Fiscal Cliff Predictions

good post. thanx for sharing that.

can't agree with either parts of your 'solution'. This silly pollyanna belief that we can whack defense, yet experience no decline in readiness or ability to counter threats makes no sense at all - especially with an increasingly belligerent Red China & a resurgent Russia.

Declining population is actually the cause of problems in Europe, Japan, & Russia. We're following that same path - especially in the ratio of non-minority groups that typically add to the economy vs. minorities that are typically a drain on it.

The democrat's strategy to recruit & grow entire dependent classes of low information voters has worked extraordinarily well - and we'll soon be forced to take our medicine.

Of course, it'll be the GOP's fault though - and they certainly are to blame, but more for inaction & lack of balls then anything.

Hey, we can always blame "the rich".

Low information and low intellectual capital I might add, while we are encouraging high intellectual capital to flee for greener pastures.

Actually we should have done it in the 70s, 80s, 90s as well. And we can do it now. And again, what I'm arguing is the benefits of not doing anything. Good policy now is recognizing that when you are in a hole, stop digging. Whenever we enter a recession or on the cusp of it and (god forbid) inflation goes down and some big companies are on the verge of bankruptcy, there always has to be some "stimulus". Its in the form of Tax rate cuts, assorted tax credits, accelerated depreciation, spending programs, loose Fed policies, bailouts, etc. And of course whenever these "stimulus" policies go into effect they never go away. I'm not necessarily against cutting entitlement programs. But understand that government has not passed much legislation in decades that raises entitlement spending. The biggest entitlement increase happened in the early 70s when they pegged entitlement payouts to inflation. Since then, its mainly been about privatizing entitlements and raising payroll taxes on wage earners.

Besides The Unaffordable Care Act I suppose? The problem with entitlements isn't the peg to some arcane measure of inflation, it's that these programs were based on flawed actuarial assumptions, whereby medicare is some 35-40x over budget now and growing. Look at how much of our budget, well Congress hasn't put forth a budget in years, but how much of our spending goes to entitlement programs. According to some projections, entitlement spending and interest alone will eat up 100% of revenue by 2025 and debt levels will triple by 2030.

It's amazing that the public decided that privatizing social security would be a bad idea, but we would allow government and state pension plans to invest in a basket of securities, including commodities, a decision which has proved perilous due to erroneous IRR assumptions that are no longer realistic in the new normal (man, the government is great at allocating money and outsourcing investment, no?), and the shortfall will be borne by increased contributions on current earners or higher taxes. In reality, all of these programs need not be cut with a scalpel. They need to be hacked with a chainsaw.

Former CO governor Dick Lamm was right.

Again, I'm not necessarily against 'Privatizing". But privatizing is just that. Its not cutting anything. Assuming for the moment privatizing cuts costs through efficiencies. Than the private companies claim it for themselves.

Actuarial assumption also are just that. Assumptions. They are not flawed. That is what is abitrary.

Inflation is the big elephant in the room. Obviously the measure of inflation it is indexed to is arbitrary. But the inflation exists. Social Security has been indexed to inflation since the 70s. Since that time year over year inflation has averaged about 4% per year. A good half of the social security spending we have today represents the inflation embedded in the system since the 70s. Moreover, projections of social security assume a sustained inflation rate of over 2% for another 40 years.

We can cut trillions of dollars by simply not having inflation which we can easily do if we don't continue with these inflationary "stimulus" policies. Its inflation that entitlements didn't cause and entitlement recipients never asked for.

Flagpole's investments will return +20% for 2013, just like always.

Social security is not the problem, but it will become one. Medicare is the 800-lb, pun intended, gorilla in the room. Over half of medicare costs are devoted to diabetes and heart disease, 90% of which is preventable. The majority of medicare patients die of chronic, some would argue, correctly, preventable disease, and fully 1/3 of medicare expense is devoted to these patients during their final six months of life. The most recent Medicare Trustees' report in April revealed the net present value of the unfunded liability was $42.8 trillion. Total unfunded liabilities, including social security and federal employee's benefits, are around $90 trillion. We need to cut more than just "trillions." I agree wholeheartedly about getting rid of these ridiculous stimulus policies, but even merely not indexing entitlements to inflation or capping them is peanuts. We need a drastically different approach.

Its far from peanuts. Medicare is a little different than Social Security and yes, it is arguably a bigger problem. But the solution for it could in large part be the same. Don't do anything. Let recessions happen. Force medical companies to become more efficient. Let insurance companies go bankrupt if need be. That is really what Obamacare and the Republican plans for healthcare was all about. Bailing out the insurance companies who were slowly but surely heading towards bankruptcy. The whole healthcare debate was just about how best to give trillions of taxpayer dollars to insurance companies. I think a single payer system makes the most sense to me to give a basic safety net for people. But if we didn't have that I would just as soon have a libertarian plan of no government payouts to private insurance companies and simply cut medicare. As it is, we basically have a universal healthcare system with laws that require people get treatment. But then we have this whole other layer of bureacracy that functions to make believe we have a privatized, free market system.

Sagarin wrote:

Social security is not the problem, but it will become one. Medicare is the 800-lb, pun intended, gorilla in the room. Over half of medicare costs are devoted to diabetes and heart disease, 90% of which is preventable. The majority of medicare patients die of chronic, some would argue, correctly, preventable disease, and fully 1/3 of medicare expense is devoted to these patients during their final six months of life. The most recent Medicare Trustees' report in April revealed the net present value of the unfunded liability was $42.8 trillion. Total unfunded liabilities, including social security and federal employee's benefits, are around $90 trillion. We need to cut more than just "trillions." I agree wholeheartedly about getting rid of these ridiculous stimulus policies, but even merely not indexing entitlements to inflation or capping them is peanuts. We need a drastically different approach.

WTH are you talking about? Name some large health insurance carriers that were headed for b/r. If ins companies are inefficient, it's because of the byzantine labyrinth of govt regulations they must navigate. Get govt out of healthcare & enact tort reform & the 'healthcare crisis' goes away..

Uh yes it is. I said long term fiscal health.

So much of the economy is based on factors linked to pop growth, but its not sustainable. Im talking over the next 2 generations. Every recession is a not necessarily a bad thing. However economic health should not be dependent on positive population growth

It wasn't imminent but it was heading there. I don't how anybody could argue for how they couldn't have gone bankrupt. Insurance company profits were declining. Their pools of healthy insured people paying premiums were declining while health cost kept getting bigger. There was a clear vicious cycle where health costs would rise, premiums would rise. Employers would do away with their health insurance or lay off their employees. Or some people would just choose to not have insurance to make ends meet. With a smaller pool of insured the insurance companies would have to raise their premiums to cover costs and therefore perpetuate the cycle.

POMPATUS OF LOVE wrote:

WTH are you talking about? Name some large health insurance carriers that were headed for b/r. If ins companies are inefficient, it's because of the byzantine labyrinth of govt regulations they must navigate. Get govt out of healthcare & enact tort reform & the 'healthcare crisis' goes away..

Okay, little Pol Pot. Whatever you think is best.

Personally I think we should just focus on cutting government and consumer spending before we consider population control so a couple can live in their 3000 sq foot house.

just because a company - or an industry - doesn't have record setting profits each year does not mean they were headed for b/r..

It's a shame some of the bigger companies embraced obamacare. Sure, obamacare will pump up their numbers in the short run, but in the long run they face a real possibility of being run out of business by a Medicaid-like govt provided system - which will make today's Medicaid, as horrible as it is, look great..

You people who think govt provided healthcare is great are probably looking at Medicare as the model, but Medicare is not sustainable. It'll be more like Medicaid, which is currently maybe a few levels better than the Soviet era system.

Ever been to a Medicaid funded nursing home? That type of care (or lack thereof)is what hospitals will be featuring in a couple decades.

I see this thread has taken a few turns. That's fine.

How did the subject of privatizing social security come up?

SS is a tax on current workers that gives the funds to current old people.

How do you privatize that?

It's not a savings plan.

What will really help SS and medicare, and really all expenses, is high employment and high median wages.

And yes, some inflation is good to bump up wages and make the debt comparably smaller.

Raising the age to receive the benefits makes some sense if people are living longer and therefore taking more.

But I do realize that many who really rely on it aren't very healthy, need it earlier and don't live as long (so don't take as much).

Raising the threshold way above $110K for income subject to SS tax would be nice.

No real reform is going happen in the next two weeks pertaining to this cliff.

They keep doing these gun to the head negotiations to get things "done".

This is what is going to happen right now:

Tax rates on the top earners are going up, guaranteed nearly 100% sure on that.

The exact rate is not pegged down. It may be Clinton rates, it may be lower.

The question is, do they sign off on it now or just let it happen by law on Jan 1.

And do they vote now to keep the lower rates the same or do they let them go up and come back to lower them?

The Republicans want something in return for signing off on it now in the form of entitlement reductions.

But I don't see how they have any leverage on that.

They held the debt ceiling hostage for concessions last summer but this deadline is not as drastic as not the debt ceiling limit where the US wouldn't be able to pay its bills.

The US can withstand higher taxes for a month.

It's starting to look like they will agree on taxes soon.

It will be extended cuts for all but the top two percent.

But will it be permanent or will it be a temporary extention?

Will they lump in the spending? The debt ceiling?

Any real reform of the tax code and loopholes or serious changes in spending will happen down the road.

And it will probably have to happen with the president, Senate and House of Reps all being lead by the same party.

Two years at best for a Democratic plan. Four years at best for a Republican plan.

Ten years or more seems most likely.

Neither Medicaid nor Medicare is government provided healthcare. Both are social insurance programs to pay for private care. The actual care is through private doctors. Medicare/Medicaid vs employer-based insurance is a comparison of different approaches to pay for the same thing - private care.

quote]POMPATUS OF LOVE wrote:

just because a company - or an industry - doesn't have record setting profits each year does not mean they were headed for b/r..

It's a shame some of the bigger companies embraced obamacare. Sure, obamacare will pump up their numbers in the short run, but in the long run they face a real possibility of being run out of business by a Medicaid-like govt provided system - which will make today's Medicaid, as horrible as it is, look great..

You people who think govt provided healthcare is great are probably looking at Medicare as the model, but Medicare is not sustainable. It'll be more like Medicaid, which is currently maybe a few levels better than the Soviet era system.

Ever been to a Medicaid funded nursing home? That type of care (or lack thereof)is what hospitals will be featuring in a couple decades.[/quote]

Frank Luntz wrote:

Neither Medicaid nor Medicare is government provided healthcare. Both are social insurance programs to pay for private care. The actual care is through private doctors. Medicare/Medicaid vs employer-based insurance is a comparison of different approaches to pay for the same thing - private care.

Thanks for pointing that out.

I kind of winced when he wrote "government provided healthcare."

It sounds like specific facilities paid for by the government with specific physicians and workers that are on the government payroll.

We do not have anything like that.

X-Runner wrote:

The Republicans want something in return for signing off on it now in the form of entitlement reductions.

But I don't see how they have any leverage on that.

They held the debt ceiling hostage for concessions last summer but this deadline is not as drastic as not the debt ceiling limit where the US wouldn't be able to pay its bills.

The US can withstand higher taxes for a month.

Perhaps they don't, but we the people should. Why would anyone with a triple digit IQ agree to the sunsetting on top earners with only a half-hearted commitment to a commensurate cut in spending that will never happen in reality? So, let's pull revenue forward as we are already doing, fund bloated government spending for a few additional weeks, then strangle small businesses and job creators further, while letting the government continue to pork barrel away. Sounds reasonable to me. Couldn't possibly have a very bad outcome some day in the not-to-distant future? Not to mention, do you really believe that "Clinton-era" rates will be where this stops (we seem to be forgetting about the 3.8% surcharge as well)? Despite Obama's empty rhetoric during his first term that he would cut the deficit in half, it will likely hit @ $22 trillion by 2016. As per what I've been saying and the article posted above, the Fed will be the only bond buyer left.

Frank Luntz wrote:

Neither Medicaid nor Medicare is government provided healthcare. Both are social insurance programs to pay for private care. The actual care is through private doctors. Medicare/Medicaid vs employer-based insurance is a comparison of different approaches to pay for the same thing - private care.

And, of course, you realize fewer and fewer doctors are accepting medicare, while more physician-students are going away from primary care into specialties?