patrick.net

In a deflationary situation, it is possible for the US government to roll over the current long debt to 0% interest rate new bonds, with only one catch, nobody will buy any US bond at any rate, because holding on to their money is far better than lending it out, especially to an extremely debt-laden government in a deflationary environment, you know it will become a going concern.

At the height of Japanese deflation around 2001, when Japan dropped their rate to 0.1%, Japanese banks were CHARGED money for depositing Yen, and Japanese retail customers were charged more monthly fee than receiving interest. Many Japanese were so worried that the banking system would just collapse that they started withdrawing CASH from the bank and stuffed under their mattress, some of them started buying gold, which became the buying force that pulled gold out of a multi-decade low.

So, the option only exists for the US government during a serious deflation if investors and SWFs around the world are willing to buy the 0% yield T of a practically bankrupt government, but why should they? Why not just leave their cash at home?

oops, I meant to say you don't know if it (US gov) will remain a going concern.

LinkedIn is actually not that bad since it caters to working people and you can milk some dough there especially for job search reasons.

Facebook is the one that should just fold outright, how can these college kids with $10Ks of student loans afford anything? There will be no jobs waiting for them when they graduate.

TOB,

I view cheap money and worthless money as two different things. I see where you're coming from.

Well, yea I heard of the housing bubble. You think it can’t happen again. FB’s will not have learned a damn thing.

With what money?

The Fed funds rate is at 1% and the securitized debt market is gone.

You can play that card once. The end game is deflation.

Richmond asks: Wasn’t part of Japans problem due to the fact that even though they had all sorts of cheap money no one wanted to borrow it?

Actually, I think the government offered all sorts of cheap money, but banks didn't want to lend it. Don't get me wrong, borrowing during deflation is a horrible idea, too. If it deflates far enough, eventually your debt becomes worth more than the asset. But Japan was stagnated because no banks wanted to lend capital to businesses, which eventually strangled off their growth. ZIRP did spawn a carry trade as an outlet, for explanations better left to experts on Japanese economics.

FWIW, a huge part of their problem was that their banks and companies held the bad assets in special holding tanks without realizing the losses. Many were effectively bankrupt by a massive margin, but they didn't actually fold. But nobody would lend to anybody precisely because of that problem. Only when they got a different prime minister to force the write-downs did things even begin to clean up.

HeadSet asks: But once deflation sets in, are market interest rates naturally going to be high or low?

I think you outlined it very well in your post. The only factor you need to incorporate is risk pricing. This is why Treasury yields briefly went negative (!!!) and all the yield spreads are so out of whack. The government can offer the banks money at ZIRP until the cows come home. The banks are still charging 6% for a prime mortgage and more for commercial lending.

IMPOSSIBLE! The US would have to default on our multi-trillion dollar debt.

the end game i fear is far worse.

How can we default on a debt denominated in a currency we control?

It's like you sell me apples and I pay you in IOU's. It's not like I can't just write more IOU's.

The 'far worse' end game would be hyper-inflation caused by the Fed mailing stimulus checks to everyone right from the printing press. *That* would be a disaster. Fortunately, I don't see that coming.

Get out of Iraq, soak the rich via progressive taxation and re-invest the proceeds in public works projects. New Deal 2.0, problem solved, thank you President Obama.

http://blip.tv/file/1417453

I give up.

The Original Bankster Says:
(re: deflation) The US would have to default on our multi-trillion dollar debt.

I think I may been somewhat cryptic in my previous post on this.

The point I was trying to make is that in a deflationary cycle, even a 0% interest rate implies positive return to the lender. So, the treasury could issue new debt at 0% and use the proceeds to make early payments on debt that was financed at higher rates. Rather than default on trillions, the US could simply roll debt over to a 0% rate and wipe out its interest obligations without default - in theory.

Of course, this assumes that someone was still willing to lend to the US in that scenario.

if the US got. have that level of control, why would anyone lend to it?

Because we have the biggest guns, our IOU's are worth more than everyone else. The strength of currency is defined by or military, human, natural and financial resources (include our reserves of gold bullion). Last I checked we were #1 across the board there.

my point:you can’t have a deflationary cycle with a super-low interest rate. Its an impossible scenario.

Imagine blowing air into a leaky balloon. Is it inflating or deflating? Well, I guess it depends doesn't it? And that's where we are now.

Keep in mind that the balloon sprung a leak because we over-inflated it in the first place.

For one, I will NOT tolerate Medicare. I say let the boomer live out their natural life expectancy without the help of modern medical technology unless they can fund it themselves, NOT on my dime.

They can die in droves for all I care.

TOB,

I am not against extending people's life within an affordability limit. I witnessed quite a few events with seniors in the current system, which is completely ridiculous, the current Medicare system spares no cost when it comes to extending senior's life even for a mere couple of months.

I have seen an expensive defibrillator installed on a senior of 90+ years old, with 15+ years of prostate cancer, just so that he can live another year or so. The whole thing costs more than $100K, the old guy is senile and watching TV all day, why should I work my ass off so that he lives another day? I accompanied another senior aged 85+ at a hospital stay because he felt dizzy and wanted to throw up, they kept him for 18 days without finding out why, and he looked visibly fine throughout the entire stay. The bill? $170K, by taxpayers.

If I were running the program, I would never let that 90+ yr old guy go through a defibrillator installation, if he dies in a month, too bad. For the second case, after a day of observation, if the hospital cannot find anything wrong, time is up, please pack and leave, if he drops dead upon reaching home, too bad.

We are still living in a world of limited resources so we have to ration these resources carefully especially in the government-run program. To me, it is extremely unethical that many kids are not covered by Medicare so they are neglected but the old farts can spend medical resources with no upper limit.

TOB,

LOL! You have a hard spot for Mike Orange :)

Seriously, I think the resources we do have now should be used to raise strong kids that can WORK/produce. Why keep throwing money at a senior citizen that will never produce anything of value for society? Well I guess we can grind their bodies up into mulch. If we did this we sure as hell should not be making the most expensive fertilizer in the pricess.

The house is on fire and I keep trying to snuff it out by throwing money at the problem. Why is this plan not working?

I forgot the mention one important detail.

The 85+ old fart that got hospitalized for 18 days is an elderly immigrant pulled in by his immigrant son, and he is already claiming SSI + SS, while he has never ever paid one day's tax in the US. On top of the medicare bill, the hospital has to find a translator to do the live translation during his entire stay.

This country has some really fucked up immigration system. I frankly have much less problem with the younger, harder working fruit picker illegal immigrants, at least they are lowering my food cost. What good does an elderly immigrant do to every single tax payer in this country?

The first thing we need to fix is the fucking elderly immigration law. No other country in the entire world accepts elderly immigrants, they are the most unwanted human beings on earth, except if they are rich of course. Why are we accepting elderly immigrants with almost no restrictions? Each family who wants to import their parents should put up a $200K bond with the government against which their parents' future medical expenses will be deducted.

And I am sick of all the extra translator resources we are giving to these elderly, if they have spent their entire life in the US, learn some English please, or they deserve no respect from the community. If they are FOBs, please send them back to where they come from.

the biggest issue in the US will be by far govt entitlement programs. All these things put in place during the New Deal, which the Boomers took for granted while they sit on their multimillion dollar RE. Somethin’s gotta give here folks.

It's called deflation.

When doctors are working for minimum wage Medicare is going to be much easier to fund.

TOB says:
Rolling debt over on a 0% interest rate implies expansion of the money supply = inflation != deflation.

What is the interest rate on treasuries today? Are we inflating or deflating right now?

TOB,

you are missing an important aspect of the money supply... Brand alluded to it earlier.

You can print as much money as you want, but if no one is spending it... namely, if it's not changing hands, then you will continue to have deflation. It's called the velocity of money. The rate at which it changes hands.

The velocity goes much lower when people perceive that their dollar will be worth more stuff in the future. This is the case right now with almost everything... oil, houses, commodities in general. They are all getting cheaper. So why would I buy anything with my dollars now? I can get more stuff for them next year. And even more the year after that.

As long as this expectation persists, we will have deflation, no matter how much free money you give people.

Brand and Fuzzy are spot on.
What we will see in the very near future is QE or quantitative easing. The Fed will buy many more government bonds than would be required to set the interest rate to zero. It will also buy asset-backed securities, equities and extend the terms of its commercial paper purchasing operation.

Inflation will not gain traction until the 800lb goirilla has been removed - failing RE prices (both residential and commercial). At that point the Fed has a ton of tools to mob up excess liquidity so that can halt inflation. But the resetting of asset prices is pretty hard. $10t is already out of the system. $2t of that was pension wealth. And more is coming.

Very soon now we will see good and reponsible people hurting, not just the greedy and the speculative.

Duke Says:
Very soon now we will see good and reponsible people hurting

The only way "good and responsible people" (garp) will get hurt is through taxation to pay for bailouts. If the bloody government got out of the way, garps would actually have less to worry about.

Otherwise, my guess is that garps are doing okay - we have savings to tide us over the short term, have not put all our 401k into one asset class, and have avoided overexposure to speculative stocks. And we also stopped buying (stocks/homes/gold) when prices went beyond a reasonable redline.

The way I see it is that even if my 401k funds dropped like a rock, it was mostly because its valuation earlier this year was vastly above reality. Ditto for phantom home 'equity'.

Way back to the topic of this thread.
CA schools are funded at the state level. The state is not losing money on investments (unless you count things like CALPRS taking a huge haircut) that would effect the schools. However, the state IS losing a ton of property tax revenue, which funds schools.
We are all aware of the special session now being held by Arnie and how he is floating some pretty big cuts to schools. We have also seen 20 of 22 municipalities pass measures to fund their local schools.
Get used to it.
State revenues will continue to decline for a few years and local areas that want better schools will ask people to vote to tax themselves to get them. I can easily see a legal challenge to this that *may* erode prop 13.

http://www.ofheo.gov/media/cll/HighCostLoanLimits2009.pdf

Bay Area conforming loan limit set at $625,500 for 2009.

The only way “good and responsible people” (garp) will get hurt is through taxation to pay for bailouts. If the bloody government got out of the way, garps would actually have less to worry about.

Well said!

Hopefully, the 28th Amendment will limit taxation to 10% (tithing)!

If one is expected to give 10% to the church, why is he expected to pay more to the government? Crappy service is worth more than afterlife?

And why aren't they go after cash businesses and illegal aliens for back-taxes? We definitely need a simplified tax code so that IRS can focus its energy to go after tax cheats.

http://biz.yahoo.com/ap/081107/earns_gm.html

I love when the company earnings calls are all bullshit... UNLESS they are pandering for a government bailout.

this line says it all...

"Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve or it receives government funding"

SP,

I think your definition of garps is different from Dukes. I think Duke was alluding to people who took out loans that they had the means and intentions of paying back, but will now find themselves unable to because of job/income loss.

By your definition, there are like 50 garps in the US.

After watching both my parents get decent care in spite of their lack of income (they had only social security and their house, along with support from their kids) I must say I'm impressed with Medicare and Medicaid. Or perhaps with laws that say medical institutions have to treat people who show up.

My dad went out in a very high-cost way: intensive care, lots of beeping machines, people doing stuff to him around the clock. My mom went out just the opposite: hospice care. Eventually she could not swallow, and they did nothing for her except morphine drops and keeping her clean. But she was in a nursing home since June, and she could not have afforded that without Medicaid.

Perhaps it would have been worse in a big urban area, but they were in a small town and the standard of care was pretty good and uniform for everyone.

So we already do have socialized medicine via Medicare/Medicaid to some degree, and it works. It was not a free ride for them because they both worked for their whole lives and both died on the young side. They may have been net contributors overall.

I think the system is abused a bit, because the nursing home got my mom an ultra-high end wheelchair via Medicaid when it was already clear she was never going to get to use it. But basically, the system is not that bad.

There is something to be said about a compassionate system where providing good care is the primary objective instead of a profit maximizing model. That is why I liked Obama's model. I don't have a problem with a government run system as long as the free market is allowed to compete against it. We need the government as a patch to free-market failures.

Being forced to take one or the other is a disaster, Patrick you have seen something work OK first hand. I have seen it work in England, but I would give the VA system a D. My brother had a relatively serious health issue as a Marine and I sat in that waiting room with him for over 5 hours just to talk to his doctor. It has to be properly funded with some sort of incentive for ensuring quality of care. I am very healthy and I have seen first hand the private system fail. I pay $80 a month for a PPO. I basically pay a premium to have Blue Cross deny this or that, or have some reason that my expense isn't applied to my annual deductible. I have seen how doctors pad the bill to get the negotiated fee, the one I have to then pay, as high as possible. Fraud and manipulation are inherent in both systems, but I would rather have a system where people get the care, and then aren't bankrupted. This nonsense of turning it all into some game of business is a big problem.

I have an immigrant friend and his aged mom immigrated here and had heart complications. She had heart surgery in her native country for about $5000. She probably had heart attack was taken to a hospital in Maryland and they opened up her heart and found previous surgeon has done excellent work and they could just work with medications. Now that was a stay of 2-3 days and it cost about 150K. I think Medicare paid around 70k and the rest had to be paid by my friend’s family. They took her back to their native country and she was fine for about 3-4 years and finally she died. She did get good care at hospital for about a month and it probably didn’t cost much for them.

Now Am I the only one who thinks medical care expenses are so outrageous here or that medical insurance is skewing all expenses to upside. I had a friend who took his car to Auto body shop for a small dent and body shop guy gave a quote of $300 assuming he didn’t have insurance. Later on he found out about insurance and came up with a quote $800.

I do believe medical insurance is a big scam. People should have insurance only for unforeseen complications.

Yes, the VA system is scary. Very badly broken, and a disgrace. I hate the war in Iraq, but those guys should definitely get much better care than they do, for being willing to risk their lives when the president says so.

Maybe the VA should be eliminated, and soldiers just given health coverage to go to normal institutions like everyone else.

don’t have a problem with a government run system as long as the free market is allowed to compete against it.

I agree and I am FOR universal health care.

However, I am against socialized health care for some but not all. They are now essentially discriminating against free health care customers based on age and income brackets.

I think public schools are a good model. They work, at least well enough to give everyone a decent chance in life. And if you don't like it and can afford the private alternative, that's available too.

Medical care should be something like that: universal and good enough so that we're not unduly discriminating against people who had the bad luck to be both sick and poor (or who got poor because they happened to get sick). But the private alternative should also remain available.

Universal health case solves many problems. We can consolidate VA, workers comp, medicare, medicaid and other systems.

If socialized health care cannot be avoided, any consolidation / merger should save taxpayer money.

I don't mind showering everyone with good medical care if an average hospital stay costs $1000, like in all other developed countries.

But not here. I have never seen a hospital bill below $10K a day, at least in the Bay Area, and even with the Medicare negotiated rate, you are talking about $4-5K a day, way beyond what normal people / taxpayers can bear.

My dad was hospitalized in the best private hospital in Australia a year ago, for 4 days. The total bill? $5600 inclusive of everything (doctor fee, pathology etc.), including a small operation, and his Medicare plus private insurance paid it all. Now, that is bill that I can deal with even if I have to pay it entirely out of my pocket. Based on my experience with the American medical system, the same treatment at Stanford of Sequoia will cost you 10x, probably 5x with insurance negotiated rate. And the sad thing is, I do not see any difference in service delivered. They had more nurses attending to each patient. What I particularly appreciate in Australia is, you get a bill with ONE PRICING, there is no Medicare or Medibank pre-negotiated rate, there is only one damn rate.

In the US, the most disgusting thing is, different people get different rates for exactly the same service. Non-insured gets the highest rate, then insured gets different pre-negotiated rate (are you guys even aware of that?). My wife and I both have insurances, and our insurance packages are different. So when they bill out to two different insurance companies, there is a discrepancy of at least 20% in the pre-negotiated rate, which translates into more co-pay for one type of insurance compared to another! For the same darn thing.

Until we get medical system to be honest in this country, and hospitals don't bill people arbitrarily sucking taxpayers' blood dry, I do not want to pay for Medicare. Medicare needs to die in its current and present form.

If there is any redeeming feature from the former British Empire, it is its NHS system. Many Asian countries' healthy system models after NHS.

After living through NHS, it is just appalling to see how screwed up the so-called "socialized healthcare" in the US is. Lots of abuse, skyrocketing cost, boondoggle, user confusion, it is really a miracle that Medicare has even survived this long. The whole point about socialized medical care is to keep it cheap so that everyone can afford it, it is not about letting the cost go sky high that it will be assured of bankruptcy.

Patrick, your parents are lucky to be able to take advantage of Medicare during its last heydays as no cost control is put in place at all. Medicare operation as it is currently run WILL NOT survive, there will be no Medicare left for us when we are old.

But socialized medicine is already here. We are already paying for it yet most here cannot participate for free. Hopefully, Obama can consolidate the system so that we will pay less for the new system.

TOB,

the problem is NOT the doctors.

I have looked at the American doctor bills and the Australian doctor bills, they don't differ that much (negotiated rate of American doctors). I actually think the American doctors are underpaid given how hefty the whole medical bill is. In fact, in some circumstances, my doctor bill in the US at the negotiated insurance rate is LOWER than the doctor bill in other countries. My family doctor can only charge the insurance $65 per visit while in Australia, my dad's doctor charges $85 per visit. I see nothing wrong with the American doctors, they are the victims in the current medical system too, because American doctors have to take on $200K student loan to get through our medical school here, while in UK system, you can study medicine from undergrad level, at almost no cost to you.

The problem is with the hospitals! That is where the costs diverge so much, the divergence are so huge that sometimes for the same operating theater or "supplies", our hospitals easily charge 10x of what overseas hospitals do.

It is the liability lawsuits! Limit payouts now!

TOB,

I have seen enough doctor bills here in the US vs. other developed countries, and I can tell you the difference is minimal. Except for the surgeons, most doctors in the family practices make about the same amount of money everywhere in the world.

I do not see doctors living a high life. Surgeons in his top earning capacity (age 35-50) probably can make $500K a year, if he is good. Most family practice doctors are making less than the county government employees or firefighters. I don't know where you get this idea of doctors living the lifestyle of the rich and famous, most doctors I know are making $200K max, that is nothing rich and famous about.

The cost of med school is that way because the Doctors collectively want to keep the bar to their profession relatively high.

You mean the older doctors?

It is always about "I've got mine so screw you."

So...

Doctors do not want more cheap new doctors.
Lawyers want ever escalating litigation amounts.
Accountants want ever more complicated tax code.

We are screwed.

Reading all of the above interesting comments on health care, I have to say that the first item that comes to mind is TRANSPARENCY. Without transparency there can be no competition.

For health care to be affordable, it is absolutely essential that all doctors and hospitals are required to make their their rates public, preferably on the web.

Rates for room, board, doctors, nurses, overhead, surgeons, supplies, medicines. Everything.

And when you go in for a procedure, they should offer a *package* of services, including follow-up, at a fixed pre-determined price.