NIA Says Health Care Will Cause U.S. Dollar Collapse

/PRNewswire/ -- The National Inflation Association today released the following statement to its http://inflation.us/ members:

"It is becoming increasingly likely that health care will be the straw that causes the U.S. Dollar to collapse. There is no doubt about it that health care costs are out-of-control in America. Unfortunately, most Americans are calling for the government to do something about astronomical health care costs, when the government is actually the cause of the crisis and will only make it much worse.

Medicare costs have increased from $3 billion in 1966 to an estimated $408 billion in 2009. This equals a compound annual growth rate of 12% and proves that inflation gravitates towards parts of the economy where government is involved in the most. Health care now accounts for 17% of the U.S. GDP, and by 2017 it is estimated that one out of every $5 spent in this country will be on health care.

Isn't it amazing that the one area of medical care that is going down in price is plastic surgery and other cosmetic procedures, because it is the area where the government is involved in the least? Free market forces dictate plastic surgery prices, because health insurance typically does not cover it.

Today we have a system where tax free health benefits from employers force Americans into expensive health insurance plans that encourage individuals to claim every small doctor's visit. This creates abuse of the system with Americans going to the emergency room for unnecessary reasons, knowing they will only have to pay a $10 co-pay.

If Americans were able to take home the cost of their health insurance plans, in the form of higher wages, they would then be able to purchase cheaper health insurance plans on their own that cover only bad accidents and major emergencies. If they wanted to see the doctor for something minor, they could pay for it out of pocket. With less people abusing the system, waits would be shorter and doctors would be encouraged to charge the least. Today, with doctors getting paid by a handful of third-party corporations, they are encouraged to charge the most.

Government intervention into health care has ruined the industry for doctors too. The government has made the industry less efficient by creating too many licenses and regulations. Doctors now spend half of their time filling out excessive paperwork while worrying about malpractice lawsuits. If somebody has a small bruise on their arm, instead of telling the patient to use ice, doctors now run multiple tests and fill out dozens of forms to comply with regulations and prevent themselves from being sued.

Obama's plan of socialized health care will wipe out the private sector and create less competition. No private health insurance companies will be able to compete with the government, which will be able to operate at a loss continuously. With any remaining efficiencies of the free market eliminated, costs will go up for all Americans in the form of much higher inflation, and the quality of health care will go down.

If we want the U.S. to remain the country where millions of people travel to for top quality medical care, we need to allow the free market to work for itself. Free market principles are the only way to drive costs down while improving the quality of health care."

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The Conference Board Maintains That Global Growth Rates Are In Positive Territory

/PRNewswire/ -- The Conference Board reports yesterdaythat global output growth in 2009 will be slow but remains positive at 1.3% for 2009. As the G-20 gathers in London today, The Conference Board points at large discrepancies in the global economy this year, with advanced economies experiencing a strong contraction in output at -2.5% on average, and emerging economies pulling the world economy along at a reasonable pace of 5.0% on average.

"As projections of global growth have been slashed dramatically recently, we need to remain conscious of the huge uncertainties about how the decline in global trade affects the domestic sectors of emerging economies," says Bart van Ark, Vice President and Chief Economist of The Conference Board. "The internal dynamics of growth created by the millions of consumers in these countries, who have a job or are able to find a job, even in a slowing economy, will continue to generate positive growth." His analysis appears in StraightTalk, a newsletter designed exclusively for members of The Conference Board global business network.

MODEST RECOVERY IN THE U.S. REMAINS LIKELY

Real GDP in the United States is forecasted to fall by -5.9% on an annual rate during the first quarter of 2009, signaling a deep point in the recession. Some better numbers are beginning to emerge. The Conference Board Leading Economic Index and Consumer Confidence Index suggest that the recession will not intensify further. The decline in real consumer spending has leveled off a little. Retail sales, excluding cars and car parts, rose by .7% in February, and some turns in the measures of home sales and prices were also recorded. The Conference Board projects that growth in the second quarter will stay negative and will be very slow in the third quarter, as capital spending will remain low and inventories will not be depleted until year's end. Overall industrial production is also unlikely to move up before the fall. Even the recovery in the fourth quarter will be held back by these negative trends and increased unemployment, which is typically a lagging indicator.

The U.S. may see a contraction in real GDP of -2.6% in 2009 - the largest annual decline since 1946. Nominal output (the value of output that also reflects price change) may actually fall at more than 4%, as disinflation is much more likely in the short run than inflation.

RISK OF A "DOUBLE-DIP" RECESSION

Back-to-back recessions, as occurred between 1980 and 1982 when the economy endured a systemic crisis rather than a regular recessionary period, are a potential risk at this time. Recent increases in commodity prices, on the back of monetary easing and decline in the dollar, are leading to an increase in inflation expectations.

"If the United States experiences a too rapid recovery, there may be a risk of another recession in 2010," cautions Van Ark. "It may fuel expectations for a return to inflation, adding to the uncertainty concerning the pattern and path of economic recovery."

The likelihood of this happening is small as there are three substantial differences between the current crisis and that of the early 1980s: 1) Inflation was the concern then; now the possibility of deflation for the short and medium term is a greater threat. 2) The 1980s crisis was related to a structural transformation of the model of production in the U.S., moving from a manufacturing to a services economy; the current crisis was largely sparked by overleveraged balance sheets and global imbalances in consumption and savings. 3) This time we have massive governmental intervention intended to prevent economic activity from declining even further and stem the rise in unemployment.

LARGE DISCREPANCIES BETWEEN ADVANCED AND EMERGING ECONOMIES

The Conference Board argues that the divergence in growth performance between advanced and emerging economies will create a major challenge to rebalancing the world economy toward a more manageable global distribution of production, consumption and trade in goods and services.

The economies of commodity-producing countries - such as Russia and Brazil - have been producing bad results due to falling energy and commodity prices. China and India are the best bets to limit the global output collapse in 2009. China's export growth engine is under serious stress and the consumer sector will surely be affected by the decline in employment opportunities.

But the internal dynamics of growth created by the millions of consumers who still have a job or are able to find one in a slowing economy will continue to generate positive growth in China. Even though much of the U.S. $586 billion stimulus is likely to have already been baked into the government's investment plans, it may help keep China's growth rate at about 7.5% for 2009, says van Ark.

In India, as well as in several other large economies in the developing world that are somewhat less exposed to the global storm, the impact of the collapse in financial markets on fourth quarter GDP may have done a less lasting damage to the potential for growth this year.

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Georgia Economic Outlook 2009

The Georgia and U.S. economic forecasts summarized here were prepared by the Terry College’s Selig Center for Economic Growth.

The Georgia Forecast

At a Glance – The Selig Center forecast offered a grim assessment of the Georgia economy, predicting a recession that will be “severe rather than mild and prolonged rather than short,” according to Dean Robert T. Sumichrast of UGA’s Terry College of Business. “I believe that the first and second quarters of 2009 will be dreadful. Just how dreadful depends on when, and to what degree, the credit markets thaw.” Noting that recessionary periods historically average about 10 months, Sumichrast said he anticipates this recession lasting 18 months. “It will be the longest downturn since the Great Depression.” But he stopped short of calling the current economic cycle a depression.

“That’s largely because the policy responses by the Federal Reserve, the Treasury Department and the FDIC have been massive, targeted and very timely,” Sumichrast said. “The Feds have pulled out all the stops to prevent a depression. We are about halfway through the really bad stuff. This is not the time to lose your nerve or to panic. The main takeaway from my remarks is that this is the time to plan and soon it will be time to act. You can take advantage of the economic recovery that is coming in 2009.”

Where’s the Bottom of the Trough? “Given what we know today, the most likely scenario is that the economy bottoms out in the third quarter of 2009,” Sumichrast said. “Until the upswing begins, we are going to see very sharp pullbacks in spending by consumers and businesses. The aftershocks of the financial panic will continue to be felt. People and companies have lost assets. Many are truly less well off. And the wealth that has been lost will not easily be rebuilt. So, even though the economy is likely to bottom out in two more quarters, it will be very slow to recover.”

By the Numbers – For the year, Georgia’s economy is expected to grow just 1.0 percent in 2008, after adjusting for inflation. And in 2009, the state’s gross domestic product is forecast to shrink 1.4 percent. Georgia’s economy will slowly begin to turn around in the third quarter and will accelerate to about 2.5 percent growth by mid-2010. “That’s on par with the average rate of economic growth in Georgia over the past 10 years,” Sumichrast said.

Unemployment Will Double – The period of declining employment in Georgia is forecast to last for 17 months – through July 2009. But when hiring resumes in the third quarter of 2009, job growth will be too anemic to keep pace with the growth of the labor force. Consequently, Georgia’s unemployment rate will keep rising throughout 2009. “It will peak at about 9 percent in early 2010,” Sumichrast said. “That will be the highest unemployment rate since the current data series began in 1976.” Georgia’s jobless rate was 4.4 percent in 2007, rising to 6.0 percent this year.

Contrasts with 2001 Recession – “Our last recession was in 2001. Georgia’s gross state product will decline much more sharply in this recession than it did in 2001, but the job losses will be only moderately greater this time,” Sumichrast said. “We anticipate a loss of 175,000 jobs in this recession, as compared to the loss of 150,000 jobs in the 2001 recession. The main reason job losses will not be significantly worse is that many businesses entered this recession with very lean staffing. So the job losses associated with this downturn will mostly reflect substantial declines in demand, rather than overstaffing or overdue restructuring. That contrasts sharply with the excessive spending on technology and staffing that preceded the 2001 recession.”

Housing in Freefall – New housing permits in Georgia have dropped about 75 percent since their peak in the first quarter of 2006. “That is a freefall,” Sumichrast said. “Georgia’s single-family housing starts are at their lowest level since the 1981 recession when our population was about half of what it is today – almost 10 million. Relative to the size of the economy, today’s housing downturn really is much, much worse than the 1981 retraction.” The Selig Center forecasts that the steep drop in single-family home sales will bottom out by April. Two months later, new home construction should hit its low point and begin to change course.

Commercial Construction Retreating – Conditions in nonresidential construction will worsen dramatically in 2009, and an upturn in this sector will not happen before midyear of 2010. “The pipeline of projects is being completed, and the credit crunch is severely limiting the development of new projects,” Sumichrast said. “In addition, there is a lot of vacant commercial space.”


Why So Slow to Rebound? “The wealth destruction of this recession has been intense, and it has done much more damage to middle class households than is typical. That’s because the losses this time are in residential real estate, as well as in equities,” said Sumichrast. “Middle-income consumers are likely to come out of the starting gate much more slowly in the second half of 2009 than they did in previous recessions. That’s one reason why the first two quarters of the upturn will be anemic.”

Have Cash? Be Bold – Sumichrast suggested that this may be a good time to start or expand a business, if you can get access to cash or financing. “Rents are depressed. Talent is available. And established businesses are cutting back on promotions,” he said. “It will be hard for startups to get bank loans, but some of you will get loans; others of you will be able to convince your families and friends to invest in your venture.” It’s also a great time to build, if you have the capital, need the space and are ready to stop renting. “Many contractors will cut their normal profit margins to keep their crews busy,” he said. “But the best deals will be had when the recession is at its absolute worst. Think second quarter of 2009.”

The National Forecast

At a Glance – The severity of the current downturn will not only be defined by its duration, Sumichrast said, but also by the depth of the losses. “I expect U.S. gross domestic product to decline by 3.5 percent in the fourth quarter of 2008, and then by 3 percent and 1 percent in the next two quarters,” he said. “These reductions qualify it as a severe recession.”

GDP will rise slightly in the third quarter of 2009, before advancing by 1.5 percent in the final quarter of the year, according to the Selig Center forecast. That averages out to an inflation-adjusted growth rate of 1.1 percent in 2008 and a decline of 1.2 percent in 2009.

As layoffs and buyouts continue to mount in the job market, the nation’s unemployment rate is expected to rise from a low of 4.5 percent in 2007 to more than 8 percent by 2009. Another year of declining economic growth will tamp down net hiring, and the extreme volatility in the financial markets will cause employers to hesitate longer before hiring. “I really don’t see any powerful engines of growth,” Sumichrast said. “Consequently, the upturn will be gradual. The lack of vigorous growth also means that initially we will have a relatively joyless upswing.”

Housing Bubble – Nationally, single-family housing starts have hit their lowest level since World War II. “Even though we will see upturns in home sales and new home construction, we may not see existing home prices appreciate until very late in 2009 or early in 2010,” Sumichrast said. “That’s because there is still a large inventory of unsold homes that will keep a lid on prices.” The hefty housing price bubble that developed in several states in 2006 and 2007 will have finally dissipated in even the most over-priced markets by mid-2009. That will end the cycle of household wealth destruction that’s been ongoing since early 2007.

On the positive side, Sumichrast lauded the temporary $7,500 tax credit for first-time home buyers that was included in the 2008 Housing and Economic Recovery Act. “Since first-time home buyers do not have to sell a home before they buy a home, this tax credit will help take excess inventory off the market,” he said.

Deflation the Concern Now – “Inflation was yesterday’s problem. Today’s problem is deflation,” said Selig Center Director Jeffrey M. Humphreys. He predicted consumer price inflation of 3.8 percent in 2008 will drop to a deflationary rate of -1.0 percent in 2009. Three factors have caused inflation to morph into deflation since September. First, the U.S.-led recession deepened and became global, which is rapidly driving down energy and commodity prices. Second, the financial panic worsened the housing recession, further drawing down home prices. And, third, wage and salary inflation has been brought down by the resulting job losses.

Interest Rates – The Federal Funds Rate, currently at 1.0 percent, will hold its position in 2009, but once the U.S. economy builds up some steam in 2010 the Federal Reserve will move to take back its rate cuts, Humphreys predicted. “As long as the Federal Reserve does not keep rates too low for too long, the risk of stagflation remains very low,” he said. “Based on our forecast of a very gradual recovery, I expect the first rate increase will not occur until sometime in the first quarter of 2010.”

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