After 12 years of loose credit where many Americans were buying overpriced housing which was way over their heads, the bubble had finally burst on the housing market! And now it was time to fix what was broken and that was the American economy. President Obama's first move was to bail out Wallstreet which was an idea that began with his former predecessor, George W. Bush. Next, President Obama decided to bailout two car companies, one of which was the largest car maker in America. The third idea to fix the economy according to President Obama was to pass a stimulus package known as the American Recovery and Reinvestment Act, estimated to be around 787 billion dollars which was later increased to 840 billion dollars in order to be more inline with what the President wanted to spend for 2012. And lastly, one of the most controversial along with being one of the most expensive was health-care reform, know as Obamacare. Not only was it promised to salvage the system for the future especially for retirees but also to expand health-care coverage while claiming it would save taxpayers money! On another front to fix the American economy, the Federal Reserve was used by desperate policymakers to increase the money supply in order to buy mortgage securities which came to be known as "quantitative easing" which expanded to Treasury bonds. Between November 2008 and May 2010, it bought (by printing more money) $1.75 trillion in debt held by Fannie Mae and Freddie Mac, mortgage-backed securities and Treasury notes between November 2008 and May 2010. Thus, all these ideas by the President and the Federal Reserve were meant to get America out of a recession by the government leading the way rather than the private sector! |
Let's begin with the the stimulus package which covered a wide range of spending such as giving perks to first time home owners, tax breaks, infrastructure like roads and schools, increased Medicaid provisions, urban development, energy expenses, heath information technology, assistance for insurance, assistance for people out of work, and even things like broadband connections for the internet!
To promote the bill, many promises were being made on how quick taxpayer money (the stimulus package) would turn into jobs and save existing jobs thus bailing America out of the Great Recession! So let's take a closer look at this, here is a breakdown on the results from the implementation of the new law to use an enormous amount of taxpayers money to create new jobs under the direction of the government. The data comes from the government's own official website where the money is being currently tracked(recovery.gov).
In California along with its 16 billion dollar deficit and budget cuts, 34.6 billion dollars was awarded, 22 billion given out so far resulting in 20,038 job gains. In Washington, 8.4 billion was awarded, 6.3 billion has been given out so far resulting in 5,258 job gains. In New York, 17 billion dollars was awarded, 12.7 has been given out so far resulting in 10.620 job gains. In Texas, 16.6 billion dollars was awarded, 13.3 billion given out so far resulting in 11,800 job gains. In Florida, 11 billion dollars was awarded, 8.3 billion has been given out so far resulting in 9,455 job gains. In Illinois, 11.9 billion dollars has been awarded, 7.8 billion has been given out so far resulting in 4,856 jobs. As you can see with this sample of the data which can also be seen in the rest of the states, the results did not even come close to fulfilling its objective along with fulfilling all those promises!
A year later since the stimulus package had been passed in 2010, the Federal Reserve was disappointed with the economic recovery, describing it as "disappointingly slow." So the Federal Reserve decided to create 600 billion dollars for the purpose of inserting into the financial system in order to keep interest rates low and making it easier for businesses to loan money which also affected the value of the dollar. Even after 600 billion dollars was created, it wasn't enough, currently, the Federal Reserve continues its practice by increasing the money supply by 85 billion a month! Only this time there is no expiration date of the program nor any determined amount rather it's based on a condition. The condition is, the economy would have to show significant improvement. In September 2011, the Fed began a variant that was called “Operation Twist."Instead of expanding its balance sheet by just buying more bonds, it sold $400 billion in short-term securities and used the proceeds to buy longer-term ones.
One of the more controversial moves trying to restore the economy for the future but was more of an opportunity than a fix which was health care reform or currently known as the Affortable Act or Obamacare. The President and his supporters promised that by changing the government-run system of health-care, taxpayers would be saving money while expanding coverage with particular mandates and cuts in payments for services. When the health care reform law was first enacted, the mayo clinic who had previously lost $840 million in 2009, treating Medicare patients decided not to admit anymore unless medicare patients could pay in cash or have private insurance. Thus the new reform for health care now denies seniors the best medical care in the world for cancer.
And this only scratches the surface, there are other things like 12 million seniors who have relied on Medicare Advantage, which allows them to seek free market heath care without aggravating gaps in coverage. But according to the new law set-up by President Obama which was a political move, not until after the presidential election in 2012, with the help of another law to obtain an additional 8.3 billion dollars to keep the program going. Then cuts in Medicare Advantage reimbursements would be implemented. As a result, 12 million seniors will eventually be pushed back into the government-run program.
The Trustees of the Medicare program recently released their report and in there they estimate that Employer retiree drug plans will fall from 6.8 million in 2010 to a mere 800,000 by 2016 because of the massive amount of new taxes employers will have to pay with the new health-care law! What about costs for premiums? Have they gone up or down as a result? It was promised back in 2008, by Obama that premiums for families would go down $2,500 in a year. But data shows that the cost has gone up by $3,500 dollars for families! Rod St. Aubyn, director of government affairs for Blue Cross Blue Shield of North Dakota, suggested that premiums could double in the coming years.
Another problem with Obamacare, it will cause even more shortages with physicians than ever before. According to The Association of American Medical Colleges, there is going to be a shortage of 60,000 physicians by 2015 and 90,000 physicians by 2020. This number will in no doubt be raised once Obamacare is fully implemented and years thereafter.
What does this all mean? On its current course of spending within the framework of these programs, the United States is on a path to go bankrupt in the next 10 to 15 years! When former President George Bush left office, the annual the annual deficit was 400 billion dollars a year, but during President Obama's tenure spending has increased to 1.3 trillion a year along with disagreements on how to cut 1.4 trillion over 10 years! Currently $53,000 is owed by every man, woman, and child to pay for deficit spending. What about the law for the debt ceiling? Wasn't that suppose to keep spending in check? It's mainly a relative concept, because over the years including President Obama, debt ceilings have been raised quite a number of times by both Democrats and Republicans. The last debt-ceiling agreement failed to actually cut spending while federal spending rose by $61 billion dollars following that deal. You see, the fiscal-cliff agreement undid two months’ worth, or $24 billion, of the sequestration cuts resulting from the debt-ceiling compromise. What the debt-ceiling law does however, is that it creates more awareness and debates about deficit spending and where it's leading this country.
Entitlements like social security, and medicare are predicted to go broke sooner than expected. The Baby boomers who helped drive the economy to new highs back in the 90's will be retiring in substantial numbers, leaving less workers to pay taxes while a lot more seniors will be collecting from the system longer because of remarkable advancements in medicine! The economy continues to struggle along with more predictions being made on when the turnaround is supposed to begin, leaving tax revenues very low while 40 percent of the American population receive some sort of government aid. The United States credit rating continues to get downgraded. On April 6, 2012, the 4th largest credit agency (Egan-Jones) downgraded the United States credit from AA+ to AA. because of growing concern over the public debt. Congress continues to avoid revamping the tax code, with the goal of lowering rates and closing loopholes while Obama's own deficit-reduction commission recommended just that a year and a half ago, but the president ignored its recommendations. Rather, the president wants to raise taxes on people making 250,000 dollars and up! Now the Obamacare law already raises taxes on the rich which begins in 2013. In California where the approval rating for the governor went up after taxes were increased on everyone living in the state. However, businesses didn't see it that way. Chevron which is California's largest corporation moved its operations to Texas costing the state 800 jobs! And that is not all, Comcast shut down its Northern California call centers this year, citing the high cost of doing business in California! Campbell’s Soup was another company that moved out of the state leaving 700 people without a job! If California's method of taxation reaches to a national level you can bet that many companies would move operations overseas costing millions of jobs!
Countries who have been in this position usually do the following, they either raise as much taxes as they can to continue their spending, or they get bailout money from other countries on a condition, or the government starts increasing the money supply (by printing more currency) to pay the bills. A small country like Greece was bailed out not once but twice. The second time, foreign countries demanded that Greece reduce its spending or otherwise it wouldn't get any money because Greece had spent it all the first time! So things like government jobs was cut. The majority of the Greek population protested against such cuts and now faces a cut off from getting foreign aid and if that happens, Greece will run out of money in a matter of weeks if other countries refuse to give them funds, leaving the country in a major economic meltdown!
Unlike Greece however, the United States has a much bigger and broader problem with its financial situation. First of all, if wealthy Americans were taxed 100 percent of their income, it would only cover one-fifth of the total amount that is being currently spent by the Obama administration. Second of all, there is not enough foreign money to go around that could bail out the debt of the United States! Currently, the United States is borrowing 40 percent on the dollar from China in order to maintain its spending. The United States and Greece are not the only ones having budget problems but major parts of Europe have been facing its own massive debt problems along with a global recession. Like Greece, France is another country whose population doesn't want to fix their exploding budgets.
On May 06, 2012, a socialist named, Francois Hollande was elected. His platform was class warfare, while resisting austerity (budget cuts) and promoting large government stimulus programs despite the fact that tax revenue has gone way down because of the recession. Rumblings from Wallstreet have occurred for months which has been affecting stocks in America.
With a global recession, exploding government expenses along with lower tax revenue, countries lack the resources to bailout the United States with its massive debt. This leaves the this country with two options. The first option would be raising taxes to astounding new highs while cutting programs very deep. The second option; print more money to make up the difference. The pattern has already begun as mentioned previously, the Feds are increasing the money supply till the economy recovers which they predict will happen in 2015. The small increase will continue to grow till it becomes massive. By creating more money on a massive scale to help pay the bills would in turn create hyper-inflation because the dollar would devalue so much that such things as food and services which is based on the dollar would skyrocket upwards, changing the standard of living for everyone. This is a lot worst than having a recession or a depression. It wouldn't be the first time that a country had gone through hyper-inflation. Other countries like Mexico, Russia and Argentina have gone through similar situations during the 80's.
So how can we prevent such a major meltdown in the economy that would affect people lives so dramatically? The answer is simple, the free market! Let's begin with one of the most important government programs and one of the most expensive for taxpayers which is medicare. Let's review some of the solutions that is currently out there, or being proposed...
Under what is considered to be the Obamacare plan which was passed but not fully implemented yet, a panel of 15 people would decide how much money the government would pay for various health-care services and which services would be covered and which services would not be covered. If the panel decides to pay less for services than non-medicare patients, they would see higher costs to make up the difference or like the mayo clinic, medicare patients would be no longer accepted.
The Paul Ryan plan is another solution to the problem, this plan would create competition with more consumer involvement in the cost of health-care for those under the age of 55 using competitive bidding which could create reductions in Medicare spending without implementing hard spending caps.
Here is what it says...
"The second-least expensive approved plan or fee-for-service Medicare, whichever is least expensive, would establish the benchmark that determines the premium-support amount for the plan chosen by the senior. If a senior chose a costlier plan than the benchmark plan, he or she would be responsible for paying the difference between the premium subsidy and the monthly premium."
"Conversely, if that senior chose a plan that cost less than the benchmark, he or she would be given a rebate for the difference. Payments to plans would be risk-adjusted and geographically rated. Private health plans would be required to cover at least the actuarial equivalent of the benefit package provided by fee-for-service Medicare."
It has estimated that medicare spending would be reduced by 2.5 trillion dollars while eliminating Obamacare's tax hikes. The plan is going in the right direction, but it doesn't solve the overall problem with the costs of health-care because people do not see spending their own money rather it's the insurance company's money. Obtaining a reduction in health-care services that will provide the highest service at the lowest possible cost relies on you, the consumer rather than just the insurance companies!
Here is how a consumer driven plan works and this goes for both medicare or private insurances. You need an MRI, various hospitals in your area charge anywhere from 2,000 to 3,000 dollars. The MRI specialists charge 600 dollars and you decide to choose that one instead of the hospital. Your plan consists of a deducible. This deducible will be reduced on what you have to pay because of the better choice you made. You save money and also the insurer saves money in this case the taxpayers. A mandated deductible is limited in scope on what it can reduce in terms of medical costs because once the deductible is met there is no incentive to save anymore money for future health-care treatments.
With a consumer driven plan, you can add all kinds of incentives which creates competition in the health-care industry! Another example would be, if you need heart surgery and one hospital charges say, 80,000 dollars and another 43,000 dollars. You choose the hospital charging 43,000 dollars, your deduction is eliminated and no co-pays for drugs or doctors up to three months during rehab. Now the dollar figures may vary in your area, but are you getting the idea on a consumer driven plan rather than just choosing an insurance plan? Instead of just cutting costs (which will happen eventually)or increasing costs with a government takeover like Obamacare, a consumer driven plan is the best solution for bringing down the high costs of health care while maintaining world-class service!
Now on to bringing the United States out of a great recession. As mentioned earlier in this article, President Obama decided to use the stimulus package consisting of taxpayers money to create jobs and also maintain existing ones. Stats from the government's own website shows us that this policy is not working like it was promised. The states mentioned are from the west coast to the east coast. The sampling from the government's website consists of six states that have been awarded money and how much was given so far. The total amount given for all six states is 70.4 billion dollars. The total jobs created for all six states is 62,027. This is a very low result considering how much money was spent! But what about the bailout of General Motors? While it was able to preserve jobs, General Motors is currently building 600 new dealerships in China despite the fact that their sales has gone down to a mere 2 percent from 34 percent previously. So most of the current job creation conducted by General Motors is being focused on other countries which is not helping the economy in the United States who helped maintain their existence as a company!
But there is light at the end of the tunnel. Instead of taking money out of the pocket of the America people for little job growth why not provide ways for allowing more money to be spent by the people rather than the government! Take Apple for example. They recently announced that their total earnings for the first quarter of this year (2012) which was a staggering $39.2 billion! It blew expectations away! How much stimulus money was used to turn this business into a record sharing profit? You guessed it, none! Apple has become the most valuable business in America and despite the sluggish economy, their business is booming without the help of any stimulus money! So that is the key here, the free market will eventually turn the economy around which will raise tax revenue for vital programs and it will help pay down the national debt.
One last thing that wasn't previously mentioned but does play a role in deficit spending and that is the post office which has lost billions of dollars. Because the government hasn't allowed the post office to act like a business thus it has become a liability rather than an asset. Last summer, the Post Office announced that it will be unable to pay its 5.5 billion dollar obligation and a second payment that was due in September which totaled 5.6 billion dollars. The post office has less than one billion in reserves. As a result, congress would have to supply more money to keep it running. One of the ways to fix the post office's money woes, is to limit delivery for resident mail to three days a week and business mail three days a week and spread those days out over a course of six days. If a business requires more deliveries than those provided three days, they would have to pay a user fee. If mail has to be delivered on a certain day that is not part of the three day rotation for residents then they have to pay a user fee.
So there you have it, a simple but effective way to prevent the American economy from going through a major economic meltdown that would drastically affect new ideas, innovation, and the standard of living as we know it today!
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