Healthcare and the Stock Market

John.
I just read what you wrote and I’m not sure that you meant to write what you did. In short, you’ve said this is the equivalent of happy-talk unfounded by the fundamentals. Is that right?

How could the stock market know how to react, since so much is subject to change, and no one really knows the economic effects of the health care plan?

However, it has been a disgrace that the world’s leading, industrial nation, the proudest, most powerful nation in history, does not provide health care all for its citizens.

So give the Democrats credit for taking the political risk and getting the ball rolling. The Republicans, left to their own devices, would have done nothing. They never were leaders for any social improvements, whether Social Security, Medicaid, Medicare or human rights. They always had to be dragged, kicking and screaming, into anything that smacks of human benefits for the less fortunate.

That said, the plan is far from ideal. Way too many questions to be answered. Consider it only a start, and you can expect hundreds of changes. My only hope is that the nay-sayers will not try to gut the bill for political advantage.

The question is, and always has been, who will pay for it? I believe the federal government should, and I have massive evidence to show the government can afford huge deficit increases that will stimulate the economy, without inflation. If you want to see this evidence, just write to me at rmmadvertising@yahoo.com.

But what if taxes are increased? Economically, a bad idea, no matter what taxes they are. But, which Americans are willing to say, “I’ve got mine and I’m not willing to help those less fortunate than me?” If that’s your attitude, you’re not really an American, although ironically, it seems those who brag loudest about their patriotism are least likely to extend a hand.

I say, give the program a chance, and see how it can be improved for the benefit of all.

Rodger Malcolm Mitchell

While China may progress economically there will be no “innovation”. For example, Indian based JustDial is about launch in the US and is looking to hire in the US. Can you imagine the irony?

An Indian company is opening a branch in the US and is hiring American workers!

While China has some great manufacturers where is the innovation? Of course there will be some innovation but it will be rigid and manufactured by the state that it could hardly be called true entrepreneurship or imaginative thinking. It would merely be “collective wisdom”. There is nothing inherently wrong with that, it just means that a lot of other great ideas would never see fruition. That is the essential problem with the system in China. Great ideas that will never see the light of day simply because the government does not allow freedom of speech and freedom to communicate.

I applaud Google’s move and would hope more Western nations would do the same. It is hypocritical that Bush would, with one hand, smite the totalitarian dictatorship in Iraq with a view to restoring democracy, and extend his other hand to Hu Jintao.

There is nothing wrong with a one-party state or a Communist one, so long as there are some freedoms. I am not even saying there needs to be complete freedom of speech. In some countries with vast religious and racial divides it is difficult to foster constructive dialogue. However, not allowing access to the internet is difficult to stomach from the world’s second largest economy.

I would put my bet on that you have not been to China. To compare Iraq and China is a little bit ridiculous. And I doubt it’s in anybodies interest to see China go through the same chaos and violence as Iraq, just for the sake of democracy and political freedom.

What people are saying about China and innovation today, sounds very similar to what people were saying about Japan in the 70′s and 80′s. This is the ladder of development all countries need to go. Catch up first, mainly by knowledge transfer from more developed countries, and then start innovating. This is especially the case for market segments that are already mature.

China is the world’s no. 2 (after Germany) investor in green technology. At the same time they need it more than any other country. I think you can expect that this is an area where they will be at the forefront pretty soon. There are no restrictions on freedom, when it comes to R&D and entrepreneurship.

Though you got a point about communication. They cannot block too much of the Internet without negative consequences.

John,

Universal health care coverage should not have to be a big, expensive government initiative.

Countries in Europe spend 9-10% of GDP on health care. In 2009 the US spent 18% of GDP, and it is rising.

What the US health care system needs is cost control through a combination of government regulation and the creation of a competitive market in health care. The US has neither, which is why it has the most inefficient health care system in the world.

So universal coverage should have nothing to do with big government. Though it could be if it doesn’t target the core issues of creating a healthy health care system.

No doubt the Health Bill is a landmark achievement by the American democracy. Huddle and puddle of democracy worked to have vector out. It does mean the cost to the state. But is something very unusual that the democratic republic does something for the poor man on the street after it took control of itself a few hundred years ago. But well it has responded though may not be in the best manner. The main factor of cost can be addressed in some interesting ways thru remote connectivity and even innovative outsourcing to develop a symbiotic health care. once successful can serve a model to for lot of poor countries to follow.

Yes, Happy Talk (I would call it Improving Investor Sentiment) is fuel for a market advance, especially when there is a very cloudy vision of what’s ahead in 2011. But the functionality of government is more than happy talk–the passage of healthcare legislation sends a real message that there might be enough political will–enough functionality– to tackle some of the cost cutting challenges that are ahead (think Medicare, Social Security, etc.). If we as a nation do not address those challenges, the backslapping will stop, the economy will suffer and so will the stock market.

Over the years, I mostly have voted for Republican candidates, which is why I find the current situation so sad. The Republicans had this “great” plan to impede everything the Democrats proposed, thereby demonstrating the Democrats were toothless.

They spread dozens of unfounded rumors about the health care plan, and did everything they could to block it — then whined that they were left out of the mix. The moaned about partisanship, then had 100% of their members vote like obedient little soldiers, all the same way.

How better to demonstrate lack of thought than to have 100% of your members say exactly the same thing?

My Republican party has no plan, no program and no vision. While the Democrats took great political risk in putting forth their big idea, the Republicans sulked like cowards on the sidelines.

Now, their “plan” is complain about cost and to have individual states (counties and cities, too?) try to find technical means to undo what has been done. They think they can tell the millions of people who now will receive health coverage that this coverage should be given up, and somehow that will give them votes in the fall.

I believe the two-party system is the best, so I hate to see the Republicans surrender to a mean spirited agenda that will destroy the party. We can only pray the Republican Supreme Court does not cause chaos in the name of partisanship.

Rodger Malcolm Mitchell

Such insignificant rise seemingly has little to do with the health care news. It could just mean that investors are neither overtly enthused nor reacting negatively.

They would be more concerned of the immediate personal gain rather than the long term heavy expenditure of the government.

I come from a family tradition of supporting Democrats, though I havn’t been able to support Democrats this last decade.

The *real* problem has been that I couldn’t support Republicans either.

This health care bill is slavery by degrees; a mandate that is insupportable and compromises that are unacceptable. It doesn’t work. It neither lowers costs nor improves quality of care, both of which imply we are in dire straits on the financing as soon as someone runs an honest audit.

The Tea Party is directly and adamantly opposed to this bill and the current administrations efforts to further empower big government.

The Republicans, being honest, aren’t nearly as opposed, especially to the big government part, but are very eager to seem so for political advantage. Living down Bush isn’t exactly easy even if Obama’s worse in the same direction, and any little bit of help counts.

There’s one campaign slogan I want to hear, and only one. Repeal. I’ll vote for someone running on a ‘Repeal’ platform until and unless a better one comes along.

And it doesn’t seem like I’ll be able to support Democrats this time around either..

“At some point in the next six months the stock market will reflect our nation’s debt dilemmas and at that point we’ll likely suffer through a painful correction. But for the moment—knock on wood—things don’t look half bad.”

Thanks for the heads-up. Before I cash in my investments I would like to know how you arrived at the magical six-month period.

Good question. I too would like to see the data that shows federal debt has an adverse affect on our economy (or the stock market). I am willing to bet Mr. Curran has no such data. He just is spouting off from his intuition.

Looking at the data shows that every recession in the past 40 years has come at a time of declining federal debt growth, and every recession has been cured with increasing federal debt growth.

O.K., Mr. Curran, if you’re not just spouting off, let’s see your data. Any reader is invited to help him.

Rodger Malcolm Mitchell

Here’s a better one: “Make universal health care work.” This great nation needs to provide health care for all, not just for those who can afford it. Rather than repealing a plan, because you don’t like certain aspects, how about using the plan as a basis for future improvements.

It has been a disgrace that America has so many people without easy access to health care. No plan will be without it’s critics, but Medicare, Social Security, and every program for fighting racial, religious and sexual discrimination all have their critics, too. No social plan pleases everyone.

So, rather than throwing out the baby with the bathwater, how about improving the plan, which is exactly what will happen over the years. Don’t let the right-wing politicians stir you into a mob mentality. Mobs are stupid.

Rodger Malcolm Mitchell

The correlation between debt growth and the stock market is pretty useless, especially if your timeframe is just 40 years. For a longer term study of the effect of sovereign debt and related crises, I suggest Reinhart and Rogoff, This Time is Different, published by Princeton University Press. Their data cover eight centuries (true, there are some big holes) and offer a compelling message.
At varying levels, debt affects perceptions differently. A corporation that takes on a reasonable increase in debt may nicely increase its ROE and achieve a higher stock price. A corporation with onerous debt will signal High Risk to the investment community, and that will likely result in a lower stock price. All of which says, debt itself is neither good nor bad–it’s all about your ability to pay it off.
At the national level, U.S. debt is deemed to be safe, but bond investors will demand a higher level of real interest rates if they begin to fear that risks are rising. Though people muse about a U.S. sovereign default, the real danger is reckless money growth and unruly inflation–from lenders’ perspective this is an effective default because they lose purchasing power. Long before that becomes a reality we would likely see a crisis of confidence (remember what those feel like) that would push real interest rates higher. It doesn’t stop there: High real interest rates make new corporate investment much less attractive, and so on.
It’s impossible to know precisely when the financial markets would become unsettled by such possibilities so I take your point that six months is an intuitive call. But note, too, that the markets look 6 to 12 months ahead, so by later this year the markets will be digesting 2011 prospects. If they neither see nor anticipate any serious efforts to constrain America’s mushrooming debt, then investors will take protective measures in the form of higher real interest rates. Maybe the stock market would shake off such negative developments but it would be a very tough act.

John, sorry for the tone of my earlier post.

You said, ” . . . debt itself is neither good nor bad–it’s all about your ability to pay it off.”

Correct. I was talking about federal debt. I chose 40 years, because the world changed in 1971, the end of the gold standard. Prior to then, it was possible for the U.S. government, and most sovereign governments to have difficulty paying debts.

Today, the U.S. government (and all major sovereign nations outside the EU) has the unlimited ability to create money, therefore cannot default. So an 8-century time line is meaningless. You might as well go back to cave man days for all the good it would do.

Private debtors and local governments, however, always could default, and still can. Economists whose philosophy is the same for pre- and post-1971, have a serious problem. Which of your beliefs has changed post-1971?

You are correct that debt affects perceptions, because many people wrongly perceive it is possible for the U.S. government to default. I notice there is speculation the U.S. could lose its AAA rating, which factually is hilarious, and demonstrates incredible ignorance. I would love to know which corporation is better able to pay its debts than the U.S. government. Further, any inflation will affect all corporations.

” . . . the real danger is reckless money growth and unruly inflation.” Again, you are correct. However there is no modern relationship between federal deficits and inflation — at least not the deficits we have had since 1970. In fact, our largest deficits have corresponded with our lowest inflation. I know this is counter-intuitive, and opposed to popular faith, but you can see it in the graphs here.

You will see that inflation has been caused by oil prices, not by federal debt. (Yes, I know: Counterintuitive)

When you talk about “America’s mushrooming debt,” it’s important to differentiate between federal debt and all other debt. All money is debt. A growing economy requires a growing supply of money. Deficit spending is the federal government’s method for supplying that money.

When the federal government doesn’t supply enough money (debt), we have recessions and depressions. However, when the public supplies too much money (too much private debt), we also can have recessions.

For this reason, the concerns about federal debt not only are wrongheaded but very harmful. Without those concerns, we would have fully paid-for universal health care, today. So, inadvertently, debt hawks cause much human misery.

Rodger Malcolm Mitchell

That is the best bunch of letters I have read in a long time although lately I notice that Mr. Malcolm Mitchel is kind of a gabby fella. I am glad we finally passed some sort of health program and I agree it needs a lot of fixing as even i don’t like it and I have been rooting for a long time. Since my individual self employed insurance with huge deductible hit $10,000.

Rodger Malcolm Mitchell – I liked your comments so much that I have copied them for my tennis gang.

Maybe they already knew something we just found out: individual mandate. Plus in my opinion the stock market is already overpriced; the fundamentals’ of the economy don’t provide justification for why the stock market appears to be bullish, or maybe to state it better: a bull market in what is still a “bearish economy.”

Thanks. You can see more here.

Rodger Malcolm Mitchell

“This great nation needs to provide health care for all, not just for those who can afford it.”

No, it doesn’t. Nor should it. If you can’t pay for medical treatment, you shouldn’t get any.

It’s no different than anything else with a limited supply and an unlimited market. Raise the price till those who can afford it cover costs for THEMSELVES, and not for anyone else.

Stop providing free treatment. Period. Emergency rooms need to run ID checks for illegals, and credit checks.. and refuse service to anyone unable to pay.

Insurance companies need to be able to compete, and that means the ability to compete across state lines, and the ability to determine REAL income no matter how intrusive that appears.

Veterans hospitals need to accept military dependents, teaching hospitals need to accept the indigent as training aids, and state/federal supported clinics need to provide first come/first served treatment with nominal co-pays. We do NOT need any sort of national mandate. Oh lord we don’t. NO MANDATES.. and no democrats until they GET it.