Self test on whether you think healthcare is a right or a privilege (from an event that actually happened):

Imagine you are at the beach and see a person in obvious physical distress, not drunk, but possibly having some sort of medical event:

• If you help them (or think someone should help them), you think healthcare is a right.
• If you pass them by as you say to yourself “they should get help”, you think healthcare is a privilege.

This is a quick guide on who’s likely to win or lose with healthcare reform.  It’s for those too busy to study it or who lack the background in economics, financial markets and business necessary for a broad view of what’s likely to happen.  Particularly, this is for my wife, who is one of the dedicated healthcare workers who has been worried by the claims of disaster but know from real experience that there are opportunities to deliver better care.   

I’ve had the privilege of recently talking to a number of major hospitals’ Chief Nursing Officers (CNO’s) about the proposed healthcare reform and have found that most of them are concerned that reform will make delivering quality care more difficult due to payout reductions.  They admit that they have limited knowledge of what the plan actually entails because their 60 hour (or more) workweeks actually making sure care is delivered properly don’t allow them the time to study it – some number cruncher somewhere else in their organization is looking at it.

The recent endorsement of the house version of the health care reform bill by the American Medical Association let me know that many doctors have already decided that reform will improve things.  While doctors might be motivated by some payment changes promised in the House plan, the American Nurses Association has endorsed it too which makes me think that there is good reason to believe that patient care might actually improve.  

So if nurses are concerned about care and doctors think it might be OK for whatever reason, why do most stories state that health care reform will be a disaster for all except the currently uninsured?   In fact, the worst of the horror stories has the plan bankrupting the country, not covering all the uninsured, destroying insurance companies and small business while reducing the health coverage of the currently insured.  It looks like the groups that will be hurt are putting on a full court press to stop reform and save their bacon. Their complaints plus the whining of the obvious winners about individual provisions is making it difficult for the average person to understand what is happening.

As a business person with turnaround experience, I can see that healthcare cost savings are an opportunity because other developed countries spend no more than 11% of GDP on health care for equal or better outcomes while we spend 16%.  A turnaround manager coming in to a bankrupt company with this sort of health care bill would see this as low hanging fruit that can be quickly harvested (think GM.)    The Congressional Budget Office estimates there will be no savings from reform so I’m going to do what good managers always do when someone who is part of the failing company makes an emphatic statement:  Ignore them and try to find out the truth  (note this link from Paul Krugman on the CBO estimates on Healthcare.)

More importantly, if the low hanging fruit is 5% of GDP, there should be more than a few winners that a smart investor would want to back.  The problem is that we don’t know exactly what healthcare is going to be.  Let’s try to find the winners and losers and look at the opportunities where the only certainty is the requirement to buy insurance and more or less guaranteed affordable coverage (no rejections by insurance companies) which will achieve universal coverage (Congressional Budget Office estimates that plans like this will cover 97% of legal residents).

 Losers:

Insurance Companies:  The big loser in any universal insurance program is current healthcare insurers.  Even without the “public option” where insurance is directly issued by the government, healthcare insurers will see dramatic reductions in profits.  Premiums from insuring “risk” will essentially be removed from Insurance companies and they will make money by being the most efficient processor.  Their ability to make money by dropping people likely to be expensive will be eliminated and rates premiums will be restricted, possibly to as low as 2 times the base rate. 

Selling “gold plated” insurance (with benefits much greater than the required plan) will probably be limited to no more than 40% - 45% of the current market (roughly, based on European programs) and even this will be of limited profitability as the public option is being design to mimic current coverage and appears comprehensive.   Gold Plated plans will have to offer faster access to specialists (if possible) and treatments that are not approved by the base plan which, based on the European and Canadian plan treatment offerings, will be restricted to new, unproven, elective or lower efficacy treatments.  Some people will find this appealing but most people want to stay away from the doctor’s office and avoid questionable treatments.

The overall lower risk of insurance after healthcare reform will severely reduce insurance company margins and should give significant advantages to the largest operators who can generate economies of scale and technology.  The net result should be significant industry consolidation which may be an investment opportunity.  This consolidation may be slowed down by state Insurance Board activities to protect local insurers at the cost of higher in-state insurance rates (the final law may forbid this.)  If either the “public option” or the Health Insurance Exchange exists, state protectionist activities will not work due to the existence of a baseline comparison visible to all insurance purchasers.

Free Riders:  A free rider is a person or company that can afford health insurance but, for whatever reason, decides not to purchase it.   There is not much economic effect from mandated healthcare insurance with this group as they have the resources, just don’t pay their fair share of the cost.

Individuals in this group are lottery players betting they won’t need health care, and, as a group, would be better off financially with healthcare insurance.  The cost for the individuals who actually need health care is either 100% paid out of their assets or becomes charity care when their assets are exhausted.

Free riding companies, usually small businesses, shift the burden of health care insurance to other companies and organizations as most people do have insurance either from spouses or other relationships (VA, etc.)  As their employees are already covered by insurance and it’s no significant burden for these companies to pay for insurance this will be a wash with no significant economic effect on the company or the country’s economy.

Marginal Small Business:  Small business is the heart of the uninsured problem.  According to the Employee Benefit Research Institute, 26 million of the 46 million uninsured are the owners, employees or dependants of Small Business (usually defined by the Small Business Administration as a company with less  than 500 employees; some industries it’s as low as 50.)

Some small businesses that do not offer health benefits and are struggling to meet payrolls and achieve profits may suffer under an enforced insurance plan.   The proposed plan imposes an 8% tax on payrolls of employers who do not offer healthcare. 

Small businesses with less than 10 employees and an average salary of $20,000 or less will only pay 4% tax (the difference is given back as a tax credit.)  This tax will increase from 4% to the full 8% on a proportional basis as employees go from 10 to 15 and average salaries go from $20000 up to $40000. Small businesses with 15 or more employees and/or $40,000 in average salary will pay the full 8%.  An average salary of $40,000 would pay a tax of $3200, while the average cost of insurance for a family is $12,000 or more.  This is a really big savings for low wage firms that currently offer health care insurance.

Census data is not broken out exactly this way and the closest break is firms with 9 or less employees which are 15% of all firms employing 11.1% of the workforce and paying 8.5% of salaries.   About 49% of these currently offer health benefits to their employees according to the Kaiser Family Foundation and would see a significant reduction in their healthcare insurance cost from the current bill. The 51% (about 7% of all firms) that don’t offer healthcare might be negatively affected. 

The net effect is that Small Business is ahead under the plan but it may be the final stroke for struggling companies.

Non-Medicare/Medicaid (Non-MM) Doctors and Hospitals – Some doctors and for-profit hospitals do not currently accept Medicare or Medicaid patients and might see significant decreases in income if patient volume or payout decreases under healthcare reform.  This group would include some for-profit doctor owned hospitals and clinics but not non-profit doctor organizations like the Cleveland Clinic or for-profit doctor owned hospitals with extensive Medicare and Medicaid practices.  Note that Non-MM groups may suffer loses even if healthcare reform results in higher payouts than current Medicare and Medicaid.  Both the nature of their relationship with private insurers and private insurers’ ability to absorb higher rates by expelling sicker patients will change.  Particularly vulnerable will be specialists who generate high incomes by doing large numbers of fee-for-service procedures that are of questionable benefit.  Orthopedic surgeons that do hips would be unaffected but those that do back surgery purely for pain relief will have to modify their practice.

Note on the Wealthy as losers:  The current plan has a direct tax on those making over $350,000 per year to pay for healthcare reform.  While I could put them down as losers under health care, I haven’t because they are almost certain to see tax increases so linking the increases to healthcare is a distortion.  The wealthy seem doomed to tax increases; particularly when you consider that there is no theoretical reason to tax capital gains at a preferential rate compared to other income (when there is a sophisticate capital market, income is income and its origin does not affect the amount of investment.) Lower tax rates for capital gains can actually be shown to distort investment into unproductive programs that would not be undertaken without tax advantages.  

Winners/Whiners:

Healthcare reform is made even more difficult to understand because even the obvious winners whine about the proposed plans. 

For example, since 1986 the National Federation of Independent Business’ (NFIB) members have said that healthcare costs are their No.1 concern yet the NFIB opposes both employer mandates and the public option.  78% of firm with 10 to 24 employees and 90% of firms with 25 to 49 offer health benefits and these firms pay an average of 18% more that large firms so it’s pretty obvious that they will be better off if they can get the same insurance rates as large business and the mandate is a non-issue.   Nevertheless, NFIB is one of the most vocal opponents of the current healthcare reform; possibly due to a scary but flawed study that actual supports some of the benefits of the public option.  (This study is reviewed in the Small Business section below.) 

Here are the winners and their whines:

Currently Insured

The currently insured are the group that appears most confused.  Polls show agreement that healthcare needs reform which is combined with concerns that the insurance they have will be reduced.  The truth is that the insurance they have is steadily decreasing due to cost increases and free markets can’t cure this.

The reason that the currently insured are concerned is that estimates of the proposals don’t assume any significant cost savings.  The Congressional Budget Office (CBO) refuses to include any calculation that healthcare costs will be reduced in their estimates because the exact details of the savings can’t be foretold.  The CBO discusses many proven cost saving measures and then dismisses them from budget calculations.  For example, the budget savings for the reduction of payments for ineffective fee-for-service is calculated only on the dollar reduction without any additional savings from the linked increase in lower cost outcome based treatments that must occur if ineffective treatment is reduced.

Any estimate that included cost savings shows a large benefit for the currently ensured.  If the estimate assumed that we would drive our costs down to those of the next lowest developed nation, the total savings would be approximately 30% with the currently insured benefiting even more. Finally, the currently insured would not have to worry about losing insurance if they actually became ill so there would be a reduction in bankruptcies which could be easily calculated.

American Large Business

All American Large Businesses offer health benefits (99% of firms with 200 or more workers) so anything that will lower costs will benefit them and make them more competitive.  American Manufacturers will be the biggest winners because they have the most competition from countries where healthcare is much less expensive, not offered or covered by lower cost universal programs.  A good example of this benefit is the fact that GM is profitable in Europe where there is universal healthcare.

Costs for companies that currently offer healthcare will decrease slightly once universal healthcare is enacted for a very simple reason: the government will be picking up the cost of the uninsured and paying for it with deficits in the short term and general tax increases in the long term (possibly in the short term, too.)  As companies that offer health insurance usually pay 75% of the total cost, this transference of cost will disproportionately benefit companies that currently offer insurance.  This benefit for companies will occur even without any of the savings that can be expected from a universal health care plan.

Some companies whine about increased cost but it is clear that the universe of American Companies will benefit due to lower costs.  Those companies that will fail due to being forced to pay the cost of insurance are marginal producers that don’t currently carry healthcare insurance.  These represent no more than 1% of firms with 200 or more workers, according to the Kaiser Family Foundation (some of these firms are profitable and currently choose to free ride.)

Wal-Mart supports healthcare reform and lays out why clearly in their letter to President Obama.  Manufacturers like GM and the steel industry would benefit the most which may be why many also support healthcare reform.

Entrepreneurs

Anybody who’s ever lost or change jobs and gotten a COBRA form knows the truly staggering cost of individual health insurance.  If you or anyone in your family actually has a health problem then health insurance will be unaffordable.   A friend of mine who was relatively well-off retired in his 40s because his high stress job was making his diabetes worse.  After discovering that he was uninsurable, he took a much lower stress and pay job at a nonprofit to get insurance.  This story has a happy ending: he loves what he is doing and the nonprofit is ecstatic to have him and continually offers him promotions which he turns down.   My friend was lucky; most people have to stick with the job they have until they are too ill to work to make sure they get health insurance.

 The typical entrepreneur is not a young person but rather an experienced business person who is older and more likely to have health problems. Eliminating the barrier of lack of insurance will allow people who currently have the resources and ideas to start new businesses to open small businesses.    Small businesses are the generators of two thirds of new jobs so removing barriers to their startup will increase economic growth.

Doctors and Hospitals

Doctors and Hospitals have the biggest potential to benefit financially from the switch from fee-for-service to outcome based payouts.  Not performing unnecessary services means more funds are available for payment as rewards for good outcomes.  Accountable Care Organizations, modeled on the Cleveland Clinic and the Mayo Clinic, are included in the current bill in limited form.  A secondary benefit for doctors could be more time to spend with patients. 

Doctors and Hospitals would also benefit from significantly lower paperwork (after insurance company consolidation) and insurance on almost all patients.  Currently a significant portion of doctor’s income is spent on filling out insurance forms and screening patients for ability to pay.   Hospitals have the same issue with paperwork but can’t screen patients so they have to absorb much of the cost of the uninsured.  Finally, the current bill has provisions to increase payments to family practice physicians.

Significant investment opportunities may exist with for-profit hospitals that embrace the Accountable Care Organization model.

Small Business

Very Small Business (up to 15 low wage employees) would have additional cost savings under the proposed plan as there are supplements for low income individuals which would make it easier to attract people even at the minimum wage.  The 4 to 8% of salary that these businesses would be required to pay is far below the actual cost of insurance for a minimum wage individual.

As mentioned above, NFIB, a leading small-business organization, recognizes the need for health care reform but is adamantly opposed to the current plan.  This appears to be due to a study they commissioned that did laboratory testing of small-business behavior under various healthcare models.   This study is flawed in that it did not benchmark the real world as the base case and did not assume any cost savings under any of the universal insurance test cases.  This lack of real world linkage is a typical problem with today’s academic economists and fixing either of these assumptions should show a real benefit for Small Business.   

 The Small Business Majority, another small business organization, commissioned Professor Jonathan Gruber of MIT to model small business performance under three real-world healthcare reform scenarios.  Each of these situations showed small business to be far better off under health care reform.

Summary

The failures to recognize the benefits of health care reform appear to be caused by the refusal to recognize the cost savings from reform for both individual companies and the country as a whole.  Fortunately, the USA is not bankrupt yet but with current health care growing at 8% a year, the country is doomed to shrink economically unless it controls the cost of health care.  Major companies from Wal-Mart down recognize this and have endorsed health care reform. 

Investors should support health care reform as a way to strengthen United States economically while they look for those companies that could benefit.    Specific opportunities will be explored in more detail in future posts.

In sales, there is a technique to make buyers decide to purchase called the “Ben Franklin Close”.  It is a simple two column list with all the reasons to buy on one side and all the reasons not to on the other.  The side with the greatest number of reasons shows which decision to make. 

A broad stroke look like this of where the market is likely to go is useful if you are a mutual fund investor whose investments generally follow the whole market, or someone who’s willing to invest in inverse funds to benefit from downside moves. My list on whether to buy or sell the current market is shown below:

If you have more reasons the market will go up, please add them in the comments.  There are more reasons to put onto the down side but the list is already too depressing. 

If you’re cautious, then the best thing is to be out of the market.  If you’re aggressive than there seems to be more downside from here than there is upside and inverse funds are an opportunity for you.

If you’re a stock picker there are plenty of value stocks to pick from today though I’m personally waiting for the next leg down to buy.

There has been a lot of discussion (or hot air, depending on your opinions) generated on whether deficit stimulus spending helps or hurts the economy in the long run. Keynesians are pretty straight forward in their support of deficit investment as the fastest way out while many conservatives support only Monetary Policy as the better alternative. 

Credit Default Swaps (CDS) are going to wipe out most companies that wrote them due to the cascading effects of a default.  Any company that has CDS expose will never be a good speculative investment.

A Credit Default Swap is basically an unregulated insurance policy that any company can write on any financial instrument that someone else wants to reduce their risk on.  During the financial boom times (up until early 2008) banks, hedge funds and other companies would sell CDS’s and then buy a CDS on the same security to offset their risk and make money on the spread.  This multiple sell/buy is why CDS notional value is $54 Trillion, about 2 times the USA GDP.

A default on a security that a CDS is written on has a geyser like effect:  The default flows like water from the security holder to their CDS writer, who passes it on to their writer who does the same.  Ultimately, it comes to a CDS that is naked (without CDS or other reinsurance) and the writer has to pay up.  As most of these companies were leverage 30 to 1, it is unlikely that they will be able to pay.   Just like water that hits the hot bottom of a geyser, this claim shoots back up the system until it finds a financial entity that can pay up.  Add enough defaults together and you get something with the predictability of “Old Faithful” that will blow up all the writers which includes many of our major banks.

A CDS default forces banks and other writers to put out more money.  In Japan during the 90’s banks were insolvent because the securities behind loans had gone bad and the government simply put off having banks recognize the loss until they could do so without going bankrupt.    With CDS’s, writers will need additional capital – banks will get it from the Government but hedge funds, etc. will go bust.

The system will remain frozen due to fears that the deepening recession will cause CDS defaults to happen.  Establishing a clearing house for derivatives may not help as it may force an immediate recognition of the liability of CDS’s by banks.  Not establishing a derivative market/clearing house is probably worse as the system can’t clear itself without a fair and open market.

Looks like all roads lead to bank nationalization:  Do something and it will force recognition that banks are undercapitalized (York University Professor Nouriel Roubini estimate the gap at $2.2 trillion.)  Don’t do anything and bank will be forced to keep asking for money as CDS’s are claimed – a lot of money that will ultimately result in the Government owning most of them even if it doesn’t want to.

Just 3 days into the new administration (Friday Jan 23, 2009) gold is up $40 or so to $897 per oz.  The most interesting thing about this rise is the surprise among gold bugs that the Commitment of Traders report shows the bullion banks reversing their previous position and going long.   

Gold Bugs:  Wake up.  Everybody should know by now that the New Guys are Keynesians and love a lot of what FDR did.  This means they will do everything they can to stop deflation and one thing they will almost certainly copy is FDR’s devaluing of the dollar against gold as an anti-deflation device.  FDR moved the dollar from $20 to $35 per oz, a 75% devaluation, so if the New Guys just copycat this pattern gold will go above $1600 per oz fairly quickly.

Many people state that the New Guys will not devalue gold right away because first they will have to make it illegal for US citizens to own gold like FDR did.   FDR had to get gold out of use as currency before he devalued it which is why he outlawed ownership.  This is not needed today as we don’t use gold coins or scrip. 

One more reason that the New Guys will devalue gold: physical gold owned by citizens is a plus because increasing the value of gold will offset some of the other asset value declines in stocks and housing. 

As this is purely a manipulation, I bet that gold will not go above the old inflation adjusted high of $2000.

Yesterday I was told that 42% of people did not pay taxes. I commented back that everybody paid at least 15.3% because of Social Security (FICA) and Medicare Taxes. These are just another tax because they are not placed in a dedicated pool and are used to reduce the deficit. I count the employer contribution as a tax on wage earners as they could be given to the wage earner if not sent to the government.
This raised the question of who paid the most tax if SS and medicare were counted in. The taxes stop at $102000 of income so lets compare that marginal tax rate to that of a $1 million earner. Using a tax calculator for the income tax shows that the $102,000 wage earner pays an average of 34.9% and an incremental rate of 43.3% in total taxes versus an average of 34.1% and an incremental rate of 35% for the $1 million earner as detailed below: 

This is the 2nd of a 3 part series on:

1.        How the current economic crisis occurred,

2.        What needs to be done to fix it and

3.        Tracking how successful the government is in taking the needed steps

 “Eyes Wide Shut” Economic Plans won’t stop the Greater Depression

My businessman’s mind is amazed by the lack of fact based, goal oriented solutions from our political leaders for the current economic crisis.

What’s been done so far to fix the economy duplicates the efforts of Hoover as the economy spiraled downward from 1929 to 1932 and it is easy to project that if this keeps up we are heading to the “Greater Depression.”  In the calendar of the Great Depression, today (January, 2009) is January, 1931 and the worst is yet to come – in 1932 GNP fell 13.4%. 

Secretary of the Treasury Paulson has failed to prevent the crisis because he tried to save the stockholders in current banks and investment firms (just like Hoover) and did not implement the regulatory structure needed to rebuild confidence in our market system. Banks are toast because of huge exposure in unregulated derivatives (Credit Default Swaps, just one type of unregulated derivative are $54 trillion, that is 12 zero’s, compared to a bank capital base in the billions.)  As soon as a regulated market is established for these derivatives, banks that hold them will go bust and need direct investment from the government that will wipe out stockholders.  If we do it quickly we might avoid the “Greater Depression.”

Many politicians are standing in the way of any program that does not contain at least a dash of their political ideology.  Republicans seem to accept any stimulus program as long as it involves tax cuts even though the last 8 years have proved these are unaffordable (tax cuts only give, at best, 50 cents on the dollar of stimulus.)  Democrats are pushing for jobs programs, infrastructure building, welfare extensions and some consumer mortgage relief that seem to mostly be the things that didn’t work for Japan during the 90’s and start to raise “welfare society” issues.

All of the current solutions seem to be based on what politicians think are politically salable to their base.  The people are not fooled: The Conference Board Consumer Confidence Index™ reached a new all-time low in December 2008 of 38.0 (1985=100). 

What we need is economic leadership that will recognizes what is actually happening, kind of like Petraeus did when he used a different “hearts and minds” strategy to make the surge work in Iraq. (Note:  Petraeus led the 2^nd surge in Iraq – the first, with equal troop strength but using conventional tactics and strategies that ignored the realities on the ground, didn’t work.)

We’ve seen the type of leadership we need: FDR gave the leadership the USA needed in the Great Depression when he stated that “all we have to fear is fear itself” to calm public fears that were causing runs on banks and subsequent bank failures.  He combined this with a bank holiday (during which banks were suppose to be inspected for fiscal soundness, an impossible task) so he could implement FDIC insurance and give banks the stability needed to start lending again. 

Three areas need to be addressed to solve this crisis (see my previous post for reasons why.) These can be considered the nation’s objectives:

1.       Stop Deflation

2.       End the Banking Crisis and Restart Lending

3.       Rebuild Consumer Confidence to restart spending

There are a lot of ways to achieve these objectives and later blogs will track the government’s success. Here’s just a few ideas:

Stopping Deflation – The primary cause of deflation was the decline in housing prices.  Stock market declines have happened in the past and not led to deflation so they are not the cause of the current deflation. Below are 2 different tracks that can be taken to reverse deflationary pressures, one that is obvious and another that is less so:

1.       Demand and supply adjustments for housing:  

o   Reduce foreclosures/defaults to reduce the supply of homes for sale

§  Government Bailout of mortgages that are above current home values.    Rational homeowners should abandon houses where the mortgage is greater than the home value.  By bailing out homeowners with negative equity, bank balance sheet would be strengthened and the amount of distressed homes coming on the market would be reduced.

o   Government purchase and demolition of substandard housing.  The government should make an active program of purchasing distressed houses and demolishing those that are substandard.  A sub program could be the refurbishing of better houses for subsequent auction or low-cost housing usage.  These will increase employment as well.

o   Reduce mortgage rates. Reducing mortgage rate will increase the number of potential  buyers but may not be effective if the perception is that housing will continue to decline.

2.       Devalue the dollar by increasing the price of gold.   

·         This was one tactic FDR used to stop deflation during the Great Depression.  Devaluing the dollar against other currencies is what should be done but it is impossible because of manipulation by foreign governments.  Gold is a currency equivalent so an obvious rise in gold would mean that the dollar is declining and deflation has stopped.  What is great about gold is a psychological inflation indicator that is disconnected from the real economy:  inflation in gold will not cause inflation in anything expect jewelry. 

·         Note: Paulson’s Treasury appears to be continuing inflation control efforts that are keeping the price of gold it down!!  Simply removing the manipulation would probably allow a sufficient rise in the price of gold to reduced deflation expectations.

Ending the Banking Crisis and Restarting Lending-The banking crisis was caused by excessive leverage and poor regulations that allowed investment in unsafe assets such as collateralized mortgage obligations (CMO’) and resulted in reduced lending as bank’s capital bases were vaporized. Some solutions are:

·         Emergency legislation forcing bank lending-this can include government supplements on real estate and some business loans so that banks can be compensated for the greater risk of lending during a fiscal crisis.  This is necessary as we are currently in a “Liquidity Trap” where normal lower interest rate stimulus won’t work.

·         Establish regulated markets for all derivatives.    This is today’s equivalent of FDIC insurance.  Establishment of fair markets will eliminate fiscal instability but probably result in many Credit Default Swaps being worthless causing the bankruptcy of more investment firms and banks necessitating:

·         Rebuilding of bank capital bases with direct government equity investments.  The plan should include a requirement for the government to sell their equity ownerships once banks were stable.

Rebuild Consumer Confidence to Restart Spending:  Nothing lets people spend today than the feeling that they don’t have to worry about tomorrow. Today, all they have is worries.  They don’t really worry about the economy per se, it’s jobs and financial security concerns that are at record highs.  Here’s some potential fixes:

·         Jobs – are purely a matter of spending in the economy.  If consumers don’t spend enough to keep everybody working then the government can step in and spend without causing inflation, as long as it is on productive infrastructure and it is done while the crisis is still occurring.  Milton Friedman proved that most government stimulus doesn’t work because the crisis is over by the time it kicks in, so no tax cuts as they work really slowly, if at all.  Pick the wrong stimulus or do it too late, of course, and here comes inflation.

·         Financial Security- In China, where there is no social safety net, savings is a 30% of income and the government is trying everything it can to try to get them to spend more to offset the decline in export to the USA.  In America, consumers have started saving and paying off debt at an amazing rate due to rapid declines in their wealth that started with the housing and stock market declines and was brought into focus by the gas price spike.  Before they start participating in our debt, consumers need to secure about:

o   Paying for Gas/transportation:  Gas prices doubled in 3 months and are the reason that other retail spending plunged.  A stable long term transportation solution is needed.

o   Educating their kids:  College is necessary for kids to have a better future than their parents and the price has gone 247% in the last 20 years, making it almost un affordable.

o   Paying for Healthcare:  Illness and healthcare expenses are involved in half of all bankruptcies.

Next in this series will be evaluation of economic plans of the US government and their actual effectiveness in solving the crisis.