By Edward Leone Jr. DMD MBA RFC
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In my November blog, I posed a variety of questions regarding the problems in the Euro Zone with Greece, Italy and Spain during the course of the G-20 meetings in France. Over the past month, we are learning that French banks are in severe trouble and Germany wants to see changes in the rules of the game before it comes to the rescue on a large-scale. The potential for breakup of the Euro Zone is a key issue here. One currency shared by multiple cultures and multiple governments creates many challenges. It appears over the last few days that central banks world-wide including the US, China, Canada and Japan are willing to lend money at reduced rates to support the Euro Zone. Clearly the rules of the game regarding social programs, sovereign debt and currency exchanges will have to change if this is to work over an extended period. The governments of Canada and Ireland have demonstrated the steps necessary to begin a turn around. The US, Japan and many european countries will have to engage in similar efforts while China needs to reduce the generation of a fictitious growth model and be an honest broker with its currency. If this does not happen, all global economies have much to lose. Russia and middle east economies also have to be a part of the solution or face a diminished market for their oil. This not going to be a free ride. US citizens and the populations of many economies around the world will face higher interest rates, higher taxes and a reduced purchasing power of their currencies.
On the subject of oil, it is clear that economies, whether emerging or developed, thrive on low energy costs. A global economic collapse would reduce demand and lower energy prices. If economic strength accelerates, consumption of oil products is likely to increase at a rate higher than current supply capacity. It is important in the short-term, to increase the supply of oil while longer term strategies need to identify other energy sources. It is likely to be economic forces and not political interference that will facilitate this evolution.
I have spent considerable time in past blogs discussing health care. As we get closer to the implementation of PPACA (Obama Care), we are getting a clearer picture of how this will unfold given the disclosure of more elements of the legislation. One very misleading aspect of PPACA is the promise of free care. When government requires insurers to cover specific medical procedures, the costs are reflected in premium levels. Coverage mandates are not free! PPACA contains language which places a fee on health insurance policies. NFIB (the voice of small business) estimates that this action will raise costs to businesses by 2 to 3% and impose a cumulative cost of up to $5,000 per family by 2020. The political rhetoric defending PPACA denies the institution of death panels yet, the Preventive Service Task Force established by HHS, recommends the elimination of prostate screening for males of advanced age and mammograms for females over the age of 50. This will save on costs, likely at the expense of lives that could have been saved by screening and treatment. I have pointed out the potential for access problems to occur for Medicare patients if plan reimbursement levels are reduced. According to a November 2011 article published in Kiplinger by Susan Garland, the hospital trust fund for Medicare Part A will be exhausted by 2024. Part B and D are becoming an increasing part of the federal budget since premium levels do not cover all costs and remaining obligations come out of the general fund. As the future unfolds, it is clear that individuals will have a greater involvement in the cost of their health care. This will require a free market dynamic which is missing in the health care economy currently along with tort reform and a shift to catastrophic coverages which represent a more insurable environment instead of the first dollar coverage arrangements which represent cost sharing instead of insurable events.
One other issue which deserves attention at this time is the potential for tax changes at the end of 2012 assuming no changes occur in fiscal policy:
1. Income taxes will go up.
2. Some deductions and credits will decrease or go away.
3. The marriage penalty will reappear.
4. Capital gains taxes will increase.
5. There will be increased application of AMT.
There are many other potential changes, but the above will affect most of us.
Be vigilant and informed.
For the Record:
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Suggested Reading:
“The Little Book of Stock Market Profits” by Mitch Zacks
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