Posts tagged: obama

Obama keeps going on healthcare

The broad strokes are in, but I will withhold judgment until it’s all in. For now, here’s a brief summary:

  • Expands coverage to 31 million Americans
  • Increases tax credits to buy insurance
  • Sets up entity that could block big rate increases
  • Imposes 2.9% Medicare tax on unearned income
  • Cuts the deficit by $100 billion over 10 years

For the full summary click here.

I just read Ezekiel J. Emanuel‘s book Healthcare Guaranteed. The author is Rahm’s brother, so it might be worth listening since he might have some influence on the debate. Emanuel (the doctor) goes through and criticizes the piecemeal attempt to fix healthcare. For starters, he is against an employer based plan. He goes on to show how having a “means-test” is expensive to implement. He shows how medical insurance premiums and fear of lawsuits plague the system. He highlights the incentives to cheat the system. And on and on and on. His solution – a voucher system for a minimum plan, that is equivalent to what Congress receives, with the ability to purchase additional insurance on top of it. To pay for it, he proposes a VAT of roughly 10%.

Admirable. I agree with his assessment of the problems, and I agree that the employer-based system is unfair and expensive to administer, especially for smaller firms. Now, I’m not sure I agree with the voucher system, not am I sure about the regressive VAT tax (yes, VAT sounds good, but it hits lower and middle income families harder than higher earners). But at least it sounds like he’s on the right track. I can’t help but not see any of his analysis in the current administration’s plan.

Emanuel has 7 goals of for healthcare reform:

  1. Guaranteed coverage…FOR ALL: the current proposals fail on this front, since roughly 15 million people will still not be covered.
  2. Effective cost controls: Emanuel doesn’t give a good solution for this, but it’s a good goal nonetheless. On this front, it looks like the administration is proposing price controls. For those who remember the price controls of the 1970′s on fuel, pork, and wood, you’ll also note that there was big money to be made in the futures markets. If this plan goes through, look for futures markets around healthcare to develop where producers will be able to arbitrage the cash/futures markets.
  3. High-Quality, Coordinated Care: Emanuel criticizes the fragmented, fee-for service arrangement and seems to imply that large institutions will be better equipped to deliver coordinated healthcare. Maybe, maybe not. It will be interesting to see how the administration deals with this.
  4. Choice: Again, let’s wait for the details.
  5. Fair funding: I’m not optimistic, but I’ll give the plan the benefit of the doubt for now, until we find out more about where the funding will come from.
  6. Reasonable dispute resolution: Have not heard anyone mention capping malpractice, or dealing with this issue. I have a personal solution: Patients who sue and win can receive some capped amount, with the rest going to the hospital or to research centers to better whatever caused the mistake. Patients will no longer be able to get rich of doctors’ mistakes, and lawyers fees will be capped at fair market value of hours works. Or something along those lines. But no-one asked me.
  7. Economic revitalization: Emanuel rightly points out that healthcare benefits put a strain on employer-employee relations, and create friction in moving jobs, starting businesses, hiring, etc. I do not see how the current plans alleviates that, since it maintains the employer based system. Again, that should be the starting point of reform.

Emanuel and I might disagree on the details of delivery, human nature in decision-making, economics, etc. but his fundamental principle that the system needs to be overhauled and that patches will only delay the inevitable collapse are spot on. Obama should read his book before Thursday.

Major elements of Obama’s health-care proposal
  • Expands coverage to 31 million Americans
  • Increases tax credits to buy insurance
  • Sets up entity that could block big rate increases
  • Imposes 2.9% Medicare tax on unearned income
  • Cuts the deficit by $100 billion over 10 years

Obama & Co. are scrambling: Banks and political games

So Mass. went to the Republican candidate, for the first time in 40 odd years. Brown won Ted Kennedy’s seat and in the process upset Obama’s drive for healthcare reform. Pelosi and Obama will probably not be able to push through any legislation in the next couple of week, so it means that we’re now in a holding pattern. Turns out markets tend to do better when governments are gridlocked, mostly because politicians can’t do as much damage.

So now that he’s been stymied on one end, Obama has to show progress on another, so back comes Volcker. He was marginalized, but now is being made the poster boy in high-stakes political game that might leave Geithner and Bernanke in trouble. The Democrats were sent a message in Mass. and they need to scramble. Bernanke might be made the whipping boy, although Geithner is scared too.

So where does that leave us? In limbo-land. Banking regulations will re-instate some form of Glass-Steagall. They have to. The public is angry that tax payers money went into the pockets of executives and the risk taking behavior is back with a vengeance. So the big banks ROE will be even worse going forward and stocks need to reflect the uncertainty, so for now, why speculate? Not worth it.

On another note, I think all of this posturing, and all these announcements and speeches, and all of these Geithner vs. Volcker games, all of it is part of a game of obfuscation. We are being toyed with, and once again, the issue is government entities. Before Christmas, we wrote that Congress passed (hoping to be unnoticed) legislation that provided more funding to Fannie and Freddie. Now, Fannie and Freddie need to be put on the Fed’s books, increasing the government’s liabilities by a few billion dollars, and no politician wants to be the one to say it and bring it to light. So they’re playing a game of diverting our attention. In reality, Fannie and Freddie are already liabilities of the Fed, but they aren’t being counted. Bringing them onto the Fed’s balance sheet will balloon liabilities and make the government more than the lender of last resort. It will make the Fed responsible for mortgages and servicing. Do you really think politicians will allow Fannie and Freddie to foreclose on homeowners? How will their debt be serviced? Only two options: printing or taxing, since repossessions will be impossible. End game: I don’t even want to theorize, but I’m not a big fan of the GSE bonds.

In a related note, the Swiss are flexing their muscles and standing up to US disclosure requirements. Translation: the rich will still be able to shield money away from the hands of Uncle Sam. Expect to see more assets move offshore if taxes go up. Law of unintended consequences.

2009 in Review: The Year of Obama (from Stratfor)

This report is republished with permission of STRATFOR

By George Friedman

President Barack Obama’s speech in Oslo marking his receipt of the Nobel Peace Prize was eloquent, as most of his speeches are.

It was also enigmatic — both for its justification of war and for his speaking on behalf of the international community while making clear that as commander in chief, his overarching principle is to protect and defend the United States.

In the end, it was difficult to discern precisely what he meant to say. An eloquent and enigmatic speech is not a bad strategy by a president, but it raises this question: At the end of his first year, what precisely is this president’s strategy abroad? Ironically, it is useful to consider Obama in the light of the last president who dominated and defined his time: Ronald Reagan, a man as persuasive, polarizing and enigmatic as the current president.

These two men share much, including charisma and a desire to revive American power abroad. But Obama is about to diverge from this parallel. Whereas Reagan chose to reassert American power to bring U.S. allies back into line, Obama seems to be choosing to rejuvenate American alliances to revive national power. And this choice constitutes the largest foreign policy risk to his presidency in the months and years ahead.

A Year of Presidential Dominance

Obama dominated 2009 as no freshman-year president has since Reagan. As with Reagan, the domination came not only from character and charisma but also from deep public disappointment with his predecessor.

Reagan succeeded Jimmy Carter, who was seen as having led the country into the double miasma of a major economic crisis and a global crisis of confidence in the United States. The Iranian hostage crisis of 1979-1981 raised the question of the limits of American power and the extent to which U.S. allies could count on American power. The 1979 Soviet invasion of Afghanistan drove home the diminished state of American power, as the United States seemed incapable of responding.

George W. Bush very much paralleled Jimmy Carter, as different as their respective ideologies seemed. Like Carter, Bush’s presidency also culminated in a grave economic crisis, while his foreign policy had created deep distrust worldwide about the limits and effectiveness of U.S. power.

It is ironic in the extreme that both Reagan and Obama ran on platforms emphasizing the need to do something about Afghanistan and castigating the prior president for alleged fecklessness with dealing with it. At some point, someone should write a history of the last American generation and its Afghan obsession. This has become a symbol of our times, and not for obvious reasons.

Reagan vs. Obama

The similarities and profound differences between Reagan and Obama are a good starting place for understanding the last year. Reagan took office in a powerful country that seemed to have lost its confidence, and he saw his mission as restoring both American self-confidence in its global mission and its appetite for pursuing it.

To Reagan, the American-led anti-Soviet alliance was in jeopardy not only because of the Carter presidency but also because of Gerald Ford (whom Reagan had challenged for the nomination in 1976) and ultimately because of Richard Nixon. They saw the United States as a declining power and sought to manage that decline. Reagan intended to preside over the reassertion of U.S. power and global leadership.

The Obama presidency is partially a reaction to Bush’s response to 9/11. Obama argued that the war in Iraq was not essential and that it diverted American forces from more important theaters, particularly Afghanistan. Like Reagan, Obama feared the fate of the American alliance system, though for very different reasons.

Whereas Reagan feared that unwarranted American caution was undermining the confidence of the alliance, Obama’s view has been that excessive and misplaced American aggressiveness was undermining its alliance, and weakening the war effort as a result.

Both Reagan and Obama set about changing the self-perception of the United States, and with it the perception of the United States in the world. Neither was uncontroversial in doing this. Indeed, critics vilified both for what they did, frequently in extraordinarily vituperative ways.

Surging Then Sagging Popularity

The controversy of each president has been rooted in a shared fact: Neither won the presidency overwhelmingly. Reagan took 50.7 percent of the vote, but Carter lost by a large margin because of third party candidates. Obama won with 52.9 percent. Put another way, 47.1 percent of the public voted against Obama and 49.3 percent voted against Reagan.

Both surged in popularity after the election and both bled off popularity as the rhetoric wore thin, economic problems continued and actions in foreign affairs didn’t match promises. Reagan fought a brutal battle for tax cuts to stimulate the economy and was attacked by Democrats for greatly increasing the deficit. Obama fought a brutal battle for more spending and was attacked by the Republicans for greatly increasing the deficit.

As a result, Reagan suffered a sharp setback in the 1982 midterm elections as Republicans lost seats in the House of Representatives. Reality overwhelmed rhetoric, and Reagan’s rhetorical skills even began to be used against him. But over time, as the economy recovered, Reagan began to gain ground in foreign policy. There were many failures to be sure, but Reagan succeeded by aligning his policies with geopolitical reality.

The United States was enormously powerful, regardless of psychic wounds and poorly deployed resources. The Soviet Union was much weaker than it appeared to those who feared to challenge it. Reagan did not try to change this reality; instead, he crafted policies that flowed from this reality. For all his mistakes, this made him both a two-term president and one more fondly regarded today than he was in his time.

Repudiation vs. Continuity

This is where the difference between Reagan and Obama begins to emerge, and the two men as historical figures begin to diverge.

Reagan repudiated his predecessor’s foreign policy and understood that by flexing American power, the allies would regain confidence and fall back into line. By contrast, Obama has taken a different turn — and is traveling a much more difficult road. He has retained a high degree of continuity with his predecessor’s policies while seeking to resurrect American power first through popularity in order to get allies to cooperate. This is a complicated proposition at best.

With Iraq, Obama continues the Bush policy of phased withdrawal subject to modification. In Afghanistan, the president has carried out his campaign pledge to increase forces, continuing the war that began in 2001, again with a timetable and again subject to change.

With Iran, Obama continues the Bush policy of using sanctions while not taking any other options, like war, off the table. With Russia, Obama has maintained the position the Bush administration took toward NATO expansion to Ukraine and Georgia, as well as resisting Russian attempts to dominate the former Soviet Union. With China, Obama’s position is essentially the Bush position of encouraging closer ties, not emphasizing human rights and focusing on tactical economic issues.

This continuity is combined with a so-far successful attempt to create an altogether different sensibility about the United States overseas. Obama has portrayed the Bush administration as being heedless of international opinion, whereas he intends to align the United States with international opinion. This has resonated substantially overseas, with foreign publics and governments being far more enthusiastic about Obama than they were about Bush.

As a result, the president has been particularly proud of the number of nations that are part of the Afghan war coalition, which he puts at 43. The Iraq war saw only 33 countries send troops, substantially less than Afghanistan but still not indicative of isolation. But in both cases this use of popularity as power is illusory. In many cases the numbers of troops sent are merely token gestures of goodwill.

Nevertheless, there is no question that Obama has managed to generate far more excitement and enthusiasm about his presidency overseas than Bush did. This is the marked achievement so far and it is not a trivial one. His goal is to create an international coalition based less on policy than on a perception of the United States as more embedded in the international community.

The question is: Will this gambit succeed? And if the answer is yes, the next question is: What does he plan to do next? Reagan intended to change the U.S. perception of itself to free him to conduct a more aggressive and risk-taking foreign policy. His view of the world was that the American perception of itself was irrational and limiting and that by lifting the limitations, American power would surge.

Obama’s strategy thus far is to change the perception of the United States in foreign countries while at the same time conducting a foreign policy imposed on him by geopolitical reality, much as it imposed itself on Bush. Obama’s problem is that the perception he has deliberately generated and the actions that he has taken are at odds. What will the allies offer him, for instance, if he has simply resurrected American popularity — but not changed U.S. policy?

Indeed, significant policy changes so far have not succeeded. Openings to Iran and Cuba have not been reciprocated. The opening to the Islamic world has not revolutionized U.S. relations in the region. The Russians are deeply suspicious of Obama, as is Eastern Europe. The Chinese find it hard to see a difference. The major impact has been in Europe, in particular Europe west of Poland. But even here there is a difference between popular enthusiasm and the unease of governments, particularly in Germany.

The Obama Paradox

And so it is in Europe that Obama’s strategy will face its defining moment.

In Europe, two goals are at odds. For the Europeans, a definitive, new era is one in which the United States will stop making demands on Europe to support foreign adventures and, ideally, stop engaging in foreign adventures except with European approval.

Obama expects that the Europeans, when approached, will be far more willing to join the United States in foreign adventures because their perception of the United States is more positive.

This is the deep paradox of Obama’s foreign policy, which he expressed in Oslo as he accepted the peace prize and went on to make the case for just war and for sanctions against regimes like Iran. In the coming months, three questions will manifest themselves. The first is: Will the Europeans shift from greater control over U.S. actions and less risk to less control and more risk? The second is: What will the president give them in exchange? How much control will pass to them in a consultative foreign policy? The third: How much active support for the Untied States are the Europeans able and willing to bring to bear?

After all, the reality is that the American president who just accepted the Nobel Peace Prize is engaged in multiple wars and a confrontation with Iran. Europe’s good wishes have some value, but not the same as material engagement. Indeed, it is not clear why foreign states would embrace Bush’s foreign policy conducted by Obama, simply in exchange for consultation. The Europeans will want more.

Aligning Foreign Policy and Geopolitics

Reagan’s foreign policy was elegant and aligned with geopolitics. It sought to create a domestic surge in self-confidence in order to support larger defense budgets and a more aggressive policy toward the Soviet Union. Reagan’s read of the situation was that the United States was stronger than had been thought and the Soviets were weaker. He had many problems along the way: economic setbacks, scandal, etc., and his popularity shifted. But his thrust was clear.

What is inelegant, though, in Obama’s foreign policy is the relation between continuing many of Bush’s old policies while improving America’s image overseas. Continuity is understandable: Geopolitics deals the cards and the choices are few. The utility of the popularity is important; it can only help. What is unclear as he enters his second year is the relationship between the two.

Most presidents do not fully define their strategy in the first year. But those who do not in the second year tend to run into serious political trouble. Obama has time, but not much. He must show the hand he is playing, or invent one, fast.

This report is republished with permission of STRATFOR

Obama called business leaders to brainstorm on creating jobs

Obama is trying to tap private sector business leaders for ideas on how to create jobs – unfortunately, he didn’t call me. How about lowering taxes? How about lowering taxes on the self employed and small business owners who are the most likely to generate job creation? How about stopping the games in the currency markets via quantitative easing? How about making it easier to fire people (when you make it easier to fire people, it’s easier to hire them as well)? How about reducing all tariffs (encouraging trade will increase net jobs)? How about stopping all the rhetoric? All of it? Yes. Academic studies suggest that the economy does best when Congress is in gridlock and nothing gets done in government. That happens because of two reasons: 1. most changes government makes are bad, and 2. stability is the most important factor for businesses right now. How about reducing the size of government by 10% freeing up money and cutting the crowding out effect? How about NOT listening to Krugman? How about NOT following in Japans footsteps? How about letting zombie companies fail? How about not rewarding those who took on the most amount of debt, thereby creating additional moral hazard? How about using government funds for investments rather that expenses (ask some smart CEO’s about the difference – one leads to budget deficits, one leads to long term improvements)? Just some thoughts to throw out there.

http://www.marketwatch.com/story/obama-pressed-from-all-sides-as-job-summit-nears-2009-12-02?link=kiosk

Trade wars and resource nationalism and inflation

So many things have been in the news recently, that I’ve had a tough time finding the common thread. Here are a few things I’m watching:

  1. Trade wars with China: First steel, now tires, who knows what’s next. Bloomberg stated that maybe this is a tactic to opening up free trade (http://www.bloomberg.com/apps/news?pid=20601087&sid=amYovMsrNEg0), but I have another theory. But I’ll hold off.
  2. Resource nationalism: We hear it in the press in various forms. It ranges from countries thwarting cross border M&A, to Brasil’s politicians making idle threats. Nouriel Roubini wrote about it in Forbes, which means it’s probably premature, but on the right track: http://www.forbes.com/2009/09/09/opec-brazil-oil-china-rare-metals-alberta-opinions-columnists-nouriel-roubini.html
  3. Iran, UAE, and the rest of the Middle East going nuclear. It’s not a question of “if” but rather “when”. What’s does that mean for oil security, regional security, etc.?
  4. Inverse correlation between dollar and stocks. It makes sense in a mildly inflating environment, maybe (a big maybe) in a somewhat higher infationary environment, but high inflation is not good for any financial assets, even ones that can raise prices and inflate earnings alongside the CPI. Simultaneously, bonds are holding up. So what are stocks and bonds telling us – they have faith that the US will control it’s re-inflation scenario. I’m not as convinced.

How’re all these related? Well, the US government needs to drive infation up. Monetary policy hasn’t worked. Fiscal policy is quickly going down the drain with waste as virtually none of the money is  spent appropriately. (I was going to write a response last week to Paul Krugman’s self-righteous piece in the NY Times http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=1. My main response would be that while he’s a good writer, Keynes is rolling over in his grave at the misapplication of his theories. Keynes would never support government profligate spending. He would support government investments instead. Building infrastructure, investing by government to replace lost consumer spending, is different than government spending on projects that have little to no future benefits. Anyway, we won’t go there here.)

So what other tools are left to the Obama administration? Well, how about sparking a trade war? How about talking up hoarding of resources? I wouldn’t be surprised if in the next few weeks a commodity like sugar or rare earth material becomes “strategically” important to US interests and the administration starts stockpiling it. Yes, it will tick up inflation, and at the same time increase inefficiency. Is that really how we’re going to inflate our way out of this mess? Is that what Keynes meant? I don’t think so.

The Obama Administration’s new international tax proposals: are these being factored into models?

I cam across this analysis of the international tax proposals that are currently being initiated, discussed, and soon passed in Washington.

http://danshaviro.blogspot.com/2009/05/obama-administrations-new-international.html

Not only is this a continuing of a trend we have been discussing, namely, higher government intervention, higher tax trends, etc. these moves will have a disproportionate impact on large-cap multinational corporations. For good or bad, these companies represent large holdings for mutual funds, pensions, insurance cos and retirement accounts. I’m wondering whether these tax moves are being factored in to stress tests on earnings models. I assume not, which means “green shoots” may either take longer to form strong roots, or the shoots might die altogether. I’m sensing that the initial flood of cheap money and virtual nationalization of risk that has sent the market higher will soon either reduce our flexibility, reduce our future growth rate, or worse.

Israel cautions against Obama dialogue with Iran

JERUSALEM (Reuters) – Israel said Thursday U.S. President-elect Barack Obama‘s
stated readiness to talk to Iran could be seen in the Middle East as a
sign of weakness in efforts to persuade Tehran to curb its nuclear
program.

 

“We live in a neighborhood in which sometimes dialogue — in a
situation where you have brought sanctions, and you then shift to
dialogue — is liable to be interpreted as weakness,” Foreign Minister
Tzipi Livni said, asked on Israel Radio about policy change toward
Tehran in an Obama administration.

http://www.reuters.com/article/topNews/idUSTRE4A52J920081106?feedType=RSS&feedName=topNews

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