Mish's Global Economic Trend Analysis

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Vermont Throws in the Towel on Inane Single-Payer "Medicare for All" Proposal; Live and Let Die; Why Does Single-Payer "Work" in Europe? Posted: 30 Dec 2014 06:43 PM PST Proponents of the single-payer healthcare idea who tout the idea such a system will save money need only look at Vermont to see reality. Vermont Governor Peter Shumlin, a single-payer advocate, threw the single-payer idea on the ash heap of history admitting what any sensible person knew from the onset: The plan would cost far more than estimated The plan would quickly become insolvent Massive tax increases would be required Coverage would decline for many MainWire explains in Lessons for Maine in Vermont's Failure. Last Wednesday, Vermont Governor Peter Shumlin announced that he was abandoning his plan for a single-payer health care system for the state, finally admitting in an unexpected news conference that it is "not the right time." As one most liberal states in the nation, Vermont has faced years of internal pressure to adopt government-run health care. Shumlin made single-payer health care a major feature of his recent re-election campaign, and until last week, seemed to be blazing a trail towards the first single-payer system in the U.S. His plan, which was designed partly by controversial Obamacare architect Jonathon Gruber, would have pushed for a single-payer – the state of Vermont – to pay health care costs, instead of private insurance companies. Nearly every Vermonter would have been required to be insured under "Green Mountain Care," a state-run agency funded primarily through taxes rather than insurance premiums. The cost for Green Mountain Care was estimated to be approximately $2.6 billion, an astounding $300 million more Vermont's entire budget for FY 2015. The state would have needed an overwhelming 11.5% payroll tax on businesses and a new sliding-scale income tax of up to 9.5% just to get the program off the ground. Given that Vermont already boasts a top income tax rate of 8.95%, a 6% sales tax and 8.5% corporate income tax, these new taxes would have made Vermont the highest taxed state in America, by a significant amount. Even with those new taxes, Shumlin's administration predicted that Green Mountain Care would be drawing a deficit by at least 2020, meaning additional revenue or tax increases would be needed in the near future. Supporters assert that despite the huge tax increases, a single-payer system is ideal and could actually save money. They maintain that a single-payer system would lower health care spending by way of decreased administrative costs, discounts for buying bulk insurance, and lower reimbursement rates for hospitals. However, there's plenty of evidence to suggest that none of the above would or could happen in America. Medicare and Medicaid (government insurers already in existence) do not have significantly lower administrative costs. Large insurance companies already buy in bulk and purchase more plans than entire countries that utilize the single-payer system. And while slashing reimbursement rates may sound good for taxpayers, it would also mean drastic pay cuts for hardworking doctors, nurses, receptionists, and technicians. No politician in their right mind would ever cut health care reimbursements, or at least not to the point where taxpayers would see any benefit. Another major issue that Vermont encountered is the level of coverage to provide in a single-payer system. Instead of having consumers purchase health insurance based upon their needs or income, the single-payer model favored by Vermont forces everyone to pay for the same amount coverage, regardless of health care requirements. With all citizens reduced to a single coverage level, Vermont was faced with the catch-22 of choosing between a low or high coverage level, and deciding whether they wanted to decrease or increase coverage for many of their residents. In the end, Vermont chose platinum level coverage for all, reasoning it wasn't fair to force anyone to decrease the quality of their insurance plan. While this was a polite gesture, it was nonetheless an expensive compromise, and a definite factor in the plan's eventual failure. Proponents of "Medicare for All" Rally In spite of the obvious ridiculousness of "Medicare for All", Politico notes that proponents refuse to thrown in the towel. Advocates of a single-payer plan said Shumlin should not be able to cast aside Act 48, the 2011 law that called for the creation of Green Mountain Care, without repealing it. A group planned to hold a rally in front of the statehouse on Thursday to protest his decision. "The governor's misguided decision was a completely unnecessary result of a failed policy calculation that he pursued without Democratic input," the group Healthcare Is a Human Right Campaign said in a statement. Gruber Poison Shumlin's plan was designed partly by Obamacare architect Jonathon Gruber. Thus, it's no wonder the plan was overoptimistic in what it could achieve. Gruber is an admitted liar who will stop at nothing to get universal healthcare. As I noted on November 11, Gruber stated "Stupidity of American Voter" Needed to Pass Obamacare. For his lies and deceit, he was paid $400,000 by the Obama administration. Vermont also paid the liar. From Politico .... Gruber, now infamous for his blunt assessments of the Affordable Care Act and his remarks about "stupid" voters, was until recently a state consultant. Days after the election, video emerged of him dismissing criticism of Vermont's plan in 2011 by asking, "Was this written by my adolescent children, by any chance?" State officials said they would cut off his contract. Activists in California, Hawaii, New York, Illinois, Washington, Massachusetts, Ohio, Oregon and Pennsylvania still pursue their fantasy. Vermont's outcome is a "small speed bump," said New York Assembly member Richard Gottfried, who's been pushing single-payer bills for more than 20 years. Gottfried has been introducing his New York single-payer bill every year since 1992. The cause is "not for the faint of heart." Why Does Single-Payer "Work" in Europe? Proponents of single-payer say countries in Europe proves the model works. But what does "work" mean? The answer is enormous taxes, control of doctors' salaries, control of nurses' salaries, control of drug costs, etc., etc. In other words, government-run everything is why the model appears to work. In the US, control of all of that is impossible, thankfully. When accurate assessments of tax hikes are imputed, no one wants to pay. Single-payer advocates in the US don't want any controls even though US citizens are the most obese in the world and the most resistant to "rationing". People expect the "free lunch" that liars like Gruber promise. Live and Let Die "Medicare for all" cannot and will not work in the US because the US is not willing to become France or Sweden. Meanwhile, government interference in the free markets has given the US the worst of possibilities. The solution is not "medicare for all" with government controls over everything but to live-and-let-die. Massive amounts of money in the US are wasted keeping people alive for another six months or less, in great pain. This holds true even for those without insurance. Heck, it even holds true for the already dead! Terri Schiavo Case Let's not forget the Terri Schiavo Case. By any practical measure, Terri Schiavo was dead. She had no functioning brain. Yet it took a 7 year battle for her husband to get the right to remove her feeding tube. George Bush signed legislation to keep her alive. in 2003 Florida Governor Jed Bush signed "Terri's Law" forcing the state to keep a dead woman breathing against the wishes of her husband. Once someone is terminal, without proper insurance, nothing other than comfort drugs should be given. And in regards to drugs, the US has the highest prescription drug prices in the world because of import restrictions. Obamacare will not let insurers charge more for smokers or obese. There are many healthcare cost items a free market could solve. At what point do we say "you get food, comfort care, and pain relievers" but that's it?  Instead, we suffer with the worst of both systems, unwilling to become France or Sweden for tax purposes, unwilling to ration health-care based on life expectancy, and willing to pay the highest costs in the world thanks to very poorly written legislation. It's time to scrap the whole damn thing and start all over. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

1000% Inflation in Venezuela? Posted: 30 Dec 2014 12:26 PM PST Those looking for hyperinflation can find it in Venezuela. Here's the question of the day: How bad is Venezuelan inflation and how bad can it get? Bloomberg reports Venezuelan 1,000% Inflation Seen by BofA Without Weaker Bolivar Venezuela President Nicolas Maduro, set to announce a new currency system today, needs to devalue the bolivar or risk inflation passing 1,000 percent as soon as next year, according to Bank of America Corp. Under the current system, Venezuela's overvalued bolivar means that the government effectively sells the dollars it gets from oil exports at a discount, compelling policy makers to print extra currency to cover domestic spending needs. Currency controls that limit Venezuelans' access to dollars have spawned a black market in which the greenback fetches 172 bolivars, compared with officially sanctioned exchange rates that range from 6.3 to about 50 bolivars per dollar. "If we don't see a large adjustment of the exchange rate, we're almost certain to have triple-digit inflation and I wouldn't be surprised to see the economy veering into four-digit annual inflation," Francisco Rodriguez, the chief Andean economist at Bank of America, said by phone from New York on Dec. 28, before Maduro scheduled his announcement. The government "needs to print money to finance the deficit and it is running a deficit because its revenues in bolivars are too low." Maduro said in televised speeches earlier this month that he saw no need to cut the government subsidies that leave gasoline selling for 6 cents a gallon, and that he will keep a 6.3 bolivar-per-dollar fixed exchange rate for priority imports. The most recent official data is that annual inflation in Venezuela was 63 percent in August, the fastest in the world. A more up-to-date estimate based on the depreciation of the bolivar on the black market is 183 percent, according to Steve Hanke, a professor of applied economics at Johns Hopkins University and director of the Troubled Currencies Project at the Cato Institute. The bolivar weakened 42 percent on the black market in the fourth quarter, according to data from dolartoday.com, outpacing even the 29 percent decline in the Russian ruble. Both currencies have been pressured by declines in price of oil, which makes up 95 percent of Venezuela's exports and is the country's principal source of hard currency. With no access to international capital markets and falling revenue from oil sales, Maduro is dependent on loans from allies or on printing more money to plug his growing budget deficit. "If they continue with their social welfare and income redistribution programs, they'll be forced to run the printing press at an ever accelerating rate," Hanke said. "There is tremendous pressure on them to keep spending and their sources of financing have dried up." Venezuela's M2 money supply, a measure of the amount of bolivars in the economy that includes bank notes in circulation as well as retail savings, rose by 64 percent in the past 12 months. That is three times as fast as any other country tracked by Bloomberg. Curious Headline The Bloomberg headline "Venezuelan 1,000% Inflation Seen by BofA Without Weaker Bolivar" is rather curious given a weaker bolivar and Venezuelan inflation go hand in hand. In isolation, the headline makes little sense. However, the article explains Venezuela is bleeding foreign reserves in an effort to defend the official exchange rate and also to provide subsidies. Selling gasoline at 6 cents a gallon is ridiculous. Can anyone really get gas at that price? If so, how much?  Black market siphoning of gas to sell at higher rates elsewhere has to be going on. Regardless, and as I have pointed out before, foreign reserves and hard cash from oil sales are the only things preventing a total collapse in the bolivar. Once reserves are gone, there will not be merchandise in stores at any price, let alone the nonsensical official rate of 6.3 bolivars per dollars. The black market rate of 172-per-dollar vs. the official rate of 6.3-per-dollar is a decline of 96.34%. That's not not as bad as Zimbabwe, but Maduro is surely trying. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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