Author Topic: Global Economics  (Read 10368 times)

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Offline slslbs

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Re: Global Economics
« Reply #30 on: September 20, 2011, 06:59:03 AM »

On ObamaCare.   Interesting side effect.   Microsoft had a cadillac plan that gets a surecharge on it under ObamaCare because a company has chosen to provide top of the line health care for employees.  Some amazing logic here, a company is willing to spend more money to ensure their employees get the best healthcare possible so they are required to pay a fee for doing so.  Oh, and did I mention that Microsoft takes $0 out of employees checks to cover it.  MS picks up the whole tab. What is the net effect of the surcharge?  There are 2 ways this is playing out.  Companies like Microsoft are now going to pass that on to the employees and they will need to contribute to the healthcare costs.  Others are waiting for the ObamaCare base plan and will drop their coverage and buy into that plan or a lesser plan to avoid the fee.  Holy sh#t, he actually found a way to provide healthcare and either lower disposable income in a faltering economy or create a health plan that will decrease the healthcare some people receive and the plan has such holes in it that many will still be left with no coverage as they make too much money.
I am fortunate, my employer does the same thing, my family has the best healthcare available and nothing comes out of my check for it.  Mine hasn't decided how they will handle the surcharge, but I can say that if I starting having a couple hundred a month out of my paycheck that is simply money that I won't be spending to boost the economy.

I am baffled at the level of economic stupidity I am seeing right now.
one of the paradoxes of the health care debate is that some people have great coverage (which doesn't guarantee great health care) and some people have none. In order to pay for everyone's coverage, those with the best coverage (no out of pocket costs) will have to pay for some. I'm not defending the situation, just pointing out the reality.

Remember though, health insurance is a tax free benefit. Will the companies that start making employees pay a share of the cost because of the new law change the money spent on the benefit into salary? doubt it. If they did, that of course would be taxed, but then the employee can set up a HSA and shelter the money from taxes anyway. Depending on the numbers, it might not work out that much differently.

Also, there are "executive" programs that pay for "screening tests" that clearly aren't needed. Unnecessary stress tests, cat scans, and other imaging studies are being done - the only indication is an "executive health plan" that pays for such nonsense. Other than wasting someone's money, false positives can lead to more testing, and more unnecessary care (with the chance of complications).

one of the many problems is that we're stuck with a system that health insurance is employer based (thanks to union negotiations years ago). If someone was going to devise a system from scratch, I don't think anyone would pick the way we do it in the US.
« Last Edit: September 20, 2011, 07:38:14 AM by slslbs »
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Offline gah

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Re: Global Economics
« Reply #31 on: September 20, 2011, 12:05:38 PM »
Not that the IMF isn't evil, but here's their latest report

http://www.washingtonpost.com/business/economy/imf-warns-global-economic-slowdown-entering-dangerous-new-phase/2011/09/20/gIQAovGxhK_story.html

Quote
The world economy is entering a “dangerous new phase” of slowing growth and eroding confidence that threatens to undermine economic activity even further, the International Monetary Fund warned Tuesday in its primary annual forecast.

“Global activity has weakened and become more uneven; confidence has fallen sharply recently; and downside risks are growing,” the fund said in its World Economic Outlook, published ahead of this week’s annual meetings.
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Offline Guyute

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Re: Global Economics
« Reply #32 on: September 20, 2011, 11:22:13 PM »

On ObamaCare.   Interesting side effect.   Microsoft had a cadillac plan that gets a surecharge on it under ObamaCare because a company has chosen to provide top of the line health care for employees.  Some amazing logic here, a company is willing to spend more money to ensure their employees get the best healthcare possible so they are required to pay a fee for doing so.  Oh, and did I mention that Microsoft takes $0 out of employees checks to cover it.  MS picks up the whole tab. What is the net effect of the surcharge?  There are 2 ways this is playing out.  Companies like Microsoft are now going to pass that on to the employees and they will need to contribute to the healthcare costs.  Others are waiting for the ObamaCare base plan and will drop their coverage and buy into that plan or a lesser plan to avoid the fee.  Holy sh#t, he actually found a way to provide healthcare and either lower disposable income in a faltering economy or create a health plan that will decrease the healthcare some people receive and the plan has such holes in it that many will still be left with no coverage as they make too much money.
I am fortunate, my employer does the same thing, my family has the best healthcare available and nothing comes out of my check for it.  Mine hasn't decided how they will handle the surcharge, but I can say that if I starting having a couple hundred a month out of my paycheck that is simply money that I won't be spending to boost the economy.

I am baffled at the level of economic stupidity I am seeing right now.
one of the paradoxes of the health care debate is that some people have great coverage (which doesn't guarantee great health care) and some people have none. In order to pay for everyone's coverage, those with the best coverage (no out of pocket costs) will have to pay for some. I'm not defending the situation, just pointing out the reality.

Remember though, health insurance is a tax free benefit. Will the companies that start making employees pay a share of the cost because of the new law change the money spent on the benefit into salary? doubt it. If they did, that of course would be taxed, but then the employee can set up a HSA and shelter the money from taxes anyway. Depending on the numbers, it might not work out that much differently.

Also, there are "executive" programs that pay for "screening tests" that clearly aren't needed. Unnecessary stress tests, cat scans, and other imaging studies are being done - the only indication is an "executive health plan" that pays for such nonsense. Other than wasting someone's money, false positives can lead to more testing, and more unnecessary care (with the chance of complications).

one of the many problems is that we're stuck with a system that health insurance is employer based (thanks to union negotiations years ago). If someone was going to devise a system from scratch, I don't think anyone would pick the way we do it in the US.

Just want to understand.  Are you saying that it is right that because I have good healthcare I should have to pay more for that insurance to provide for those that don't?  I can understand say a tax increase across the board to cover, but not making those willing to pay a lot for good coverage pay even more becuase others are not.

I know I am a fortunate one and am thankful every day.   I know my family is covered, I know that I have good insurance there, I know what my max out of pocket is every year.  I also have the benefit that should anything real serious happen my employer will go beyond the insurance coverage and actually make sure that I or my family are getting care from the best doctors and facilities possible including and independent assessment of the care being received and covering the cost to make changes if needed. (I work for a really amazing person that believes this is the greatest gift they can give their extended family)

I also know from my childhood and early adulthood what it is like to not have insurance.   To not know what you are going to do should something happen. So I feel like I am someone that can see and has lived the extremes.
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Offline slslbs

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Re: Global Economics
« Reply #33 on: September 22, 2011, 11:07:17 PM »
No - there is no "right".
We have a weird system that health insurance is a "pre-tax' benefit. So, in effect, I pay less for my health insurance that my staff, because the tax implications are greater for me, being in a higher tax bracket.
The bossman pays just as much for my insurance as for the assistant in the office. If they gave us the cash instead, I would pay more in taxes than she would. I'm getting a better value.
Is that right? I don't know - that is just how it is.
So, to level the playing field, this bill is "taxing" upper level insurance plans.

the points being-
1)If we had to devise a health insurance system from scratch, I don't know what it would look like, but I doubt it would be an employer / pre tax benefit like we have now.

2)There is a fine line between personal responsibility and giving back / helping others get ahead. that line moves all the time, and we all put it in a different place.

so, what is reasonable replaces what is right, imo.

the problem is health care is expensive. "socialized" programs in Europe are running out of $ for the same reason we are (yes, our health care system, private and public are both running out of $. ask anyone who pays for part of their insurance premium) - not because their plan is predominantly govt run and ours is not, but because health care is expensive, and getting more so. The challenges are to figure out a way to make health care more efficient and to find a way to cover everyone, at least more people. In a world where resources are not infinite, covering more people on the lower end will come at the expense of those on the upper end. Unless we can find the $ somewhere else -which, we can't at the moment
« Last Edit: September 22, 2011, 11:27:01 PM by slslbs »
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Offline gah

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Re: Global Economics
« Reply #34 on: September 23, 2011, 10:35:18 AM »
The health care debate keeps popping up in the wrong thread!  :-P

http://www.cnbc.com/id/44574537

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European central banks have become net buyers of gold for the first time in more than two decades, the latest sign of how the turbulence in the currency and debt markets has revolutionized the bullion market.

When central banks start buying up commodities, a sign of things to come?

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Offline jedifunk

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Re: Global Economics
« Reply #35 on: September 23, 2011, 09:52:08 PM »
yeah, a sign that the economic world is going to shit, and maybe equality will be restored?
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Offline runawayjimbo

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Re: Global Economics
« Reply #36 on: September 23, 2011, 10:36:19 PM »
I'd say it's more a sign that Europe is fucked, but they realize the dollar is just as worthless. It also highlights to me just how slow central banks are relative to their private counterparts: JP Morgan began accepting gold as collateral 9 months ago

Also, Solyndra execs plead the Fifth before a Congressional panel.


Offline Guyute

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Re: Global Economics
« Reply #37 on: September 24, 2011, 08:00:52 AM »
No - there is no "right".
We have a weird system that health insurance is a "pre-tax' benefit. So, in effect, I pay less for my health insurance that my staff, because the tax implications are greater for me, being in a higher tax bracket.
The bossman pays just as much for my insurance as for the assistant in the office. If they gave us the cash instead, I would pay more in taxes than she would. I'm getting a better value.
Is that right? I don't know - that is just how it is.
So, to level the playing field, this bill is "taxing" upper level insurance plans.

the points being-
1)If we had to devise a health insurance system from scratch, I don't know what it would look like, but I doubt it would be an employer / pre tax benefit like we have now.

2)There is a fine line between personal responsibility and giving back / helping others get ahead. that line moves all the time, and we all put it in a different place.

so, what is reasonable replaces what is right, imo.

the problem is health care is expensive. "socialized" programs in Europe are running out of $ for the same reason we are (yes, our health care system, private and public are both running out of $. ask anyone who pays for part of their insurance premium) - not because their plan is predominantly govt run and ours is not, but because health care is expensive, and getting more so. The challenges are to figure out a way to make health care more efficient and to find a way to cover everyone, at least more people. In a world where resources are not infinite, covering more people on the lower end will come at the expense of those on the upper end. Unless we can find the $ somewhere else -which, we can't at the moment

Logical and I see where you are coming from.  I think we are going to disagree here, but at least I can respect where you are coming from.
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Offline slslbs

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Re: Global Economics
« Reply #38 on: September 24, 2011, 03:59:25 PM »
fair enough
same here
"toss away stuff you don't need in the end
but keep what's important, and know who's your friend"
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Offline Guyute

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Re: Global Economics
« Reply #39 on: September 25, 2011, 05:18:15 AM »
fair enough
same here

Maybe we should run for office.  This is the thing our officials can't do.  Have an open discussion of ideas, not a fight of their personal Utopia.

On to the next topic,  yeah, Europe is in a really bad way.   Now you have multiple countries trying to figure out if they can get out of the Euro and bring back their currencies.   

The real problem here is that no one thought well into the future about what it truly means to have your currencies as one.  They lost the ability to solve their own economic problems.   Ireland doesn't have a central back that can do economic easing and must rely on the ECB who is looking more macro and can't do what is best for a single nation.   Also, as the Euro falls, they all go with it so there is a much larger effect.  Germany sees this and really wants out; they want to control their own destiny.

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Offline runawayjimbo

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Re: Global Economics
« Reply #40 on: October 10, 2011, 02:14:51 PM »
It really is this simple

http://www.businessinsider.com/how-to-explain-greece-to-a-complete-idiot--politician-2011-10

Quote
How to explain Greece to a complete idiot / politician

Let’s pretend for a moment that Greece is a human being. I’ll call him George.

George is a hairdresser and makes $40,000 per year. George has limited assets. He has zero savings, no precious metals, and is way underwater on his mortgage. His credit card debt is over $100,000, and his bare minimum living expenses are $45,000 annually, over 10% more than he makes. George’s credit is pitiful, and he cannot obtain any more new loans.

George’s neighbor Hans has a big family. All the kids work hard and contribute to the family savings. Hans sees George’s plight and decides the neighborhood has to stick together; he starts loaning George some money out of his family’s savings, and eventually begins to take on more and more of George’s personal debts.

Many of the other neighbors– Luciano, Seamus, and Juan– are in the same boat as George: drowning in debt with massive personal expenses and no hope to pay them back.

Everyone is looking to Hans for help.  He’s the responsible one in the neighborhood. Now, Hans doesn’t want them all to go bust because he knows it would be bad for the neighborhood property values… but Hans’s children are balking at the prospect of working hard on their newspaper routes just so that George can keep his plasma screen TV.

Very soon, George is going to run out of options and will have to have a difficult conversation with his credit card companies. In the real world, there is no other choice.

In the pretend world of politics, however, European leaders have been able to convince everyone that it’s all under control. Never mind that the whole situation has completely fractured capital markets; traditional valuation metrics have taken a back seat to rumors of secret meetings and loud talk of bailout plans.

Think about it: Dexia passed summer bank stress tests with flying colors. A couple of months later it’s going bust. How can markets function without confidence in balance sheet accuracy? Or whether a government will even be around tomorrow? This is kind of a problem when sovereign debt is the cornerstone of the financial system…

And yet, stock markets worldwide surged today on the news of a European ‘pledge’ to help banks.

Do yourself a favor and stop watching their lips move. These ‘plans’ are nothing more than lies and misdirection. Just like our friend George, a Greek default has to happen.  Politicians can pretend whatever they want, but in the real world where we live, financial deadbeats have no other options.

Offline runawayjimbo

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Re: Global Economics
« Reply #41 on: October 21, 2011, 09:56:51 PM »
A phenomenal article about why the economy has not been allowed to rebound, how central banking and market intervention creates malinvestment and other unintended consequences, and the delusion and danger inherent in complex models. It's a little long and somewhat technical, but the entire article is well worth the read IMO. It's also pretty timely since the vice chairman of the Fed was planting the seeds for the forthcoming QE3.

Selected highlights below.

http://www.realclearmarkets.com/articles/2011/10/21/we_have_reached_a_potential_inflection_point_99320.html

Quote
We Have Reached a Potential Inflection Point

We have once again reached a potential inflection point for the markets. While the debate rages about the possible solution to the European banking problem, the truth is that the actual need for a solution simply underscores the economic realities we face. None of these banking problems would exist had a true, self-sustaining global recovery been present. The entire administration of global fiscal and monetary responses has been geared toward bridging the divide between contraction and growth, as if the latter was a given.

A typical economic recovery is characterized first and foremost by the expansion of risk taking. The willingness and the ability of a broadening proportion of investors, households and businesses to take on additional risks is where a true recovery begins. In the systemic reset that a contraction represents, the equalization between prices and values (often overshot) gets the process started.

In 2011, however, prices are not being allowed to reset. Systemic risk is being priced by central bank interventions, not considerations of risk/reward from private investors. That monetary bridge to a cyclical recovery involves "managing" the public perception of risk through prices. Allowing even a fleeting thought that the current economic condition is not cyclical would invalidate every artificially low risk price in existence, so the psychology of "deflation" is both feared and persecuted.


...

The role of interest rates in the economy is not simply to advertise the cost of credit at different maturities. In many ways interest rates are supposed to signal the price of systemic risk, enforcing scarcity upon the financial world. Yet we all know explicitly that interest rates throughout the world today signal nothing of the sort. Instead of displaying true risk pricing, they simply signal what central banks want investors to believe where risk should be priced.

...

Today's financial system is not just a case of simple fractional reserve lending; it is fractional lending to the nth degree. Individual institutions are not just multiplying base money to some safe multiple in the form of loans, resulting in a simple maturity mismatch between assets and liabilities (the basic weakness expressed in traditional bank runs). Rather, firms within the financial system today are leveraging themselves into the maximum amplification of equity capital without ever having to clearly define or even adequately understand that maximum. This is such a profound change that it cannot be understated.

...

It is one thing to be a bank experiencing a run because the public worries about the quality of your assets and your ability to repay liabilities. It is something far worse for you to be insolvent simply because the mathematical formulation of risk through price discovery has changed today. In that case you were always technically bankrupt, you just had the veil of complexity to hide it while you stayed in business far longer than you should have. In other words, a bank can load up on Greek and Italian bonds and appear solvent simply because the true risk of owning those bonds is offset by the more ephemeral calculus of hedging (as it is calculated right at this moment anyway, deltas are not static). Does it really matter for anything other than appearances if your large PIIGS exposure is hedged by counterparties that have identical or larger PIIGS exposure?

...

The problem was that [AIG] determined its own margin of safety, largely accomplishing that because the price of risk was set by something artificial (though its mathematical origins gave it the veneer of science and acceptability). Because of this artificial system, the company never even knew it was in mortal danger, blinded by its own belief that risk had been, and would continue to be, accurately priced by the past data series. And in that respect, the central banks were similarly behind the curve since they use the same math and models, meaning that they will never be able to actively control prices and conditions enough to offset changing perceptions that occur outside of those mathematical tolerances.

Banks, including central banks, view risk as a number that defines operations. Real risk is the hubris such thinking engenders. The outsourcing of common sense into models is where the financial system ran aground.

Bank managers may feel safe leveraging themselves to the moon, or taking on trillions in derivatives because they are supposedly netted, but the rest of the world pauses over the same actions. While it is easy to dismiss this lack of sophistication in the rest of us, the very fact such sophistication needs to exist simply defines it as risky in the first place. If something requires a heavy element of complexity and a questionable need for mathematical certainty, it is without qualification inherently and intrinsically risky. All the hedging and the rest is just window dressing.

...

The answer to a broken system of manipulated markets is not to manipulate and break them further. Given the lack of functioning financial system and the more distinct and apparent lack of real economic results, the status quo should no longer be acceptable to the vast majority - it is not too hard to connect the dots between monetarism's artificial and uncontrolled notions of risk and the lack of sustainable rewards (both financial and economic).

Offline runawayjimbo

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Re: Global Economics
« Reply #42 on: October 30, 2011, 10:44:58 PM »
http://www.aaronklein.com/2011/10/what-caused-the-great-recession

Quote
What Caused the Great Recession?

A politician in Washington DC decided that if neighborhoods with high unemployment just had more entertainment opportunities, people would gather, rouse their spirits and gain the motivation to look for work again.

So he creates a new government-backed loan program to encourage banks to lend money to small businesses that want to entertain the unemployed. The politician calls this “free market principles at work.”

Heidi is the proprietor of a bar in Detroit.

She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with an ingenious new marketing plan that allows her customers to drink now, but pay later. Her local bank taps the government-backed loan program and gives her an interest-free line of credit that she doesn’t have to make any payments on for three years.

Heidi keeps track of the drinks consumed on a ledger and all of her patrons heartily agree that they will start paying back the money “soon” when they find jobs and things improve.

Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands, Heidi sees no resistance when she increases the price of wine and beer to $18 a glass. Her sales volume spikes tremendously, and her profit margins are incredible. It almost seems too good to be true.

Back at the bank’s corporate headquarters, expert traders figure out a way to make huge commissions by packaging up the loans to Heidi as “Drink Bonds” which are then bundled, rated AAA by the ratings agencies, and sold to investors on the international securities market.

Because the drink bonds have such wonderful returns – I mean, who knew you could get blue-collar folks to pay $18 for a glass of beer? – naive investors everywhere generate incredible demand for the bonds, driving up their prices.

A couple of years later, even though the drink bonds are still rising, a risk manager at the local bank notifies Heidi that it’s time for her to start paying down her line of credit, so the bank can pay back the bondholders.

Heidi then pulls out her ledgers and demands payment from her patrons, but being unemployed alcoholics, they are somehow incapable of paying back their drinking debts. Heidi is forced into bankruptcy. The bar closes and Heidi’s 11 employees lose their jobs.

Overnight, the value of Drink Bonds fall by 90%.

The collapsed value of the bonds destroys the bank’s liquidity, and prevents it from issuing new loans, freezing credit in the community.

The suppliers for Heidi’s bar had granted her generous payment terms, as well as investing their pension fund into Drink Bonds, so they claim bankruptcy too and lay off 150 workers.

The default on the Drink Bonds throws the entire economy into chaos, as investors become fearful that other bonds may be equally “safe.” The markets plunge, lose half their value, and many companies begin laying off workers.

Fortunately, the bank, the brokerage houses and all of their respective executives are bailed out by a multi-billion dollar cash infusion from the government, because as the President says, “we need to help the people who need help.” The government also announces a series of regulations to “fix” the problem.

The funds required for the bailout are obtained by new taxes levied on employed, middle class, non-drinkers who have never set foot in Heidi’s bar.

And that, my friends, is pretty close to what caused the Great Recession.

(Edited and adapted by me, original author unknown.)

Offline gah

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Re: Global Economics
« Reply #43 on: October 31, 2011, 09:46:17 AM »
I don't understand how you still believe less regulation is the answer? I understand your thoughts on less gov't, etc, but do you honestly believe unregulated free market capitalism is going to get us out of this mess?
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Offline runawayjimbo

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Re: Global Economics
« Reply #44 on: October 31, 2011, 11:10:14 AM »
I don't understand how you still believe less regulation is the answer? I understand your thoughts on less gov't, etc, but do you honestly believe unregulated free market capitalism is going to get us out of this mess?

I don't remember ever saying anything about having no regulations. There should be mechanisms in place that increase transparency and encourage productive investment and appropriate risk-reward trade-offs rather than speculative mania. But that's not what happens most of the time. Most regulation is a reaction to a crisis that already occurred, not a forward looking system for preventing new ones. Why? Because nobody, not a regulator or a Wall St. exec, can foresee what future crises will look like. Financial crises are borne from people taking advantage of holes in existing regulations, not because of a lack of them.

I do believe that free markets are the only way we will regain economic stability in this country (and globally as well). I understand that politicians have no choice but to look like they are doing something to make things better. But for any measurable benefit they introduce they create multiples of harm as their interference in the free market inevitably leads to unintended consequences. It also breeds the corruption that we all acknowledge as those in charge put their favored interests at the front of the line. OWS (rightly) complains that financial companies dominate elections, but politicians couldn't be bought if they weren't in the unique position of influencing "free" markets.

So, to answer your question: unregulated? no; free market? absolutely.