Will Obamacare Shackle America's Economic Future?
Will Obamacare Shackle America's Economic Future? (Part 2)— The Business Community Weighs In.
Pres. Obama at a rally celebrating passage of healthcare bill.
April 3, 201012:44 PM MST
Part 1 of this article described how Congress passed the trillion-dollarhealthcare bill just days after Moody’s Rating Agency had warned that America’s bloated debt could cost the US its
gold-plated AAA credit status. Part 2 will look at Obamacare’s potential financial, economic and political consequences.
The immediate response of the international financial community to the passage of Obamacare has been less than encouraging. The WSJ describes how, in the days following the bill’s passing, “investors turned up their noses at three big U.S. Treasury offerings. Demand was weak
for a $44 billion 2-year note auction on Tuesday, a $42 billion sale of 5-year debt on Wednesday and a $32 billion 7-year note sale Thursday.”
Perhaps the lenders figured out that the bill might greatly expand an already bloated US budget deficit. According to the New York Times, “The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.”
The reaction of many corporations to Obamacare can only weaken lenders’ confidence in the US economy. To adjust to the bill’s new regulations companies announced new writedowns reflecting a weakened profit picture for the coming years. AT&T's writedown of $1 billion dominated the headlines, but companies such as Deere & Co., Caterpillar; AK Steel, $31 million; 3M, Valero Energy, USA Truck Inc. and Prudential announced writedowns ranging in the $100 million-plus area. Verizon announced it was taking a $970 million charge due to new healthcare costs.
It is doubtful that AT&T, Verizon and others will be in much of a hiring mood after determining how Obamacare will shrink their bottom lines.
Worse, because the law changes the way companies can deduct the cost of prescription drugs in their retirees’ healthcare plans, companies might start terminating retirees’ health coverage and move as many as one of four retirees currently on private healthcare plans into the already financially unstable Medicare program.
At a seminar televised on C-Span, Fred Bergsten, head of the Peterson Institute for International Economics, noted that America is now by far the world’s largest debtor country, with a net foreign debt exceeding three trillion dollars and rising at a rate of a half-trillion to one trillion dollars more. Over the next 10-20 years, at this rate the US deficit will rise to 5 trillion dollars, to about 150% of GDP, he claimed.
Then Bergsten dropped this bombshell. ” “En route to it, the mother of all financial crises will happen.” Bergsten stated that “At some point, which could happen at any day now, the foreign financiers upon whom we depend, some of whom do not wish us well, could simply get tired of financing our debt level.”
As a result, interest rates would soar and the dollar would weaken dramatically. Most disturbing is his statement that “literally that crisis could happen at any time,” if we stay on this trajectory. He compared the budget erosion like “termites in the woodwork.”
Americans are already becoming nervous about the true cost of Obamacare. A USA TODAY/Gallup Poll taken a week after the bill’s passage revealed that nearly two-thirds of Americans feel that the bill costs too much and expands the government's role in health care too far.
The passage of this bill clearly drops the whole of the economy onto President Obama's lap. Up until now, Obama has enjoyed the luxury of blaming the Bush administration for the high
unemployment, declining wages, and rise in home foreclosures plaguing the nation. Now, critics can and most certainly will link Obamacare to every new layoff, business failure and tax increase, as well as the growing US debt. Not surprisingly, a CBS poll taken about a week after President Obama signed the bill into law showed his approval rating hitting an all-time low.
Democrats running for Congress and the Senate this year have to hope the public is not focusing on the health care bill as we head toward the Fall elections. Unfortunately for the Democrats, the GOP, as well as talk show hosts and Tea Party activists, from now until November will be reminding voters of the potentially dire economic consequences of Obamacare.
DR. ZEY'S PRESENTATION TOPICS