these firms live and die off residual fee income generated by wrapped high fee products within financial plans. It’s very disruptive to fee income for FAs and clients to mess with the plan. It is thus no longer permitted to use these products, denying the investor and FA the choice and opportunities they present. Rather than allow your FA to protect you from 40-60% bear market losses, they want you to stick with these plans and keep chucking money into them. Some firms are even going so far as restricting the use of unleveraged short products which is downright silly but shows you the extent firms will go to protect the flow of fee income.
Patriot Radio News Hour: Letter from Gregory Knox to Troy Clarke, GM President
US Government Orchestrates Market Moves To Affect Massive Treasury Auctions In A Day Filled With Irony . . . . "Usually The Gold Cartel is most aggressive around pivotal market reports (like the US jobs report), TV speeches regarding US economic policy, and key market events. The event this week is the astronomical amount of debt to be issued by the US Treasury … some $235 billion. The last thing the Treasury wants is a gold price headed towards $1,000 due to the perceived relationship between gold and US interest rates … so they are all over gold."
A Piece of the Stimulus Pie Despite what you are most likely reading in the press, the folks getting bailout money are pretty sharp. They’re very good at gaming the system. More about that in a minute. First, the Dow went nowhere yesterday. Gold fell $14 to $939. And Newsweek magazine announced, “The Recession is Over.” Newsweek hedged its bets; adding that the recovery won’t be a piece of cake. Elsewhere in the news is word that the housing bust is over. The papers are reporting the first gain in housing prices in three years – based on the latest Case-Shiller numbers. Hallelujah…right? Hold on. There’s too much statistical noise in the monthly figures. They just don’t mean anything. A better measure is the annual trend. The Federal Housing Finance Agency says its index for May registered the smallest drop in 10 months…but is still headed down. (More on why it is destined to continue going down…later in the week.)
Fed: Economy has begun to stabilize at low level Economic activity continued to be weak going into the summer, although the pace of decline has moderated and activity has begun to stabilize at a low level, the Federal Reserve reported Wednesday in its latest Beige Book assessment of the economy. Labor markets in all 12 Fed districts remain slack, the Fed said, as employment continues to decline. The weakness of labor markets has virtually eliminated upward wage pressure, and wages and compensation were steady or falling in most districts.
Decentralization for Socialists: A Brief Primer One thing that consistently vexes me is the amount of time the modern statists, particularly on the Left, spend labeling the idea of decentralization and secession as "kooky." The Virginia and Kentucky Resolutions of 1798 – if they have read them or know about them – are often portrayed as quaint and unsophisticated pronouncements of provincialism; the Essex Junto and Hartford Convention are called the products of deranged Northern madmen; Andrew Jackson, they say, was on the right side when he threatened the use of force to keep South Carolinian secessionists in line in 1832; and of course, they revel in the ultimate coup de grâce to states’ rights and secession, the Northern victory in the War for Southern Independence. Who could root for the evil, "undemocratic slave power" clad in butternut, anyway?
Desperate state may sell Capitol buildings, others Under GOP plan, government would pay to lease back most of the sites Call it a sign of desperate times: Legislators are considering selling the House and Senate buildings where they've conducted state business for more than 50 years. Dozens of other state properties also may be sold as the state government faces its worst financial crisis in a generation, if not ever. The plan isn't to liquidate state assets, though. Instead, officials hope to sell the properties and then lease them back over several years before assuming ownership again. The complex financial transaction would allow government services to continue without interruption while giving the state a fast infusion of as much as $735 million, according to Capitol projections.
Clunker confusion: MPG figures Some car shoppers find that the fuel economy for their old cars has suddenly improved - making them ineligible for Cash for Clunkers. Some car shoppers are finding that their trade-in vehicles, which qualified for a Cash for Clunkers rebate last week, don't this week because of changes in the EPA's fuel economy ratings. In some cases, car buyers say, dealers are backing out of sales they've already made because the EPA changed the fuel economy figures on their trade-in. "My wife just received a call from the sales manager saying that our clunker doesn't qualify anymore, and that we could either pay the extra $4,500 or return the new car (and get our old car back)," Greg Straka wrote Tuesday on a message board at the Edmunds.com automotive Web site.
Has the Housing Market Hit Bottom? Now that a number of recent housing reports are generating some incredibly positive headlines and the global economy appears to be slowly digging its way out of an enormous hole that was created last fall when the world nearly came to an end, the burning question on the minds of millions of people is ... Has the housing market hit bottom? here is no shortage of answers. Unfortunately, most of them are far too simple and, in most cases, the individual or organization providing the answer has a bias of some sort.
Housing Recovery: Sell Now Or Your Capital Will Be Trapped As news reports of housing's "recovery" fill the mainstream media, the devastating effects of rising interest rates are never mentioned: every house with equity becomes a capital trap. Anecdotally, breathless stories of the return of multiple bids are filtering into a Mainstream Media anxious to report "proof" of a "recovery in housing. This translates into a 50% decline in bubblicious areas of the nation: Dr. Housing Bubble: Calif. Housing drops 50% from peak. As noted in the above article, fully 58% of all California home sales are foreclosure resales. In other words, "the bottom is in, now is the time to snap up bargains." Not so fast. Let's focus on the key feature of buying a house as opposed to, say, a TV: very, very few people buy a house with cash. The vast majority of real estate purchases are financed with mortgages--debt.
Is the Fed Losing the Mortgage Rate Battle? The relationship between the 10 Year and the 30 Year Mortgage spread and the actual level of the 30 Year Mortgage has broken down in the last week. The correlation has dropped to zero, meaning the Fed's Open Market purchases in the critical part of the curve may be having less and less of an impact on the ever-critical mortgage rate. Did the (mortgage) vigilantes pull a fast one?
Money, Banking and the Federal Reserve
Should They Risk Missing a Payment? You can see the fine hand of government at work in the homeowner rescue package that has been struggling to get off the ground since its inception last spring. The goal was to reduce foreclosures by lowering mortgage payments for homeowners who were struggling. But struggling how badly? For would-be lenders, that can be a tricky question to answer, and they are understandably reluctant to commit to the program without clear guidelines from the federal government. As it stands, some homeowners are being told they cannot receive help unless they fall behind on their payments. But if you were struggling yourself to stay on track, would you take the risk of skipping a payment or two just to qualify?
Subprime mortgage companies warn on U.S. foreclosures Companies that service risky residential mortgages are warning U.S. officials that a key program to slow foreclosures may push some financing costs higher and derail their efforts, said a leading subprime firm. Companies forming the Independent Mortgage Servicers Coalition, service many of the riskiest mortgages made during the housing boom, making them key players in programs to rein in foreclosures. The group collects and distributes payments on more than $700 billion in loans, according to its leader, Carrington Mortgage Services of Santa Ana, California.
U.S. Consumer Confidence Falls More than Expected The Conference Board Consumer Confidence Index™, which had retreated in June, declined further in July. The Index now stands at 46.6 (1985=100), down from 49.3 in June. The Present Situation Index decreased to 23.4 from 25.0 last month. The Expectations Index declined to 62.0 from 65.5 in June. Says Lynn Franco, Director of The Conference Board Consumer Research Center: "The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply. The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further."
'$20 Per Gallon' How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better Christopher Steiner looks ahead and projects, $2 at a time, how rising gasoline prices will transform civilization. During the summer of 2008, Americans found out just how much was too much to pay for gas. On July 11, a barrel of oil hit $147.27, which translated into $4.11 for a gallon of regular gas at the pump -- the highest price ever reached in the U.S. And that was just the average. In some places, the price got close to $5 a gallon. It was the Summer of Pain.
Get Ready For A $10-$15 Drop In Oil After rallying nearly 50% this year, crude prices hit a major speed bump this week as the dollar has firmed up and inventories have risen. Oil prices were "well overpriced" in the $70s and will continue to weaken in the weeks and months ahead, says James Cordier, President of Liberty Trading Group and co-author of The Complete Guide to Option Selling. Rather than increased demand, the recent rally was based mainly on speculative demand driven by government stimulus packages, Cordier says. Most notably, a flood of liquidity in China found its way into commodities and China's economy now "looks like a bubble," he says, joining a growing chorus.
Taxing the fat in your food New study argues that a tax on fattening foods could help pay for health reform and curb obesity -- and lower health costs. Others aren't so sure. Health care costs keep growing fatter in part because Americans are, too. More than 25% of the increase in medical costs between 1987 and 2001 is attributable to obesity and obesity-related conditions such as hypertension and diabetes, according to a new report from the non-partisan Urban Institute. Come 2015, it is estimated that 40% of American adults will be obese, which is more than double the rate 40 years ago. And today, close to 20% of children are obese, up from 4% four decades ago.
House committee has breakthrough on health bill House Democratic leaders have reached an agreement with a group of rebellious conservative Blue Dogs that will allow the stalled health care reform package to move through a key committee and on to the full House for a vote. Four Democratic Blue Dogs on the House Energy and Commerce Committee said they were prepared to vote for the compromise, allowing the long-delayed markup to begin Wednesday afternoon, according to several lawmakers. But the agreement also puts off any action by the full House until after the August recess. The four were part of a bloc of seven Blue Dogs on the committee who had balked at the original language in the bill.
'Blue-Dogging' Health Care One of the traits that people prize most in dogs is loyalty. However, the question then becomes loyalty to whom or what? In the case of the "Blue Dog Caucus," the group of Congressional Democrats that has emerged as the major player in health care reform, it appears that its loyalty is first and foremost to its big campaign contributors -- the health insurance firms and the drug companies. The general claim that they make is that they are worried about the fiscal consequences of health care reform, but when it comes to specifics, they are most opposed to the very elements of the reform package that are most likely to be successful in driving down the overall cost.
Good and Bad News for the House Health Bill In my recent paper about how the Congressional Budget Office analyzes health proposals, I noted that one of the most important things that CBO does is to provide additional information about its cost estimates. Cost estimates often can’t speak for themselves, so it’s important that members of Congress and other interested observers ask for additional clarification about key issues. Well, four leading House Republicans recently took this step, and CBO’s response is a doozy. It contains too much to summarize here, so let me focus on the two most important points:
One Big Problem with Private Health Insurance The This American Life crew, once again proving that they can cover any topic they want better than anyone else in the media,* has a segment in this weekend’s episode on rescission of health insurance policies – insurers’ established practice of looking for ways to invalidate policies once it turns out that the insured actually needs significant medical care. (The segment is around the 30-minute mark.) The story describes a couple of particularly egregious cases, such as a woman who was denied breast cancer surgery because she had been treated for acne in the past, and a person whose policy was rescinded because his insurance agent had incorrectly entered his weight on the application form.
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