- (september 2009)
Health care does not mean health.
It is a bit disgusting to hear so many doctors, nurses, insurance agents and
hospital managers claim that health care in the USA works just fine.
The USA exhibits an aberration that is not found anywhere else on Earth:
a staggering price for health care coupled with a stunning number of
preventable deaths (i.e., bad health).
There are countries that compete with the USA for number of
preventable deaths, but usually they are very poor countries where health care
is very cheap.
There are countries that compete with the USA in terms of cost, but
usually they are northern European countries where death rates are low.
The USA is unique in spending a fortune to get a bad service.
(The USA spends about twice as much per person on health care as most European
countries but European countries beat the USA on most health statistics,
including higher longevity, lower cancer rates, fewer heart diseases, etc).
Alas, it is not surprising: any system in which the doctor has a vested
economic interest in your sicknes is likely to focus on treatment over
prevention. There is very little motivation in the USA to prevent a problem:
thousands of
doctors, nurses, hospitals and insurance companies would go out of business,
and thousands more would see their income decimated, if diseases were prevented.
This is a huge economic sector that needs a huge customer base, i.e. a large
number of very sick people. The health care sector (a $2.3 trillion economy)
needs people in bad health.
Health care is the one sector of the USA economy that is not subject to the
market pressures that are supposed to self-regulate any market sector.
First of all, there is a psychological factor: are you really willing to
bargain for your health care as much as you do for, say, a new car?
If the car you buy is not the best one, too bad. If the health care you get is
not the best one, it might mean that you will be a cripple for the rest of
your life. This is one factor in which price control does not follow
automatically from competition.
Secondly, the health care system constitutes a vast bureaucratic and financial
apparatus that can do pretty much what it wants. The other economic sectors
are under pressure to provide good products and good customer service lest
they lose their customers. But a sick person can't really say "I'm so pissed
that i will not get cured ever again". And the vast apparatus of government
subsidied (whatever they are called in your state) encourages health-care
providers to charge as much as possible for as little as possible.
It is also a little pathetic to hear so many USA citizens defend the system
that makes them and keeps them sick. A lady on a tv show said how proud she
was of the doctor she sees "almost every week". That doctor obviously never
healed her. She is chronically sick and she doesn't even realize it.
Another guest was praising the high-tech devices of the hospital when in fact
the USA still relies mostly on paper and pen. In 2009 there is virtually no human
activity (not even a grandpa writing a letter or a housewife writing a shopping
list) that still relies on paper and pen. However, USA physicians routinely
write prescriptions, notes and reports using a pen (and mostly with terrible
handwriting).
The fundamental truth that has eluded the USA is that "health care" and
"health" are not the same thing. A lot of health care does not translate
into good health. In fact, it almost always backfires (try and take ten
aspirins a day) even when the intentions are good. In the USA there have been
several cases in which it was proven that the intentions were not even good:
doctors and dentists recommended a product or a procedure because it would
benefit them financially. Every foreigner's favorite example is the USA dentist
that wants to put a crown in your mouth: millions of USA citizens have crowns
that were totally unnecessary but that made them chronically dependent on
dentists.
The big pharmaceutical companies
(whose sales constitute 40% of the national market)
lavish money on doctors and other healthcare providers
(Note of 2011: about $760 million in 2009 and 2010).
Then these same doctors prescribe
expensive medicines instead of generic drugs that would work perfectly well.
(See this study).
Even when there is no evil intention,
health-care providers always tend to provide
the most expensive kind of treatment because it's the most lucrative, not
necessarily because it is really needed. On the other hand, they tend to
ignore cheap treatments (especially prevention) because there is no money in
them. Another favorite joke among foreigners is the doctors that routinely
recommend an MRI or a colonoscopy, which are very expensive tests, when in fact
these are almost always unnecessary and a good physician (one who is really
competent in "medicine" and not just in "medicines") could have diagnosed the
problem with much cheaper tests. The colonoscopy, for example, is a rather
dangerous thing to do in the first place. In Europe citizens over 50 are
routinely asked to self-test themselves with a free kit available in all
pharmacies. Government labs test the kit for free and return a simple yes/no
result based on whether microscopic traces of blood were found in the stools
or not. If not, then there is no need for an expensive colonoscopy.
These simple, effective and much safer procedures are often unknown in the USA
because no health-care provider has any interest in telling the patients.
Worse: the sick person is often not the customer. The real customer is the
insurance company. A health-care provider has to please the insurance company,
not necessarily the sick person. If a sick person dies in a hospital but the
insurance company is happy, few people within the hospital will feel that
something went wrong. On the other hand, if a sick person is successfully cured
but the insurance company complains, there is certainly going to be a review
of the procedure. When the sick person is indeed the customer, the story
is completely different: any procedure that is not covered by insurance is
likely to be priced very competitively and come with a high degree of quality
control. Compare the prices and success rates of LASIK eye surgery and of
colonoscopies or MRIs. The former (usually not covered by insurance) has been
getting cheaper and cheaper. The latter have been getting more and more
expensive. Yet, even a casual observer realizes that eye surgery is a lot more
difficult than a 15-minute colonoscopy.
The other big customer of the health care economy is the government.
Government-funded programs have twisted the meaning of "health care" the same
way that insurance-based health care has.
The problem is compounded by sheer corruption. The health-care lobby has
bribed Congress to pass laws that make the whole field as uncompetitive as
possible, and that discourage any attempt by outsiders to create an alternative
system.
Hospitals have simply become profit-driven corporations for which the health of their patients is not the main goal.
A 1999 report by the Institute of Medicine found that medical mistakes caused as many as 98,000 deaths and more than one million injuries a year in the USA.
A Harvard study published in the New England Journal of Medicine in 2010 reported that 18% of patients were actually harmed by medical care.
In 2011 a cardiologist was fire by its hospital for documenting how cardiologists in the hospital committed all sorts of gross mistakes.
Nurses have been fired from hospitals after revealing that doctors are performing unnecessary procedures.
In 2012 the Congressional Budget Office estimated that about 30% of health care procedures have no meaningful effect on the health of patients.
In december 2012 the CBS News program "60 Minutes" reported on ER doctors fired for not meeting quotas on the percentage of patients they admitted to the hospital.
The health care system is dysfunctional because the incentives are to inflate
costs and to encourage ever more treatment.
I hope it is clear to everybody that this cancer (hospitals, doctors, insurance
companies) will never stop: it will gladly become 20% and then 30% and then 50%
and, if it were physically possible, even 100% of the USA's GDP.
At the same time, one has to recognize that the problem lies with the insured
too. People who have health insurance expect their insurance company to pay
for everything that is vaguely related to health care.
Day to day use of a car is not covered by your car insurance. Your car insurance
and your home insurance only cover major problems, like a car accident and
a home fire. They certainly don't cover the cost of gasoline and routine
maintenance, nor do they cover the cost of a maid to clean up your bathrooms
or the insecticide to kill spiders and ants.
There is also a subtle alliance between the health-care providers and the food
manufacturers. Health care would not be a $2.3 trillion business if the USA
diet weren't so unhealthy. Food manufacturers make people sick so that
health-care providers can make money out of those sick people. The market for
prescription drugs and medical devices to cure heart diseases, cancers, diabetes
and, quite simply, obesity was not affected at all by the recession.
(See this New York Times article).
These health problems are often caused by a bad diet. Instead the food industry
spreads the myth that they are caused by genes, and people go on eating junk
and getting sicker and sicker (how many Asians, Europeans or
Africans are obese? how many USA descendants of Asians, Europeans or Africans
are obese? it doesn't take a genius in biogenetics to find out that it's the
diet and not the genes that makes you twice bigger than your ancestors).
The health-care industry cooperates with the food-manufacturing industry in
deluding the public that their diseases are genetic. Your doctor would not
get rich if s/he simply told you to stop eating junk and start hiking in
the mountains. Your doctor gets immensely rich if s/he does not give you
any advice about diet and exercise, and lets you get chronically sick.
Then the doctor will explain with a smile that major surgery is needed to
fix your problem. You may lose your eyesight or a limb. Your life will be
ruined forever by the number of medicines and hospitalizations that your bad
health will require. But the doctor and the hospital will get very rich. And
thousands of nurses will have good jobs. And the stocks of pharmaceutical
companies will skyrocket. This whole colossal economy relies on you living
your entire life in bad health.
Bottom line: for as long as health care is a business (i.e., health-care
providers are allowed to get rich out of people's sickness), it will be more
profitable for the system to treat chronic diseases than to prevent them
(and, unless you are really naive and gullible, even more profitable to make
sure you remain chronically sick).
If there is a solution to the mess, it is not an easy one. While we may not
know what the solution is, we do know what the problem is: the health-care
providers themselves. While it is certainly not a desirable long-term solution,
nationalizing all of them might be a good short-term way to acknowledge where
the problem lies.
If they don't want to work for a government salary, they are welcome to
leave the country and move somewhere else. They might be surprised to find out
that their services are not welcome anywhere else.
Addendum of 2012:
Anybody who thinks that the current health care system provides us with
health care is delusional.
Two emergency-room doctors wrote
this piece for CNN
discussing what we all know: the moment you step into a hospital with the
silliest of problems, the doctors sent you to do all sorts of high-tech tests
(some of which might even hurt you). They discuss the case of a woman who
had an occasional headache and was immediately sent to get a CAT scan and
a spinal tap, but then got no explanation for her headache other than the
same over-the-counter pills that any pharmacist would have recommended.
The prices slammed on patients and their insurance for this incompetent
high-tech care are ridiculous.
I took a friend to the emergency room when one morning he had severe back pain.
All the hospital did was one injection and one pill. The bill? $2,800.
Who pays for it? You pay for it. Your insurance company is happy to pay that
bill if you are happy to pay their skyrocketing premiums. The insurance company
simply passes the bill on to you as an increase on yearly premiums.
And if you still feel that the whole scheme is fine with you, think again.
My friend Robert, a distinguished photographer, contracted lyme disease years
ago. This is a devastating disease that has crippled his career and decimated
his income. He had private health insurance, one of the best. The help is
getting from his insurance is simple: an endless law-suit. The insurance
company, faced with expensive bills, simply decided to sue Robert for inventing
a disease. Never mind that his disease has been diagnosed by plenty of
specialists and that its effects are visible to anybody who visits him: all
the insurance company has to do is raise the suspicion that he is faking it.
This causes additional stress on a patient who is already fighting a terrible
disease and causes additional financial strain. In other words, the insurance
company is simply trying its best to make him die as soon as possible.
"More than 100,000 Americans die from medical error every year, with the majority of error attributed to mistakes in diagnosis." These are not my words:
This is
Sanjay Gupta who quotes a study by the Institute of Medicine.
Based on anedoctal evidence, i think you are much more likely to find an effective cure
for your health problem by browsing the web (at zero cost to you and your
insurance) than by seeing a doctor in a hospital (at enormous costs to you
and your insurance).
In fact, i haven't been insured in 20+ years and i am in pretty good health
(i haven't had any health problems other than sport injuries) whereas all my
friends who have health insurance and get all sorts of tests and drugs
have to keep seeing their doctor for his or that health problem (any exception?)
P.S. of 2013
20% of US deaths take place in intensive care where 10 days of futile flailing can cost as much as $323,000 (from Katy Butler's 2013 book "Knocking on Heaven's Door")
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (september 2009)
Texas, Afghanistan.
The rogue state of Texas (mainly known around the world as one of the places
that execute the highest number of people, right after China, Saudi Arabia
and North Korea) carried out the death sentence against Cameron Willingham,
a man mistakenly accused of killing his own children with a fire in 1991.
The district attorney was Pat Batchelor, your typical white Anglosaxon
church-goer and NRA member, who fabricated a case out of nothing.
The jury, however, as it is
often the case in that barbaric land, did not miss the chance to lynch an
innocent man, as they do almost every year. Scientists proved that all the
evidence against the poor father was laughable. However, the governors of
Texas are not any better than their district attorneys and their juries:
governor after governor (starting with future president George W Bush)
refused to send the innocent free.
Cameron Willingham was executed in 2004.
Neither the district attorney nor the fire marshall (who testified against
Willingham) have been indicted of any crime. They are free and enjoy a hefty
pension paid with your tax dollars. Nor has any of the governors suffered
any political consequence (one became president of the USA).
Bring civilization to the USA before you try and export it to Afghanistan.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (august 2009)
Can the USA get out of the crisis?.
The mother of all problems is that for about twenty years the USA economy
has mainly been growing thanks to artificial bubbles (such as the dot.com
and housing bubbles). There has been little real growth. The one industry that
has been growing in the USA is finance, which is also the least productive (it
produces mainly smoke). The USA has de facto adopted a model of growth based
on creating financial artifices that result in economic bubbles (which should
be better described as government-approved high-level "Ponzi schemes").
While China was building real toys, and Japan was building real electronics, and
France was building real nuclear power plants, and
Germany was building real cars, and Saudi Arabia was exporting real oil,
and Russia was exporting real gas,
the USA was mainly manufacturing Ponzi schemes so that its consumers could buy
all of these on credit.
The USA economy will recover "for real" when it returns to producing something
real, not just financial schemes. Ideally, the USA should lock up all of Wall
Street into a concentration camp for a few years, otherwise Wall Street's
perverse influence will derail any attempt to rebuild the economy.
There are commentators who spoke about a "financial coup"
(See Simon Johnson's "The Quiet Coup" in The Atlantic magazine)
such is the perverse influence of the financial world on the USA government.
The USA needs to undo that coup and restore the rule of the people who actually
produce things that you can eat, wear and drive.
(See also The Wall Street Bibble Mafia by Rolling Stone).
The financial world, in fact, is still at it after the crisis: they are spinning
the narrative that the crisis was caused by the government when the government
let Lehmann Bros go bankrupt. By creating this narrative, Wall Street is trying
to get a life insurance: that next time the government will save the next
financial company that is in trouble. This guarantee of never losing (if you
make money, you get very rich, and, if you lose money, the government saves you)
will only make the problem worse.
Then there are other problems, although all of them are caused by the financial
mess.
To start with, the government is shuffling money around but cannot create money
from nothing. Individuals have (credit card) debts, companies have debts and
banks have debts. The government is trying to solve the problem by creating
a huge government debt. This is only shifting debt to another level (and
possibly a more dangerous one). Government debt is now exceeding the amount
of dollars that foreign trading partners can invest in the USA plus all the
dollars that USA citizens are saving. In other words, even in an ideal world
in which every dollar that is available in the world is invested back in USA
treasury, the USA cannot pay its debt.
That ideal world doesn't exist anyway, because there is a lot of competition
for those available dollars.
Governments that are piling up huge deficits will start competing for the
capital to finance those deficits. This will inevitably cause higher interest
rates, that will further hurt the middle class, and create even more need
for government intervention and therefore cause the deficit to swell even more.
There remains a fundamental disconnect between the countries that save a lot
(e.g., China) and the countries that spend a lot (e.g., the USA). It is
unrealistic to hope that USA families will live without such "essential"
items as toasters, air conditioning and cellular phones,
and it is also unrealistic to hope that
Chinese families will invest their savings into such inessential items as
toasters, air conditioning and cellular phones.
Habits won't change. USA families will rather
lose jobs than work in offices without air conditioning, and Chinese families
will rather asphyxiate than waste the money needed by their children for their
wedding.
In technical terms, the world will experience a shortage of global demand
relative to supply, or, equivalently, an excess of global savings relative to
investment spending.
The perverse influence of Wall Street extends to the inner workings of
businesses.
A salient aspect of today's economy is how good companies have become at
cutting costs. In previous recession they were always caught by surprise
and trailed the shrinking demand. Now they have become very efficient
machines that adapt rapidly to shrinking demand by cutting costs even more
rapidly.
It sounds like good news, but the side effect is a self-fulfilling prophecy.
In the old days the chronic delay by businesses in cutting costs meant that
they kept paying salaries for longer periods to an unnecessary labor force.
De facto they were creating some wealth at a time when wealth was disappearing.
Today they do the opposite: they anticipate the recession and cut costs
(e.g. salaries) before they are forced to do so by losses. De facto they are
creating more poverty.
The side effect of this efficiency in cutting costs is therefore to remove
an accidental stimulus that was built into the economy in previous recessions.
This is only making the current recession worse because it prolongs
the shrinking of demand and the fall in prices, therefore causing even more
cost cutting which, in turn, creates more poverty, and so forth.
All of these problems would disappear if the USA started manufacturing (again)
cars and equipment that the world (including USA consumers) wants to buy instead
of only manufacturing Ponzi schemes to allow USA consumers to buy foreign
goods on credit; and if the USA had again a competitive workforce instead
of offsourcing jobs to the rest of the world.
The opposite is happening. The rest of the world is becoming better and better
at building sophisticated equipment, while the USA remains ahead only in
research. Even that might not last much longer. Chinese high-school students
know a lot more science than high-school students in the USA. Indian high-school
students are a lot better at Math and Computer Science. Millions of high-school
students are learning English every day, and the English language was the main
factor that protected the jobs of so many unqualified USA workers, engineers
and managers.
As the dollar declines, more and more Europeans and Japanese decide to stay
home, thus depriving the USA of the "brain drain" that had fueled so much of
its research in the past. Soon the dollar will start declining against the
currencies of developing countries and even Indians and Chinese graduate
students will decide to stay home rather than move to the USA. That will leave
the USA with its own home-grown students, who rank very low in all educational
statistics (except in the number of high-school shootings).
China has now passed the USA even in solar-power manufacturing.
(See this New York Times article).
The USA, in the meantime, is spending 18% of its GPD on health care
The USA government spends eight times more on health care than on education.
For every two USA doctors there is one health-insurance employee.
That's where the USA is directing its resources.
Last but not least, the problems that prompted me to predict a Dow Jones at
4,000 have not be solved: they are still there, each one a ticking bomb.
See Dow Jones 4000.
A return to manufacturing grandeur
will not happen for as long as Wall Street is a major power, a sort of
state within the state. The USA government needs to punish the financial
sector for making money and reward the manufacturing sector for making goods.
Criminalize the financial industry (nationalize banks, tax 100% of executives'
compensation, jail anyone who comes up with financial tools not explicitly
approved by Congress) and the USA will return to its might.
The real enemy is the Wall Street Journal. That kind of media is
becoming the Al Jazeera of the economic crisis. They are the ones who
caused the problem (just like Al Jazeera indirectly promoted Islamic
hyperterrorism)
and now they are launching a holy war on the ones who are trying to solve
the problem (just like Al Jazeera encouraged a jihad against the USA).
Just like Al Jazeera, they offer no solutions of their own: just more terror.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (august 2009)
The death of idealism.
More than anything else, Barack Obama has understood that the human race has
entered a new age, an age in which the idealism of the democratic
liberal West is outdated even in the West itself.
People have become more and more materialistic, and they care little for
ideals.
Obama is fighting in Afghanistan not to help the Afghanis live in freedom
but simply to protect the USA from possible attacks by Al Qaeda.
Obama is trying to negotiate with North Korea not to improve the conditions
of its starved and enslaved population, but simply to make sure that North
Korea does not achieve the power to strike the USA.
Obama is pulling out of Iraq not because he believes the Iraqi government
is capable of providing security, justice and prosperity to its people but
simply because he wants to save the lives of USA soldiers and save the money
of USA taxpayers.
Obama is happily making deals with all sorts of totalitarian regimes who are
hated by their people, as long as this results in positive outcomes for the USA.
The USA negotiated a new air base in Kyrgyzstan ignoring the well-documented
human-rights abuses by its regime: what Obama wanted was the air base in order
to fight the war in Afghanistan, not a more democratic and prosperous
Kyrgyzstan.
Obama heralds a new age of pragmatism. The USA will only fight wars when
attacked. Otherwise it will let all sorts of crazy dictators slaughter their
people and even attack neighboring countries: it is not the USA's business
to bring freedom, peace and prosperity to the world.
Ironically, the world has greeted the new USA policy with enthusiasm.
A poll by the Pew Center (see Global attitudes towards the USA)
showed that the image of the USA has improved everywhere in the world except
Israel.
Western Europe had been adamant in its condemnation of Bush's policies aimed
at fostering democracy and freedom around the world. Western Europeans marched
in the streets by the millions, like it had not happened since the student riots
of 1968. They are not marching in the streets now that
Obama is doing business with brutal regimes worldwide.
We now know the truth about those marches: it was a generation (and maybe more
than one) marching in the streets to tell politicians "we don't care, and
we don't want to care". The new president of the USA is the manifestation of that zeitgeist.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (august 2009)
A simple question for the politicians:
if higher education is so important to the success of a nation, why not make
it free? Why does the USA make it so expensive for its young citizens to get
the higher education that is needed for the USA to remain a competitive power?
Politician after politician (and president after president) tells the nation
that higher education is vital to the future of the USA. However, generation
after generation find out that higher education is becoming more and more
difficult to attain. Who are USA politicians trying to help: the USA or the
enemies of the USA?
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (july 2009)
Defend the USA against terrorists.
The National Rifle Association (NRA) is de facto the largest terrorist organization in
the world, responsible every year for the killing of thousands of USA citizens,
many more than Osama bin Laden every dreamed of.
Its stooges in the government have passed one law after the other making it
easier to kill USA citizens.
They now tried to pass a law that would have allowed potential killers
from one state to carry concealed weapons in other states. In other words,
if NRA stooges managed to pass a pro-terrorism law in any one of the 50 states,
that law would be automatically applying to all the other states.
The politicians who were part of this terrorist plot are the real enemy
of the USA. The terrorist cell, led by the despicable John Thune of South
Dakota, included mostly Republicans
but also some influential Democrats, notably Harry Reid of Nevada.
Unlike Al Qaeda, the NRA can threaten USA politicians directly. The NRA
publicly threatened any senator who votes to confirm Sotomayor to the Supreme
Court. The threat was to lower their ratings, not to kill them, but politically
speaking, the difference is only in the way the killing is carried out: the
damage caused to the USA is the same. After the NRA's threat, as of July 29,
no Republican or
conservative Democrat has publicly supported Sotomayor: they are terrorized.
Notorious villains such as Richard Burr of North Carolina and Jim DeMint of
South Carolina were quick to announce that they would obey the NRA.
These senators are traitors of the USA and should be stripped of their citizenship.
It is a disgrace that an amoral man like Harry Reid is still the majority
leader. What next? Osama bin Laden for speaker?
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (july 2009)
The USA monarchy.
Time will tell if Barack Obama if a blip in the history of USA presidents
or a significant change. What is certain is that his predecessor was the son
of a president and that Obama's own main contender for president was the wife
of a former president (and he won by a razor-thin majority). A Kennedy with no political experience almost became
a senator only because of her last name. Bush's brother and Clinton's wife
are widely perceived as likely candidates for president. It is only a matter
of time before Clinton's daughter and one of the Bush's daughters and yet
another Kennedy will run for president. We can easily predict the political
careers of people simply based on the status of their parents.
Between 1974 and 2009 college completion rates have been flat.
During the same period income growth for USA families has stagnated.
It might be a coincidence or it might be the source of all (USA) problems.
During the same period of time the rest of the world has experienced a
sharp increase in college degrees, and, at the same time, a sharp increase
in family income.
It might be a coincidence or it might be that one is the cause of the other
and the other is the cause of the one.
Fact is, the USA seems incapable of keeping up with its own historical trend
of higher and higher education, for the first time in its (peacetime) history.
Dalton Conley, dean for the social sciences at New York University, has
analyzed the reasons why young people drop out of college or don't even
begin it and come up with a simple conclusion:
"only two background factors matter for college completion: parents' own education and parental net worth."
Basically, the children of rich people are the only ones who get a good
education, and the ones who are more likely to become rich. This is the modern
version of a feudal aristocracy. Instead of holding land and passing it on to
the new generations, they hold college degrees and pass them on to the new
generations.
This feudal system is further exacerbated by the coup carried out by the financial
sector. Wall Street now controls the USA government in a way that borders on
a dictatorship. Recently Main Street (ordinary people with humble salary and
many of them with no salary at all) has been asked to provide hundreds of
billions of dollars to rescue the financial sector so that Wall Street companies
can return to record profits and their employees can return to a six-digit
income (at the same time that several millions of taxpayers lost their jobs).
The main refrain that you hear from the financial world these days
is that the economic crisis was caused by one big government mistake:
the government let Lehman Bros fail.
That is complete idiocy. The economic crisis was caused by the
financial world as a whole, that was totally out of control.
But the financial world is spinning this narrative because, if it
succeeds, it would become the financial world's own guarantee
that the government will never let any major financial company
go bankrupt again. In other words, they want to dictate not only
outrageous compensations at the expense of ordinary citizens but
also have the guarantee that, no matter how dumb and criminal
they behave, the government (i.e. ordinary citizens) will always rescue them.
The (horrible) truth is that if Lehman Bros had been saved,
there would have been an even bigger bankruptcy around the corner,
and then an even bigger one and so forth.
The truth is that, by bailing out the other banks, the government has
prevented a healthy clean-up of the financial system.
Until these crooks go starving in the gutters where they deserve to be,
the world will not have regained its health.
The vast majority of the USA population is being squeezed into the
situation of the peasants of the old feudal monarchies of medieval Europe.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (may 2009)
The world after the dollar.
If the renminbi appreciated considerably against the dollar, it could replace
the dollar as the world's most powerful currency.
When a country has a chronic trade deficit with another country, that other
country's currency inevitably goes up: you are a debtor and that country is
your creditor.
Between 1970 and may 2009 the yen appreciated from 360 (to a dollar) up to 95 (to a dollar), which means that its value (and the value of Japanese household savings) almost quadrupled in four decades; or, if you prefer, that USA citizens
became four times poorer compared with the Japanese.
However, Japan had "only" 180 million people to take care of, and, despite
the destruction of World War II, it had already been a relatively rich country
in the past; whereas China has more than one billion people to lift out of
a chronic state of poverty.
Therefore the renminbi per se cannot appreciate as fast as the Japanese yen did.
The problem is that the USA is now running a trade deficit against every major
country in the world, not just one: the dollar is under pressure from Vietnam
to Senegal. The reason it has not collapsed yet is precisely that there is no
obvious alternative. The euro is a mess. Japan is not big enough. China is still
too poor.
The USA has benefited greatly from the privilege of the dollar being the world's
de facto currency. Because foreign countries need dollars for their
transactions, the USA can borrow money from them at very low rates to finance
its spending. The USA is selling its debt to foreign countries, and the debt
is denominated in dollar: if the dollar falls, the USA gets a de facto discount
on the amount that it has to repay. The commodities that USA manufacturers
need to import in order to build their products are also paid in dollars:
if the dollar falls, the USA gets a de facto discount on foreign commodities.
The USA would therefore suffer greatly if the dollar collapsed. Foreign appetite
for buying USA debt and for lending money to the USA would disappear. The USA
would have to pay much higher interest rates on its deficit (just like ordinary
USA citizens ended up paying astronomical interests on their credit card debts).
Presumably a collapse of the dollar would entince foreign countries to sell
their commodities in a different currency, not the collapsing dollar.
The price of commodities would skyrocket for the USA, making it very difficult
for USA manufacturers to compete with foreign manufacturers and at the same
time creating huge inflation in the USA. The only good news is that higher
prices for foreign goods would force USA citizens to buy fewer imported goods
and therefore lead to balancing the trade deficit. The cost in quality of life
would be significant though (forget all those nice German cars and French
wines).
It wasn't just the ordinary consumer in the USA who was recklessly borrowing.
Their government was doing the same, although for a different reason (a dollar
that was the global currency).
What has saved the USA so far is that there is no serious alternative.
But who said that all the world transactions must take place in one currency
only?
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (may 2009)
Did Churchill use torture?
Obama argued against the use of torture and pointed to Churchill as a noble
precedent: even during the worst times of the German bombings, he forbade
torturing German prisoners to obtain information that would have saved British
lives. Or didn't he? It turns out that Churchill used "terror" (his own word,
used more than once) against German civilians, in particular during the
carefully architected fire-bombings of Hamburg, Dresden and Berlin that
intentionally killed hundreds of thousands of civilians. The Anglosaxon
powers have a well-deserved reputation for hipochrisy and Britain during
World War II was no exception, condemning Hitler for the very same actions
that it (Britain) carried out. In fact, no German bombing ever went even close
to killing as many civilians in Britain as the British bombings did in Germany.
The sad truth is that the Anglosaxon powers are very good at preaching liberty,
human rights and moral values when they are not under attack, but will resort
to just about anything (including weapons of mass destruction) when they are
under attack. They preach the world that torture is bad, terrorism is bad
and weapons of mass destruction are bad, but then will gladly outdo anybody
else at those things when it serves their purposes. Britain used poison gas
in both world wars. The USA used napalm in Vietnam, and, of course, nuclear
bombs in World War II. The first time that the USA was seriously attacked on
its soil (september 2001) the USA dumped its noble ideals and resorted to
torture and humiliate its prisoners of war.
Obama is a bad historian but he is the one who is now setting the precedent: if he indeed decides to abstain from
torture and human-rights violations, he will become a precedent to follow,
a man who would rather let terrorists strike again than lower himself to the
level of the terrorist.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (april 2009)
USA citizens killed by terrorism since 2001.
On the 11th of september 2001, approximately 3,000 USA citizens were killed
by terrorists in New York and Washington. Approximately 4,000 USA soldiers
have been killed in Iraq. Approximately 1,000 USA soldiers have been killed
in Afghanistan. From that day to the end of 2008
approximately 120,000 USA citizens have been murdered in the USA.
They have been murdered by fellow USA citizens, armed with guns kindly provided
to them by the largest terrorist organization in the world, the National
Rifle Association (NRA) and by the corrupt politicians in Washington that
work on behalf of it.
Now the violence is spilling into Mexico. More than 6,000 people died in violence related to organized crime in Mexico in 2008 (a 48% jump over the previous year): the weapons are bought in the USA (mainly Texas). The gun-friendly laws of
the USA are basically arming a civil war in Mexico.
Osama bin Laden is an amateur compared to the NRA.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (march 2009)
The 13 most feared words in the English language: "It is an old Ronald Reagan idea and it is still around today".
The USA has been haunted for three decades by really bad ideas that Ronald Reagan
introduced (see the previous article with the same title The 13 most feared words in the English language).
One of them was the "trickle-down" economics. The origins of the current
depression
(although i blamed it on Bush when i first predicted it years ago, see How Bush engineered a new depression and
How Bush engineered the worst recession in modern times)
ultimately lie in Reagan's policies. Jared Bernstein's book "Crunch" should become mandatory reading for all right-wing politicians and supporters.
He writes that
"Economics has been hijacked by the rich and powerful" and then uses reliable
statistics to show that it started under Reagan and it kept creating poverty
for three decades.
David Cay Johnston has calculated that between 1980 (when Ronald Reagan was elected president) and 2005 the per-capita GDP of the USA, adjusted for inflation,
increased 66%. However, the disposable income of the average USA household
increased by much less and actually decreased if one does not count wives who
were not working before but had to go and work afterwards to make ends meet.
Basically, the average USA family had to double the amount it worked in other
to make approximately the same amount of money. In the meantime, the richest
USA citizens and corporations really (not just theoretically) increased their
incomes.
At the same time the rest of the world started getting richer and richer.
Both the Western Europeans and the Japanese remember the early Reagan years
as the years during which their currencies appreciated wildly against the
dollar. USA tourists had been kings until the 1970s. From the 1980s on they
became less and less able to spend as much as Europeans and Japanese, because
the dollar was worth less and less, while the European and Japanese currencies
were worth more and more. Japan suddenly became an economic world power.
The USA's share of the world's GDP kept declining, and that decline has never
stopped.
Despite all the evidence that Ronald Reagan is the man who destroyed the
"American dream", the Republican Party resurrected its policies under George W
Bush. No big surprise that, again, the dollar collapsed and the standard of
living declined. The USA goot poorer and poorer.
One almost suspects that this is all part of one huge right-wing conspiracy:
since they cannot force their unbridled form of capitalist fascism on the
USA masses, they decided to bankrupt the country until the country will become
no more and no less than a banana republic ripe for a right-wing coup.
As their prophet Grover Norquist famously said: "Our goal is to shrink the government to the size where you can drown it in a bathtub."
The scary thing is that the Republican Party and its right-wing cheerleaders
(Rush Limbaugh, Bill O'Reilly, Sean Hannity, Glenn Beck, Ann Coulter) don't
seem to have learned anything. Their solution for the economic depression that
they caused is simple: don't change anything, except stop spending (after they
spent huge sums of money for eight years and bankrupted the USA).
This may indeed finally cause the end of the USA and the triumph of their
three-decade right-wing conspiracy.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (march 2009)
Why the stimulus package won't work.
The Republican Party is attacking the stimulus package because it is "wasteful"
spending.
The Republican Party is obviously clueless. Their policies caused this mess and
now this party is trying to make it a political issue, at a time when the
country desperately needs solutions, not more problems.
Economists, instead, fear that the stimulus package is too little too late.
The USA is a 14 trillion dollar economy. Companies and consumers have stopped
spending. This is likely to be causing a contraction of the economy by 6-7%.
If that happens, it will start a vicious loop of decline or, at best,
stagnation that will be very difficult to reverse in a generation (the last
one in the USA was finally ended by World War II, and the one in Japan never
really ended). The way to avoid a 6% decline in 2008 is very simple: the
USA government needs to spend not less, but a lot more, roughly 6% of GDP,
i.e. roughtly one trillion dollars. The problem with Obama's stimulus is
that most of it will be spend over many years. The amount that will be spend
in 2009 is too little. By the time 2009 is over the crisis may have become
so huge that nothing in 2010 will be capable of reversing it.
The Republicans are helping create another "big depression" by focusing on
restraining government spending at a time when Obama would need encouragement
to do more, much more, ruthlessly much more.
Ditto for the banking sector. There is no example in history of a healthy
recovery without a healthy banking sector. First and foremost, a country needs
to have banks that are reliable, that are out of the question. Right now the
USA has "zombie banks" just like Japan had in the 1980s. The USA government
needs to take strong and immediate action to put the banking system beyond
any reasonable doubt. This can be achieved in many different ways, each of
which has political pros and cons, but it cannot be achieved by a "wait and
see" strategy. The markets will not solve the problem by themselves: the markets
have become parasites that live off the banking system.
A top Japanese official,
Hirofumi Gomi, said: "I thought America had studied Japan's failures.
Why is it making the same mistakes?"
Obama needs to do more, not less, and needs to do it now.
The Republican Party has become not only the cause of the current economic
crisis, but the biggest obstacle to preventing it from getting out of control.
No, i'm not a Keynesian: i'm just a mathematician.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (february 2009)
The state of human rights in the USA.
China published a report on human rights in the USA, exposing all the social ills that plague the USA society.
Every USA citizen should have a chance to read it.
There is very little that is propangada: most of it is just a long list of
facts, whose sources are USA agencies. For example:
1.4 million violent crimes including 17,000 murders (source: FBI),
1.35 million high-school students threatened or injured with a weapon at least once (source: Center for Disease Control and Prevention),
200 million private guns and 48 states allowing its residents to bear guns (source: NRA),
2.3 million prisoners (source: Department of Justice),
widening wealth gap, increasing number of homeless people, skyrocketing unemployment and 37.3 million people living in poverty (source: Census Bureau),
government wiretapping, torture of political prisoners,
and, last but not least, the USA sold weapons to more than 174 countries. The list goes on and on forever.
And they forgot 47 million people without health-care coverage.
Not a word in that report is false. It used to be that communist countries had
to lie in order to defame the USA: now they simply have to quote USA statistics.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (february 2009)
California, wake up
California has a reputation for being 1. the greenest state in the world (for example, more hybrid cars are sold in California than anywhere else), 2. the most technologically advanced state in the world (Silicon Valley is located here), 3. one of the best places to study in the world (Caltech, Stanford, UCLA and Berkeley are all located here). However, the people of California seem to be totally
blind when it comes to decide their own future, which makes you wonder if they
could be also wrong about everything else. Giving in to popular anger, the California legislature did not do the two things that would have made a lot of sense to balance a budget that is wildly out of control: 1. raise taxes, 2. tax gasoline. The first one has a clear precedent: California was in the same desperate
situation in 1967, when its young governor decided to raise taxes, and that
governor was Ronald Reagan, who went on to become the icon of the Republican anti-tax fundamentalists: if he did it, why can't we do it? The tax on gasoline was
not only a no-brainer (a few months ago people were willing to pay twice the price for gasoline as it is now, so we already proved that people *will* pay more for gasoline) but it would also have sent a signal that we are serious about
reducing gasoline consumption and fostering the sales of non-gasoline cars.
What is out of control is not the California budget, but the people of
California, who pretend to care for so many important issues but only if
it doesn't their wallet and, most importantly, their SUV.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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- (january 2009)
Dow Jones 4000.
There are a number of factors that point to a still overvalued stock market.
The worst still has to come.
First, the economic factors.
- It is likely that 2009 will witness a second wave of corporate defaults and the first massive wave of credit-card defaults.
Outstanding credit card debt is about $1 trillion.
(See for example this Business Week article).
This will take billions of dollars out of the economy.
- The consumers who will not default will save, causing another massive exodus
of money from the economy.
The savings rate in 2007 was zero percent. If the savings rate goes up to
just
5% of disposable personal income as it was in the 1990s, this will wipe out
a few hundred billion dollars from the economy
($40K per family multiplied by 100 million families multiplied by 5%).
- Therefore in 2009 the USA economy will lose 0.5 trillion dollars, i.e. about
3-4% of GDP without counting the consumer and industrial recession that is underway
(which could be colossal, see below)
- Japan's GDP shrank 12.7% in the last quarter of 2008. There is no reason why the USA economy should not decline as much. It's just that the USA is better at cooking up books, but eventually the number is likely to be very similar.
- The banks are likely to fail anyway. The USA banks were kept alive by foreign investors. It is getting harder and harder to find investors who are
solvent and willing to shoulder more of this suicidal burden.
Since more consumers and businesses are likely to default on their loans as the recession gets deeper, bank failures are likely to increase not decrease.
If, on the other hand, Obama nationalizes the banks, that might be a good move for the nation but certainly not for the stock market.
- The strength of the dollar is likely to bring more bad news for USA companies, as it will depress exports, which have accounted for most of the growth of the last few years (the years when the dollar was weak)
- This
chart
shows the growth of the stock market over the last few decades. There was no
structural reason for the sudden vertical slope of the last twenty years.
GDP did not grow that much (it was $3 trillions, which adjusted to
inflation is about $12 trillion of 2009 dollars, therefore only 10% less
than today's GDP).
Household net worth did not increase at all because
household debt skyrocketed at the same time that
household income went up.
Productivity has increased but certainly not by 1000%.
Furthermore, in 2009 there is also a colossal
budget deficit and a colossal trade deficit that in 1980 did not exist.
- You don't need to go back to the Great Depression to find useful parallels.
December 31st, 1964: the Dow Jones hits 874.12.
December 31st, 1981: the Dow Jones hits 875.00.
After the deep recessions, the stock market tends to restart from
the beginning of the vertical slope. From the chart, the curve took a vertical
gradient after hitting 4000 in the mid 1990s. From that moment on, the stock
market simply became more and more overvalued.
- The stimulus package is likely to be more of a problem than a solution as
far as the stock market goes, because it will double the
debt/GDP ratio. It is not clear who will buy the new
$2.7-4.5 trillions of debt expected to be issued in 2009 and 2010.
Given that fewer and fewer foreigners are willing to buy USA bonds,
the USA government will be forced to print money, which will introduced
a further downward pressure on the stock market.
- There is one obvious precedent for this financial crisis:
Japan. when a real-estate bubble collapsed leaving banks holding
worthless loans. The Japanese stock market from the peak to the end of the
stagnation in 2003 lost
75% of its value. For the Dow Jones 75% of 15000 would be less than 4,000.
- During the Great Depression the Dow fell 89% off its peak value. In fact there are already numerous similarities: in 1930 (second year of the recession) unemployment had reached 8.7% (it is now 7.9%) and the stock market had lost 54.7% from the september 1929 value (as of today it has dropped 52.5% since its peak, almost exactly the same value over almost exactly the same period of time).
The experts thought it was impossible it would get any worse. Two years later the stock market had fallen almost 90% from the peak and unemployment had reached 23.6%.
- The P-E ratio in february 2009 is about 30, far above the historical average of 16, and far higher than what it was in the previous deep recessions, the 1930s (6) and 1980s (7).
Then there are political factors:
- Wall Street has precious few friends in Washington right now. The good old
days of
Greenspan, when the government and its agencies calculate their moves to
maximize the impact on the stock market, are gone. Now politicians are not
willing to move a finger for Wall Street.
This Pearlstein article is a good barometer of the political mood towards
Wall St. That's another reason why big investors are reluctant to invest money. It used to be that the Greenspan regime pretty much guaranteed a return on
investment. This mafia-style pact between Wall St and Washington (and all the
capitals of the world that invested in Wall St) has been dissolved, partly
because the USA government is running out of resources
(the Federal Bank rate is 0%, the budget deficit forbits much lower taxes, etc). Last but not least, the Democrats who now control Washington show little
sympathy for the financial world.
- Obama's political fortune depends on what happens in the last three years of his presidency not on the first year. It is much better for him that this year the economy collapses (something that everybody will still blame on Bush) but then it starts recovering, no matter from how low, than if the USA had four years of constant slow decline.
- It also sounds like Obama honestly thinks that the only way to save Main
St is to dump Wall St. He keeps talking about saving jobs, not IRAs or 401Ks.
He sounds honestly annoyed by people who invested in the stock market, because,
ultimately, they are the ones who caused the problem. The problem will disappear
when their stocks will be worth zero.
- Another reason why the large stockholders are not longer protected by
Washington is that, quite simply, fewer and fewer of them are USA citizens.
During the last twenty years foreign governments and financiers accounted
for much of the stockmarket's purchases. About
$2 trillions out of
$8 trillions of market capitalization is in foreign hands.
Obama (unlike Bush) does not seem motivated to protect their investments
at a time when the average USA citizen is hurting.
That's also another reason why Obama will not think twice about printing
money: the USA's main bond holder is CHina
($682 billion holdings of USA government debt): if the dollar
collapses, the main loser will be Cina. The second victim will be the
stock market, but, again, those too are largely foreigners (or political
enemies).
- The stock market has already factored in a stable, peaceful world.
If the economic crisis creates the premises for a major war or just international tension, of if terrorists strike again on USA soil, the stock market could
easily fall beyond what it was in the 1980s.
There are likely to be major cases of instability in Europe, where several
countries are on the brink of bankruptcy (Iceland, Romania, Hungary)
and others cannot withstand the pressure of the euro (Spain, Italy, Greece,
Ireland). We live in such a globalized world that any of these collapses
will have dramatic consequences on every stock market in the world.
- There are four countries in particular that are vital to the future of the USA: China, Israel and Mexico. China has to keep buying USA debt or the USA will be devastated by high inflation (just like any other country who has run into the same
financial problems that the USA has now and could not borrow money anymore). The odds that China keeps funding the USA forever are not very high for at least three reasons: 1. China may need the money to take care of itself as its own economy worsens and riots erupt throughout the country; 2. At some point it will
look very risky for any country to keep investing in the USA; 3. The Chinese
leaders will be tempted to benefit from the financial collapse of the world's superpower.
- Israel is now living in a world without a reliable protector.
The Bush-Sharon axis, under which Israel was virtually guaranteed of unlimited
support and could enjoy the spectable of the Arabs massacring each other
in Iraq, has been replaced by a distant relationship between hard-liner
Benjamin Netanjahu and a USA perceived as soft on the Arabs, Barack Obama.
At the first major provocation by Hamas, which is as likely to happen as the
summer heat, Netanjahu may up the ante of the conflict by striking Syria,
where the leadership of Hamas is holed up. This will start a conflict between
Israel and Syria, and Iran will be forced to enter the fray. Iran has pledged
to destroy the oil facilities that supply the USA if attacked by Israel. There
is no reason why it shouldn't. From Netanjahu's point of view a general war
is the only way to get rid of Israel's problems once and forever, and many
in Israel share his view (after all, Israel is the only power in the history
of the Middle East that has not used its superior power to conquer its weaker
neighbors). The disruption of the oil routes is not Israel's problem: it is
mainly a problem for the rest of the world (Israel depends very little on
Arab oil). If the USA is perceived as not caring for the survival of Israel,
Israel may ask itself why should it care for the survival of the USA.
- Mexico's geopolitical importance may not be as great as China's or Israel's but it sits right at the border with the USA.
By all accounts Mexico is rapidly plunging into anarchy, with narco traffickers
gaining more and more power within the country.
Currency, stock market and bonds are collapsing.
If there is one country that looks as bad as Afghanistan, that's Mexico, and
it is right in the USA's backyard. It is hard to imagine that a meltdown of
Mexico's politics, society and economics would not have a catastrophic effect
on the USA.
- Pakistan is rapidly approaching the level of failed country. It now competes with Iraq and Pakistan for number of suicide bombers. There are provinces both
in the west and in the northwest that are virtually independent. The vast
majority of Pakistanis lives in denial of the Islamist agenda to take over the
whole country. And none of the previous problems (starting with corruption and
ending with Kashmir) have been solved by the new democratic government.
Pakistan is a nuclear country. If it falls, the crisis will be
an order of magnitude bigger than the fall of Afghanistan.
- Not exactly politics, but the focus that the media are placing on the crisis
is unlikely to help get out of the crisis (of each and every crisis that is
part of the big crisis). This is the first major recession that is broadcasted
24 hours a day, during which people are told around the clock how bad the
crisis is and during which countless experts and analysts explain on tv and on
the Internet the causes and effects of it. In this new media-intense society,
reversing a trend (whether for the stock market or for the housing market or
for the job market) takes a much bigger effort, i.e. the inertia if much
bigger. Things that fall will tend to fall for much longer.
Therefore one doesn't even see the political will to avoid a collapse
of the stock market.
Is there a light at the end of the tunnel?
In january the
index of leading indicators rose 0.4% to 99.5, boosted by money supply with a 0.54% positive contribution, by the yield spread with a 0.23% contribution, and by consumer expectations with a 0.11% contribution. These are three important
factors. The only negative contribution was pretty much the jobless claims.
Those jobless people are certainly in big trouble, just like the insolvent
banks and the failing car manufacturers. But everybody else might be beginning
to do better.
TM, ®, Copyright © 2009 Piero Scaruffi All rights reserved.
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