By Edward Leone J. DMD MBA RFC
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And the beat goes on. We find ourselves struggling in a challenging economic environment. It is becoming clear that global factors mostly focused on the banking industry in the Euro Zone are presenting head winds to a recovery here at home. According to the International Monetary Fund, European banks are facing major loses and are having trouble raising capital because interest rates to them are becoming very expensive. Italian banks are so desperate for capital that they are supposedly selling bonds at five times the rate they pay on savings deposits. What is the solution to this situation? Will the Euro Zone lose its unity status and stop the common currency strategy which has evolved in recent years? Is a global banking collapse in the making? Can the US financial system weather the storm? It is clear that capitalization of the global banking system will have to come from governments and private investors and that the populations of many sovereigns will have to provide for more of their individual needs so that governments can reduce expenses which are a burden to tax structures, economic viability and a contributor to serious default risk. It will take tremendous courage from statesmen around the world to get us where we need to go instead of the politics as usual solutions being generated.
A recent Associated Press release tells us that the Social Security disability program is under great financial stress. Applications are up nearly 50% over the past decade. It appears that the increase in applications is occurring due to the poor economy. Those who have some sort of disability but still work are losing their jobs and many in the later years of their working careers, but not yet eligible for Social Security retirement benefits, are adding to the volume. Approximately 1.3 million people receive this benefit at an average level of $927 per month. It appears that more strict criteria will have to be applied to applicant qualification if this program is to survive.
A very interesting website for the reader is insurancenews.net. In a recent posting, we learn that millions of people will be added to medical insurance coverage programs as a result of PPACA 2010 (Obama Care). It is stressed that trends in the medical care environment may not be accommodating to this influx of demand. Physicians’ acceptance of new patients with insurance coverages has decreased from 93.3% in 2005 to 87.8% in 2008. Much of this change is due to declining reimbursement levels. The trends associated with government coverages in the Medicare program are also of concern. In 2005, the rate of acceptance of new Medicare patients was at 95.5% declining to 92.9% in 2008. Patient access to care could be compromised if coverages are not adequate to cover the costs of delivering care.
An other factor, resulting from our challenging economic environment brought out by Bloomberg, is the trend that US poverty has climbed to a 17 year high. Forty six million people or 15.1% of the population now live in poverty as described by government criteria. Median household income has declined by 2.3 percent over the last 2 years. We have not seen such a desperate situation for so many since 1983. The Congress and the Executive must act to generate fiscal policy changes that will lend to job growth instead of depending on temporary stimulus measures which have only targeted and short-term effect. From 1945 into the 1980s, it took approximately six months after a GDP recovery for employment to recover. In the 1990-1991 recovery, it took 15 months and in the most recent episode from 2008-2009, a 60 month period of time is anticipated. The work force will need to retrain, industry will need to grow its presence in the US with the appropriate incentives and government will have to get out of the business of creating barriers to these efforts.
The messages in this blog are mostly negative. I am confident that things will look much more positive in the future since we cannot keep traveling our current path. I just don’t know when the turn of events will occur.
For the Record:
DJIA 11,103.12
NASDAQ 2,479.35
S&P 500 1,155.46
Suggested Reading:
“Quantitative Investment Risk Analysis” by Ed Fishwick and Stephen Satchell
Leonesmoneymonitormonthly's Blog 
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