By Edward Leone Jr. DMD MBA CFP RFC
Contact Information: leonee@vzw.blackberry.net
After the content of the April blog with focus on the Federal Reserve Bank, I was not alarmed over Steve Forbes recent claim that the FED in its stress test function is playing a little politics. Banks must pass the stress test in order to conduct stock repurchase and establish dividend levels. Of the 18 banks tested, 4 fail. Three of these failures were in part due to bank officials’ public criticism of Obama policies effecting their industry. I find it also interesting that globally, central banks are requiring member banks to hold no reserves against government debt but are increasing reserve requirements against business debt. I thought the FED functioned independent of the government!! What don’t we know about government corruption in the area of pay offs for programs and favors?
The Obama budget proposal has been released. Key elements which will impact retirement are: chained CPI (including lower cost substitution of products and services in calculation of CPI); retirement account limits (above $3 Million, tax deferral ends); mandate auto enrollment in IRAs for employees; higher premiums for high income Medicare beneficiaries; new elevated Medicare co-pays. The Medicare proposals make some sense if the program is going to sustain. This chained CPI is a problem since it may further distort the true measure of inflation. For the year 2011, CPI was stated at 1.1%, but Consumer Expense Inflation was 2.7%. It is true that CPI does not really measure inflation’s impact on the elderly since the pressure of elevated medical costs for this group is not included currently and will not be accommodated with chained CPI. The budget proposal is complex and continues a trend of increased spending and taxation levels. Congress and the Executive need to get together on appropriate and effective fiscal policy changes. It is my suspicion that we will have to wait until after the 2014 election of the Congress.
PPACA has been in the news lately since we are getting closer and closer to full implementation in 2014. Talk of doctor shortages is on the front burner. The addition of a potential 30 million people to the patient pool will put pressure on doctors to accommodate. Concern over new ACA mandates are also a factor. A Deloitte 2013 survey of US Physicians show that 6 in 10 doctors will likely retire early due to the practice environment which will likely occur upon ACA implementation. On the consumer side of the issue, insurance premium levels are a matter of concern. Premium structure for under writing purposes related to age, gender and health status are severely limited in ACA. This means that all policy holders will pay more to share the risk involved with these mandates. The Aflac Work Forces Report states that both employers and employees are not ready for ACA and do not understand their responsibilities and benefits under this complex legislation. There is much still to be learned about what it will take to comply.
It is evident to me as a result of my reading along with every day encounters with people in the business environment that many Americans are concerned and unhappy over their economic status. They are also in a squeeze over a lack of discretionary dollars. It is my judgement that along with the influences of inflation and declining earning power, many have a problem identifying the difference between wants and needs. The average household income for 2010 was down 5% when compared to 2000. The inflation factor for that decade was 27.6%. We are earning less and our money busy less yet we still consume of many frivolous items and services. Consumerism is a 70% driver in the economy. Solid economic growth for an extended period is the only true way to earn more, quiet inflation and accommodate additional consumptive habits.
For the Record:
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Suggested Reading: “The Alchemists” by Neil Irwin
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