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Archive for July, 2011

Social UnSecurity & Medicare=the debt ceiling.

Medicare, Social Security Finances
Worsen In Bad Economy

By James B. Driscoll, July 29, 2011

WASHINGTON — The bad economy is worsening the already-shaky finances of Medicare and Social Security, draining the trust funds supporting them faster than expected and intensifying the need for Congress to shore up the massive benefit programs, the government said Friday.

Both Medicare and Social Security are being hit by a double whammy: the long-anticipated wave of retiring baby boomers and weaker-than-expected tax receipts, according to the annual report by the trustees who oversee the programs.
The Medicare hospital insurance fund for seniors is now projected to run out of money in 2024, five years earlier than last year’s estimate. The Social Security trust funds are projected to be drained in 2036, one year earlier than the last estimate. Once the trust funds are exhausted, both programs can only collect enough money in payroll taxes to pay partial benefits, the report said.

More immediate bad news for seniors: After they’ve gone two years with no cost-of-living increase in Social Security payments, the trustees project a 0.7 percent increase for next year, a raise so small that it will probably be wiped out by higher Medicare Part B premiums for most beneficiaries.
“There can no longer be any doubt or denial: Our nation’s Medicare and Social Security programs are unsustainable and will run out of money sooner than expected,” said Senate Republican Leader Mitch McConnell of Kentucky.

Congress and the Obama administration are negotiating possible changes to Medicare and other benefit programs as part of a deal to increase the government’s ability to borrow. The $14.3 trillion debt ceiling will be hit Monday, though Treasury officials are taking measures to put off an unprecedented default on government bonds until August, Treasury Secretary Timothy Geithner said. Congress is putting off changes to Social Security, but Medicare, the government health insurance program for older Americans, is still on the table.
The longer Congress waits to fix the programs, the more likely it is that lawmakers will be forced to impose tax increases, deep benefit cuts, or both, to save them, the report said. By acting sooner, the trustees said Congress can impose gradual changes that reduce the impact on current beneficiaries and give future retirees time to prepare.

“The financial shortfalls confronting both Social Security and Medicare are substantial and – absent legislation to correct them – quite certain,” wrote two of the trustees who oversee the programs, Charles P. Blahous III and Robert D. Reischauer. “Elected officials will best serve the interests of the public if financial corrections are enacted at the earliest practicable time
The weak economy is hurting Medicare and Social Security because fewer people are working and paying payroll taxes that support the programs, the trustees said. Medicare is in worse shape than Social Security, in part because it is also being hit by rising health care costs.

To illustrate the challenges facing the programs, the trustees calculated the tax increases or benefit cuts that would be necessary to make both programs solvent for the next 75 years.

Fixing Social Security would require an increase in the payroll tax of 2.15 percentage points, or an immediate and permanent 14 percent cut in benefits, the report said. Fixing the Medicare hospital fund would require an increase in the payroll tax of nearly 1 percentage point, or a 17 percent cut in benefits.

If benefit cuts are designed to reduce the impact on current beneficiaries, future retirees will face even more significant changes, the report said. On the other hand, if the Medicare trust fund is allowed to be drained, the program will collect only enough payroll taxes to pay about 90 percent of benefits. If the Social Security trust funds are drained, the program will collect only enough payroll taxes to pay about 77 percent of benefits, the report said.

Nearly 55 million retirees, disabled people and children who have lost parents receive Social Security benefits, which average $1,077 monthly. More than 46 million people are covered by Medicare.

Even after the economy comes back, Medicare will still be in trouble. Part of the reason is the cost of modern high-tech medicine. And people are living longer, and having complicated procedures such as bypass surgery and hip replacements later in life.
On top of that, financial projections for Medicare rely partly on assumptions that the trustees’ report say are obviously unrealistic or questionable. Those include a 1990s law that would require a 30 percent cut in payments to doctors, and is routinely waived each year by Congress.
The report also raised questions about whether Medicare cuts under Obama’s health care plan would be politically sustainable over the long haul.
“It is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report,” the trustees said.

Six trustees oversee Social Security and Medicare. Besides Geithner, Blahous and Reischauer, the others are Labor Secretary Hilda Solis, Health and Human Services Secretary Kathleen Sebelius and Social Security Commissioner Michael Astrue.

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Economic Updates 7/18/11 http://ow.ly/i/

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Housing still Deciling!

The Day Ahead: Home Prices, Treasury Auction,

Your dollar

What is your buying power?

Consumer Confidence


Competing debt ceiling action plans have led to stagnation in Washington and slowly rising interest rates. There has however been little conviction in the move higher as global investors remain wary of underlying economic weakness.

The benchmark 10-year Treasury yield is 1.8bps higher at 3.023% while the two-year is steady with a 0.408% yield and the 30-year yield is up 1.7bps at 4.335%. The steeper yield curve and lack of trading conviction in the bond market is not helping mortgages. The Fannie Mae 4.0 MBS coupon is near its lowest level of the month, currently -2/32 at 100-10.

“Talks between Republicans and Democrats may have fallen apart last Friday, but a detailed outline of their discussions shows how close they came to a deal that would have reset the US tax system and had big implications for corporate America,” said an optimistic Financial Times article Tuesday. “Whatever is done to raise the debt ceiling in the short term those months of discussions are likely to provide the framework for any ultimate deal to tackle the US fiscal deficit.”

In Europe, Spanish, Greek, and Italian debt spreads are tighter after moving wider Monday.

Equities are broadly lower in Europe but the S&P 500 looks to open 3 points higher at 1,336.50 and Dow futures are up 26 points at 12,576.

Weak GDP in Britain is one reason equities are lower in Europe, as austerity measures appear to be capping growth.

“With the U.K. continuing to struggle with the situation of weak growth and above-target inflation, the first read on Q2 GDP indicated growth remained on the mild side, with the economy expanding 0.2% from the first quarter,” said economists at BMO Capital Markets.

Light crude oil rose 0.53% overnight to $99.73 per barrel, while COMEX gold prices fell 0.06% to $1,611.10 per ounce.

Key Events Today:

Tuesday:

9:00 – The S&P Case-Shiller Home Price Index is expected to post another gain thanks to seasonal boosts. Economists expect the index of 20 metropolitan home prices to rise 0.6% in May. That would put prices at 4.7% lower from the same level last year.

“Even though lower mortgage rates in recent months have improved homes’ affordability, [the] supply and demand imbalance is a catalyst for further declines in home prices, which we see as likely to persist into 2012 at this point,” said economists at Janney Capital Markets.
“The months’ supply of existing homes up for sale remains even worse than in late 2010 and well worse than we had anticipated, suggesting that the price situation will continue to deteriorate well before it improves,” they added. “Even the creator of the index, Robert Schiller himself, described the housing markets as ‘stuck in the doldrums.'”

10:00 – Recent job reports expecting to their their toll on this month’s Consumer Confidence index. The consensus view is for it to fall to 57.9, compared with 58.5 one month ago and 61.7 the month before.

“Consumers are being inundated with negative news about the economy and are faced with solutions to the debt ceiling issue that feature either tax increases, benefits reductions or both,” explain economists at Citigroup.

“Little has happened in the way of good news for consumers,” added forecasters at Nomura Global Economics. “Lower gas prices were quickly usurped by stock market volatility and the debt ceiling impasse. Confidence has slipped in the past few months and the early June sentiment survey showed further declines. We expect the consumer confidence measure to slide further to 55.2 in July.”

10:00 – Expect New Home Sales to be roughly flat in June. The market forecast looks for an annualized pace of 320,000 home sales in June, just 1k up from last month and 6k down from April. Upside risks include strong building permit activity the last two months, offset by the recent decline in mortgage application volume.

“These sales have been in a range for the past year, slightly below the levels right after the recession,” said economists at Citigroup. “However, we anticipate that sales will remain toward the high end of the range, given the uptick in housing starts and the small pickup in the housing market index, which signaled that homebuilders are seeing slightly better sales. … Demand is still running below supply. This would be the fiftieth consecutive month of declining inventories.”

Economists at BMO added: “Even the driest June in 21 years, which contributed to a near-15% surge in housing starts, is unlikely to provide a net benefit. This second consecutive monthly decline reflects the easing of job growth and consumer confidence this spring along with ongoing mortgage credit availability constraints. Furthermore, the new home segment continues to feel the pressure from the flow of foreclosed properties in the existing home segment. The only silver lining is that the new home market is relatively balanced with the months’ supply not far off its historic median of 6.0 (6.2 in May).”

2:00 – Thomas Hoenig, president of the Kansas City Fed, will speak before the House Financial Services Committee’s Subcommittee on Domestic Monetary Policy and Technology. His talk is called “The Impact of Monetary Policy on the Economy: a Regional Fed Perspective on Inflation, Unemployment and QE3.”

Treasury Auctions:
11:30 – 4-Week Bills ($18 billion)
11:30 – 52-Week Bills ($20 billion)
1:00 – 2-Year Notes ($35 billion).

According to BMO: The Fed will purchase $2.75 to $3.50 billion of notes in the 15-Aug-2018 to 15-May-2021 range for reinvestment purposes, at 11:00.

Until next time,

James B. Driscoll

Categories: Economic Update

Investors worried about Deficit

Most Investors Worried About U.S.

Our US economy

What will our children do?

Government Deficit

By James B. Driscoll

July 19, 2011

It’s not only middle-class Americans that are worried about the country’s economic future, but affluent Americans as well.

On Friday TNS released a new study that revealed that 87% of Americans with $500,000 or more in investable assets feel that the size of the US government’s deficit is a major concern for them.

Of those surveyed, 40% state that they would be willing to pay higher taxes if it meant there were no changes to Social Security and Medicare, according to TNS. In addition, 40% said they would be willing to accept changes to both Social Security and Medicare to balance the budget. Meanwhile, 43% feel the current state of the economy will jeopardize their retirement plans, 40% plan to reduce the amount of money they spend compared to last year.

Fifty-six percent said that they are concerned that the US government may default on its debt obligations, and 60% stated they do not think the U.S. government should increase the federal debt ceiling.

TNS’ Investor Confidence Index, declined in June to 102, an 11-point drop, its lowest level in a year. This is due to increased pessimism about the stock market and the direction of the economy.

“These findings reveal significant stress and discomfort among investors who control the overwhelming majority of the personal wealth in the U.S.,” said Joe Hagan, SVP at TNS, in a press release. “We expect investor confidence to decline further if a decision concerning the debt ceiling isn’t made ahead of the August 2nd deadline. On the other hand, a satisfactory resolution could raise investor confidence and spur a rise in the financial markets.”

The TNS Investor Confidence index is a composite measure of confidence based on investor expectations for the next six months. The most recent measure is based on a survey conducted online June 22 – 29, 2011. The statistics cited here reflect the answers of 1,685 respondents who had total investable assets of $500,000 or more.

 

Categories: Economic Update