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Obama Care As A Symptom Of What Is Wrong With America

220px-Single_Payer_ProtesterThe United States outwardly seems to have recovered from the financial and banking crisis of 2008. Investors are once again finding the country a better alternative, than most other places in the world. The United States dollar is at a five year high and the stock market is continuing to hit all time record advances. The American economy supposedly grew by 3.5% in the third quarter and employment increased by 321,000, in the month of November. The official unemployment rate is now at 5.8%, which is at the lowest rate since 2009.

Also, the reported inflation rate is running at an annual rate of just 1.7%. Deficit spending by the federal government is declining and is now at the lowest level in 6 years. It has shrunk some 58% from a year ago. The yearly deficit accumulation which was $1.4 trillion USD (United States Dollar) in 2009, has now dropped to $483 billion USD. Deficit spending as a share of GDP (Gross Domestic Product) was exceeding 10% in 2009, but has now dropped to 2.8%. This is the lowest rate since 2007.

At first glance, one might think that the United States is doing rather well. However, there are a number of other statistics that tell a different story. It is true that the deficit is declining but the national debt is not. When President Obama took office in January of 2009, the total debt run up by the federal government stood at $10.5 trillion USD. The debt today at the end of 2014 already exceeds $18 trillion. USD. The debt per taxpayer from the same period, has gone from $97,500 to $152,000 respectively.300px-Percentage_of_income_allotted_to_pay_for_health_insurance_vs._federal_poverty_level_for_house_and_senate

The number of Americans living in poverty has gone from 43 million to 48 million during the past six years. Correspondingly, the Americans on food stamps has gone from 30 to 48 million at the same time.

Employment figures despite the official numbers show an alarming picture. At the beginning of 2009 there were 200,900,000 Americans holding jobs. Now 6 years later, the number is only 200,400,000. If one considers the growth in the American population during this time, there is a definite shrinking in the labor force. As a result, the labor participation rate at 62.8% is the lowest it has been, since March 1978. In addition, the real unemployment figure is actually 12.6%. Why the discrepancy? The real rate includes those the government no longer counts, which are discouraged workers and involuntary part time employees. Once a person is no longer receiving unemployment or is not looking actively for a full time position, the government simply no longer counts them.

US_Consumer_Price_Index_Graph.svgOfficial inflation is running under 2%, but the government bases this rate on the CPI (consumer price index). This statistic tracks consumer spending more than it actually can give an accurate reading in the inflation rate. Americans know with the recent exception of energy, that prices are rising rapidly for most consumer goods. The Department of Agriculture has even admitted that food prices were up 10% this year alone. Other statistics show the costs for food have increased by over 20% in 2014.

The federal deficit for November was $57 billion USD as compared to $135 billion USD last year. A closer look indicates that much of the decline is due to a shift in payments and receipts. If one would eliminate this feature, the actual deficit in spending was $92 billion USD. Total spending reached $248 billion USD in November which indicates a 22% reduction from last year. If one accounts for the calendar adjustments federal spending actually increased some 3%. Deficits declined because government receipts were up 5% for the month.

The federal deficit is due to decline even further in 2015 but then will reverse itself under current law. The reason for this is the ascending reimbursements that will attributed to the rising health care and retirements costs for a growing segment of Americans.350px-Interest_expense_on_the_U.S._national_debt

Another disturbing problem is the interest on the federal debt. Payments for this item in the federal budget will be at least $233 billion USD this year or 1.3% of the economy. In 10 years this is estimated to rise to a total of $880 billion. That will be 3.3% of the GDP of the economy. The 2024 deficit estimated to be 1.1 trillion will be mostly be interest payments on the national debt. It will be near what the nation will be spending on Medicare at that time. These are optimistic figures because the assumption is that interest rates will remain at historic low rates. The debt itself will force interest rates higher.

The debt is projected to be $21 trillion in 2024. In contrast to the rapid rise in interest payments, outlays for other domestic programs and defense spending will drop to their lowest levels as a share of the economy, last seen in the early 1960’s.

Many of these interest payments will end up overseas. China and Japan alone, the two largest creditors of the United States, are owed over a trillion dollars each

One can clearly see, that the debt trajectory is simply unsustainable.

U.S._Healthcare_Costs_Per_CapitaThe government through the Federal Reserve System has added more than $4.4 trillion USD liquidity to the American economy through the asset purchases known as quantitative easing. Although the program ended in 2014 the purchase of mortgage backed securities and government debt has left the Central Bank of the United States with huge liabilities. Prior to the 2008 crisis the Federal Reserve only had $850 billion on the balance sheets. This printing of money will have negative consequences in the future and cannot be repeated in the near future. Any attempt to do so would bring about an inflationary spiral and a lack of confidence in the American dollar.

The recovery of the American economy over the last few years has been the weakest in the post war era. Despite the propaganda jobs are not plentiful and there has been a total stagnation in real wage growth. Earlier this year, Americans were witness to the news that the middle class in Canada had become wealthier than the middle class in the United States. A presently rising stock market in the United States will not change that reality. Nor can the rise be sustainable, under slowing world economic growth rates.

The median income in the United States was $55,589 in 2009. By 2011 it had declined to $51,913. Now in 2014, the median income has somewhat recovered to $53,891. However, it is still 3% below where it was at the beginning of the Obama Administration. It is 4.8% below where it was before the Great Recession, that began in December 2007. Worse yet, it is still 5.9% below the level achieved in the year 2000.

Enter Obama Care, or the official name of the program known as the Affordable Care Act. One of the selling points of the law was that it would provide coverage to the uninsured, but would not cost the federal government anything. It would actually save money, reducing pressure on the federal debt. The program would be funded through the transfer of wealth from healthy young Americans, to older and less well citizens.350px-GAO_Slide

The purpose of this article is not to discuss the merits of having such a program, but the ultimate costs to federal outlays. The latest given by the nonpartisan CBO (Congressional Budget Office) is $1.4 trillion USD over the next ten years. The costs to the 50 states in vastly expanding Medicaid as part of the program, are not included because that is not a direct long term liability to the national budget.

Insurance premiums and deductibles are still increasing so federal subsidies to the program will progressively be needed. Contrary to earlier expectations by the government, the number of uninsured individuals in the country has not been reduced substantially, so the savings that were expected from the program through mass enrollment, has not materialized.

The present assumption is that this situation is unlikely to change. The individuals who will sign up for the program will be those Americans who are most in need of medical care. So insurance risks and therefore costs, will rise together.

Therefore, what you basically have is another unfunded entitlement. The last thing the federal government needs at this point, is more liabilities that have an open ended requirement for additional funding. The program is therefore not affordable, in its present configuration.

AFSCME_supporter_holding_sign_over_his_head_-_Hands_Off_Our_Social_SecurityFederal liabilities in the United States are already estimated to be as high as $120 trillion USD. This is an astronomical amount of money. It is also totally delusive given the present tax structure and economic growth rates in the United States.

Although many politicians will insist otherwise, most of the larger entitlements being offered by the federal government at the moment, are not sustainable in their present state. That would include Social Security, Medicare and Medicaid.

The government up to now has only been willing to make some minor adjustments to most of these social programs. They have continued to kick the can down the road. The problem is that the longer that these entitlements are not reformed, the more draconian the changes will need to be, in order to save them.

Whereas Medicare, Medicaid and Social Security are widely accepted and popular programs with bipartisan support in the United States, Obama Care is not. In fact, it is becoming even more unpopular since it was passed in 2010. Unlike previous entitlements that were passed with support from both major political parties in the United States, the Affordable Care Act was passed only with Democratic support. Republicans therefore have little or no incentive to either reform or save the program. In fact, most of their constituency wants the law largely repealed, except for a few of the most popular features.

Now that both houses of United States Congress are firmly in Republican hands, the only thing saving the Affordable Care Act is the presidential veto in overturning the law. The resounding victory of Republicans in the 2014 midterm elections, clearly indicates the direction of the country. Although President Obama refuses to recognize that the policies of his Administration have been firmly rejected by the voters, it will matter little in the long term. The supporters of Obama Care must reconcile themselves to the fact, that the program as it exists today, will not survive much beyond the next presidential election.

There are too many other unfunded liabilities, that the government will have to contend with to worry about a program that lacks sufficient popular support. Perhaps the death blow will be provided by the Supreme Court. If not, it will slowly be taken apart piecemeal with a consistent withdrawal of public funding. This will make an official overturn of the law largely unnecessary.220px-Social_Security_Worker_to_Beneficiary_Ratio

United_States_Bankruptcy_Court_SealAs the government of the United States faces ever increasing debt and unfunded liabilities, difficult choices will need to be made to prevent bankruptcy. Somehow the accounts will need to be paid. The only question now is how will this be achieved? The options include much higher taxes, major cuts in entitlement spending or both. It is improbable, the United States could grow fast enough economically to escape the challenges that lie ahead. Much higher taxes are not politically doable at this juncture in history. Short of dramatic changes in funding, it leaves inflation or debt default as the only real options. A true default would be unlikely, so the government might well allow inflation to take hold as a way of paying down unsustainable debt. This will allow the United States dollar to plunge in value and will have investors abandon it, on a previously unseen mass world scale. The global reserve status of the United States dollar would rapidly collapse under the flight from America’s currency.

The ensuing financial and monetary panic, would usher in a new international order for banking and currency valuations. That will be the time when one could expect a push for a one world medium of exchange.

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