Bush's Dirty Little Medicare Secret
Politics / US Debt Aug 15, 2008 - 03:03 AMBy: Mike_Stathis
We already know about the lies orchestrated by the White House to justify the invasion of Iraq . But there is a bigger secret that has not yet hit the mainstream media. And it probably never will until it's too late. Those of you who read my book already know about it because I discuss it at length. For those of you who haven't had a chance to read America's Financial Apocalypse , I'm going to expose this secret now.
Let's travel back towards the end of President Bush's first term in office. In preparation for his reelection campaign against Democratic Party Nominee Senator John Kerry, Bush instructed his Secretary of Treasury Paul O'Neill to commission an economic study to determine how much the U.S. government owed for the fiscal year 2004. As a part of this study, Dr. Jagadeesh Gokhale (senior economic adviser to the Federal Reserve Bank of Cleveland ) and Dr. Kent Smetters (economics professor at the University of Pennsylvania ) examined Social Security, Medicare, and Medicaid. They concluded that the total present value of the liabilities needed to pay some 80 million baby boomers for Social Security was $22 trillion. When Medicare and Medicaid were added, this obligation totaled $43 trillion. Finally, adding Part D Medicare brought the total to $51 trillion.
Independent groups studied this same data. It turns out that the estimates by Gokhale and Smetters were conservative by comparison, with total liabilities reported as high as $72 trillion. How much is $72 trillion? Well, it's more than the $60 trillion total debt held by the U.S government and consumers ( America 's total credit bubble, current estimate). Finally, these liabilities exceed the global GDP.
But it gets worse. While the present value of these mandatory liabilities is between $51 and $72 trillion, the future value of over the next forty years is around the $120 trillion. In other words, if Washington funds these programs as needed and without benefit cuts, the total amount over the benefit period could be as high as $120 trillion. Thus, by delaying the fiscal solutions the present value will increase accordingly each year due to inflationary effects, making matters worse. What this means for certain are higher taxes and fewer benefits.
| Study Estimate of Present Value of Obligations For Social Security, Medicaid and Medicare |
| Gokhale & Smetters $51 trillion |
| International Monetary Fund $47 trillion |
| Brookings Institute $60 trillion |
| Government Accountability Office $72 trillion |
Medicare is the Biggest Challenge
Of these three liabilities the greatest challenge is by far with Medicare since it's growing six times faster than that of Social Security . Medicare costs are directly related to the healthcare crisis few politicians want to mention. Rather than address the healthcare crisis, President Bush has chosen to create distractions by passage of Part D Medicare. But as we know, Part D does not provide solutions for nearly 50 million Americans without healthcare coverage. It doesn't even provide much benefit to seniors. Finally, Part D doesn't address the overall costs of healthcare, which has forced many with health insurance into bankruptcy. To distract from this enormous problem, Bush created another decoy by claiming an immediate solvency crisis in Social Security. In doing so, he failed to address the real problem with Social Security, which is not a solvency crisis at all. The real problem with Social Security is its failure to keep up with inflation.
Part D will only be beneficial to the drug industry, with huge annual profits estimated at $200 billion annually. This is the main reason why I continue to advise investors to use the weakness in drug stocks as buying opportunities.
Solutions
So what are the solutions? In the report written by Gokhale and Smetters, several options were identified as the only solutions to provide for these gigantic liabilities.
- Increase the payroll tax by over 100 percent immediately and forever from a current 15.3 percent of wages to nearly 32 percent.
- Raise income taxes by nearly 70 percent immediately and forever
- Slash Social Security and Medicare benefits by 45 percent immediately and forever
- Or eliminate forever, all discretionary spending , which includes the military, homeland security, highways, courts, national parks, and most of what the federal government does outside of the transfer of payments to the elderly
Sound scary? It should since option 4 is absolutely impossible. Likewise, option 3 is not feasible and if followed would sure destroy the economy…“immediately and forever.” As well, no president or member of Congress would endorse such an action because it would jeopardize their chances for reelection. In my opinion, some combination of the following will need to occur:
- Raise payroll, income, and corporate taxes
- Eliminate Bush's capital gains tax cuts
- Increase the retirement age to age 72
- Raise fixed taxes such as the gasoline, telecom, cigarette and alcohol taxes
- Raise less noticeable taxes, as well as consumer and business fees
- Decrease deductions and tax credits
- Create new taxes, such as a sugar and caffeine tax
- Relax immigration standards (especially with Mexico )
Already, Medicare and Medicaid are being slashed annually. As well, Medicare compensation to physicians continues to be cut, causing many providers to discontinue servicing needy recipients. I find it puzzling that Washington has set price caps for virtually all Medicare and Medicaid reimbursement expenses except prescription drugs. Once you examine the massive amount of drug lobbyist donations to Washington you might get an idea why Part D excludes the ability of Medicare and Medicaid to negotiate drug prices (see www.publicintegrity.org ).
Each day Washington allows these liabilities to persist, America 's financial problems get worse. Meanwhile, foreign nations gain more control of U.S. sovereignty since they're financing most of America 's debt, which will soon include benefit payments for Social Security and Medicare recipients. That's right. In a few years, as deficits begin to build for these programs, Americans will rely on foreigners to fund Social Security and Medicare. I hope Washington does not plan to upset China anytime soon. As you might imagine, the growing reluctance of foreign nations to continue financing America 's spending sprees could cause a major collapse of the dollar.
For over three decades, the world has continued to support America 's irresponsible spending habits through the purchase of U.S. Treasury securities. As U.S. consumers become weaker, the world will soon realize the U.S. economy is in a long-term downward trend. This will create even more momentum for the Euro to displace the dollar as the universal currency, which if happens will destroy the U.S. economy for a very long time.
What Happened to the Report?
When the White House read the study commissioned by O'Neill, Bush had these critical findings removed from the final report. All you'll see in the official report are claims that the economy is in full recovery. The official word is that O'Neill's resignation was due to disagreements with Bush's tax cuts. But it's reasonable to assume these disagreements were related to the study by Gokhale and Smetters, since the tax cuts were contrary to the recommendations made in the report.
Already, Social Security taxes per paycheck are 900 percent higher than those paid by workers in 1951, even on an inflation-adjusted basis. So rather than announce a hike in the payroll tax or raise the wage cap for Social Security, Bush wanted to be viewed as an “anti-tax president” to gain support for the invasion of Iraq. And this strategy paid off.
By all means, don't take my word for it. Research this and everything else I have exposed and you will see it's all there. Then you'll realize that the media hams you rely on for news and analysis continue to screen out the most important information. Do yourself a favor and turn off the TV tube and radio. Use the Internet and search for information. And use websites like this one. If you do you will begin to understand the truth Washington , Wall Street, and the media hide from you.
By Mike Stathis
http://www.apexvc.com
Copyright © 2008. All Rights Reserved. Mike Stathis.
Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.
The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.
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