Month: June 2016

Submitted by David Stockman via Contra Corner blog,

The flyover zones of America are wanting for work and buried in debt. That’s the legacy of three decades of Washington/Wall Street Bubble Finance. The latter has exported jobs, crushed the purchasing power of main street wages and showered the bicoastal elites with the windfalls of financialization.

The graph below depicts the main street side of this great societal swindle at work. There are currently 126 million prime working age persons in the US between 25 and 54 years of age. That’s up from 121 million at the beginning of 2000.

Yet even as this business cycle is rolling over, the 77.1 million employed full-time from that pool is still 1.2 million below its turn of the century level and accounts for only 61% of the population. On top of that, average real hourly wages have fallen by 7% (based on the Flyover CPI), as well.

It might be wondered, therefore, as to how real consumption expenditures rose by $3.1 trillion or 38% during the same 16-year period?

The short answer is transfer payments and debt, and those troublesome realities go right to the economic blind spots of our Keynesian monetary suzerains. These paint-by-the-numbers economic plumbers care only about the great aggregates of spending and whether or not the bathtub of so-called “full employment GDP” is being filled to the brim.

As a consequence, the ideas of quality, sustainability, efficiency, discipline, prudence or, for that matter, even economic justice and equity, never enter the narrative. It matters not a wit whether the considerable expansion of PCE depicted above originated in disability checks, second mortgages, car loans at 120% loan-to-value—-or even if it was deposited by a passing comet.

What counts is the incremental gains in GDP compared to last quarter and proxies for demand such as job counts and housing starts versus prior month. And when the business cycle eventually ends, there is always a scape-goat to blame, such as an oil price shock or Wall Street meltdown.

By contrast, no Fed head ever asked whether real PCE growth of nearly two-fifths during a period when the number of prime-age full-time workers went down and real wage rates dropped was healthy or sustainable.

Likewise, the powered-obsessed denizens of the Eccles Building never question their inflation short stick (the PCE deflator less food and energy). After all, it gives them the green light to keep on pumping money into Wall Street on the misbegotten theory that this will indirectly stimulate main street (i.e. the wealth effect).

But as we have shown, the actual cost of living inflation faced by main street households has averaged 3.1% per year since 2000, meaning that the purchasing power of hourly wages has dropped by 7%. And average weekly hours have fallen, too, owing to the declining quality of the jobs mix.

Yes, the number of part time workers has rising modestly and, as we have shown, the participation rate of Wal-Mart greeters among the over 65 cohort has risen steadily. But the fact remains that on the margin the 38% real gain in consumer spending shown above was funded from sources other than pay envelopes.

Not surprisingly, government transfer payments played a major role in funding the nation’s shopping cart, even as wages and salaries lagged. But this represented a double-edged sword that is completely ignored by the Wall Street/Washington peddlers of consumption based economics.

During the last 16 years, in fact, government transfer payments have grown at 6.2% annually or by nearly 2X the 3.3% growth of nominal wage and salary disbursements. As shown in the chart, transfer payments soared by $1.7 trillion during the period—-a figure which amounted to nearly 50% of the growth of wages and salaries.

As a result, transfer payments went from 21.5% of wage and salary income at the turn of the century to 33.2% during April 2016. The point, of course, is that this huge incremental fiscal burden must be funded with higher taxes today or increased public debt, which amounts to higher taxes tomorrow.

Nor can obliviousness to the supply-side impact of the Fed’s consumptionist economic model be dismissed as a problem for the distant future—– even if stealing from unborn generations was an appropriate public policy.  The fact is, jobs and living standards in the flyover zones are already being crushed by what might be termed the “pincer economics” of the Fed’s inflationist policies.

One the one hand, financial repression, cheap debt and the Fed’s 2% inflation target have forced-up the domestic price level, pushing nominal wages far higher than would have been the case under sound money and market set interest rates. Accordingly, domestic production and jobs on the margin have been lost to the China Price for goods and the India Price for services.

At the same time, heavy payroll and income tax withholdings from these inflated wage levels has further depressed employer competitiveness and the real purchasing power of after-tax paychecks.

In sum, Wall Street loves financial repression because it inflates financial asset values and fuels debt-funded gambling in the casinos. But it’s the opposite of what’s needed in flyover America.

Unless Trump wants to build an economic Wall around the entirety of the US economy, what is actually needed on main street is a falling CPI and taxes on consumption, not today’s burdensome levies on payrolls and production.

Needless to say, our monetary central planners are not concerned with supply-side impediments to growth. Nor are they bothered by the implications of an open economy for nominal wages rates in a world where the labor supply curve has been shifted drastically lower.

Their Keynesian economic model, in effect, holds that any spending will do. In fact, the whole purpose of interest rate repression is to induce households and businesses to leverage-up and spend at rates higher than warranted by current incomes and cash flows.

Accordingly, another big share of the income/spending gap has been back-filled with debt—especially prior to the financial crisis. During the two decades after 1987, household debt erupted by nearly 7X. Even after the year 2000, household debt grew by nearly $7.5 trillion or more than double the $3.4 trillion gain in nominal personal consumption expenditure.

To be sure, total household debt has plateaued since the financial crisis owing to the arrival of Peak Debt. But that has not completely closed all the doors to debt funded consumption. As suggested by the above chart, in fact,  the operative theory of Fed policy is that no balance sheet space should go unleveraged.

*  *  *

Accordingly, the trillion dollar reduction in mortgage debt since 2007 has been backfilled by an upsurge in student loans and auto credit. And in the case of the latter, the strong rebound in auto sales since the mid-2010 cyclical bottom has been all about debt.

Since then, retail motor vehicle sales have risen from $740 billion to an annualized rate of about $1.1 trillion in the most recent month. But there is no mystery about the funding source for this rebound. To wit, the $360 billion gain in auto sales over the last six years is matched almost exactly by a $350 billion rise in auto loans outstanding.

Stated differently, almost anyone who can fog a rearview mirror has now gotten a car loan or lease. Yet never once has the FOMC cautioned that automotive sector production and jobs are actually being put in harm’s way by its ultra-cheap debt policy.

But here is a data point far more significant than the trivialities about short-run economic conditions that populate the Fed’s meeting statements. To wit, nearly one-third of vehicle trade-ins are now carrying negative equity.

That means that prospective new car buyers are having to stump-up increasing amounts of cash to pay-off old loans, which, in turn, is pressuring volume-hungry lenders and dealers to extend loan-to-value ratios to even more absurd heights than the 120% level now prevalent. That’s kicking the metal down the road with a vengeance.

In fact, outstanding subprime auto debt is nearly 3X higher than it was on the eve of the financial crisis and average loan terms at nearly 70 months are a ticking time bomb. That’s because cars depreciate faster than loan balances can be paid down over that extended duration, meaning more and more of outstanding auto credit will be under water in the future.

And that’s the skunk in the woodpile. With today’s technology auto loans are supposed to be inherently low-risk. If push-comes-to-shove the repo man can find cars anywhere in America and tow them back to the lender for re-sale.

But this assumes that used car prices will remain at current levels, and that’s the catch. The coming tidal wave of vehicles coming off lease is fixing to send the used car market and the whole trillion dollar auto financing system into a tailspin during the next four years.

Needless to say, ground zero for the great auto repo rampage ahead will be the flyover zones of America.

Indeed, payback time is already peeking just around the corner. The virtuous cycle of declining used car generation and rising used car prices has exhausted itself. Yet that was crucial to the debt financed car-buying spree because it meant rising trade-in prices and therefore enhanced capacity to make down payments and loan terms.

Thus, in the run-up to the new auto sales crash in 2008-2009, used car prices plunged by 20% and new light vehicle sales fell from an 18 million annual rate to barely 10 million at the bottom of the cycle.

By contrast, during the first three years of the post-June 2009 recovery, used car prices soared by 24%, enabling the credit fueled recovery of new vehicle sales shown in the graph.

The worm is now fixing to turn because the used car market is facing an unprecedented tsunami of used vehicles coming off loans, leases, rental fleets and repossessions. As shown above, used vehicle prices have been weakening for the last several years, but between 2016 and 2018 upwards of 21 million vehicles will hit the used car market compared to just 15 million during the last three years.

This means used car prices are likely to enter another swoon like 2006-2008, causing trade-in values to plummet and thereby draining the pool of qualified new car borrowers. When the cycle turns down, fogging a rearview mirror is never enough.

To be sure, there is nothing very profound about the certainty that an auto credit boom always creates a morning after hangover, and that the amplitudes of these cycles is getting increasingly violent owing to the underlying deterioration of auto credit. Currently, credit scores are dropping rapidly and upwards of 80% of new retail auto sales are loan or lease financed.

Moreover, the race to the bottom is happening once again in the lease market. That is, monthly lease rates have gotten so ridiculously cheap that the implied residual values are at all time highs. This means that when the used car pricing down-cycle sets in during the flood of vehicles ahead, massive losses will be generated, causing a sharp contraction of the leasing market, as well.

Stated differently, the auto sales piece of retail sales has virtually nothing to do with a rebounding consumer. Its a reflection of an artificially bloated and unstable credit cycle that is about ready to take the plunge, and thereby deliver another blow to the faltering economics of the flyover zones.

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After weeks of withholding a formal endorsement of his party’s presumptive nominee, Speaker Paul Ryan on Thursday said he will vote for Donald Trump for president. “I’ll be voting for @realDonaldTrump this fall. I’m confident he will help turn the House GOP’s agenda into laws,” Ryan’s campaign account tweeted, linking to an article in The Gazette, his hometown newspaper in Wisconsin.

I’ll be voting for @realDonaldTrump this fall. I’m confident he will help turn the House GOP’s agenda into laws. https://t.co/LyaT16khJw

— Paul Ryan (@PRyan) June 2, 2016

This is his full op-ed he wrote in The Gazette, endorsing trump.

* * *

Paul Ryan: Donald Trump can help make reality of bold House policy agenda

When Donald Trump became the Republican Party’s presumptive nominee for president one month ago, many Republicans like me faced a big question.

Six months earlier, in October, as I was taking the job as House speaker, my colleagues and I were discussing an equally important question: What could House Republicans do to give Americans a clear choice about the future of the country?

Sure, count us among the majority of Americans upset with the direction our country is headed. But that’s not enough. We agreed that we must focus less on what we’re against and more on what we’re for. So, long before we knew who our nominee would be, we decided we would present the country a policy agenda that offers a better way forward. We know what we believe in, so let’s bring it to the country.

That’s how I’ve always looked at it. I’ve spent most of my adult life pursuing ways to help protect the “American Idea”—the notion that the condition of one’s birth does not determine the outcome of one’s life. The first step is always putting it on paper and having a real debate. And with the Obama presidency nearing an end, we have a real opportunity to get big things done the next four years.

That’s why next week my colleagues and I will start introducing a series of policy proposals that address the American people’s top priorities. These plans are the result of months of work by House Republicans.

The concept from the start was simple: If we had a Republican president ready to sign bills into law, what would we do?

This month, we’ll show the country what a better tax code looks like. We’ll outline a plan not just for repealing Obamacare but replacing it with a better system, more focused on patients, choices and lower costs. We’ll offer a plan to restore the Constitution and the separation of powers that decades of executive overreach have eroded. We’ll present the ideal national security and foreign policy to keep Americans safe. We’ll show how we can reform rules and regulations so they’re spurring the economy and creating jobs, not destroying them. And we’ll offer a better way to help lift people out of poverty and into lives of self-determination.

It will be a positive, optimistic vision for a more confident America.

It’s short of all that’s required to save the country, but the goal was to focus on issues that unite Republicans. It’s a bold agenda but one that can bring together all wings of the Republican Party as well as appeal to most Americans.

One person who we know won’t support it is Hillary Clinton. A Clinton White House would mean four more years of liberal cronyism and a government more out for itself than the people it serves. Quite simply, she represents all that our agenda aims to fix.

To enact these ideas, we need a Republican president willing to sign them into law. That’s why, when he sealed the nomination, I could not offer my support for Donald Trump before discussing policies and basic principles.

As I said from the start, my goal has been to unite the party so we can win in the fall. And if we’re going to unite, it has to be over ideas.

Donald Trump and I have talked at great length about things such as the proper role of the executive and fundamental principles such as the protection of life. The list of potential Supreme Court nominees he released after our first meeting was very encouraging.

But the House policy agenda has been the main focus of our dialogue. We’ve talked about the common ground this agenda can represent. We’ve discussed how the House can be a driver of policy ideas. We’ve talked about how important these reforms are to saving our country. And we’ve talked about how, by focusing on issues that unite Republicans, we can work together to heal the fissures developed through the primary.

Through these conversations, I feel confident he would help us turn the ideas in this agenda into laws to help improve people’s lives. That’s why I’ll be voting for him this fall.

It’s no secret that he and I have our differences. I won’t pretend otherwise. And when I feel the need to, I’ll continue to speak my mind. But the reality is, on the issues that make up our agenda, we have more common ground than disagreement.

For me, it’s a question of how to move ahead on the ideas that I—and my House colleagues—have invested so much in through the years. It’s not just a choice of two people, but of two visions for America. And House Republicans are helping shape that Republican vision by offering a bold policy agenda, by offering a better way ahead.

Donald Trump can help us make it a reality.

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The story of the unprecedented build up of various commodity tankers off the coast of Singapore, as well as everywhere else, has been duly covered here as well as the reasons behind it.

 

Notably, two weeks ago we cautioned that with the contango no longer leading to profitable offshore storage of oil, many shipping companies would have to start offloading their cargo, or as we recently reported, have started incurring debt to fund said storage costs in hopes of avoiding shifting storage to land:

[S]toring oil on ships can be profitable when prices for future delivery of crude are higher than in spot market, a term structure known as contango, as long as future prices are high enough to offset tanker charter costs. However, with the one-year contango for Brent futures collapsing from $7.60 per barrel in January to just $4, far below the $10 that traders say is currently required to make floating storage financially attractive, suddenly parking oil offshore leads to storage losses. The same goes for WTI. 

 

At a charter cost of more than $40,000 a day for a Very Large Crude Carrier (VLCC) that can store 2 million barrels, the contango is nowhere near steep enough to make it profitable to store oil on tankers for sale at a later date.

 

This has led to a dramatic development in the oil market: debt-funded storage. Reuters writes that the need to store oil is so strong that traders are calling up banks to finance storage charters despite there being no profit in keeping fuel in tankers at current rates.

 

“We are receiving unusually high amounts of queries to finance storage charters,” said a senior oil trade financier with a major bank in Asia. “These queries come from traders fully aware that they will not make a profit from storing the oil. This isn’t a trade play, it’s the oil market looking for places to store unsold fuel,” he added.

As we warned, this is a very dangerous idea, and one which only works if oil prices continue rising; meanwhile it is only a matter of time before much of the 200 million barrels in oil parked offshore have to come back on land. But while we wait for the offshore oil glut to start being offloaded, one place where tankers are already delivering their wares is in the massively glutted gasoline market.

As Reuters reports, the number of tankers storing gasoline in waters off Singapore and Malaysia is dwindling as the fuel is sold off or shifted to cheaper onshore storage because of changes in forward delivery terms. With the economics of storing the fuel on tankers no longer viable due to a stronger forward market, there are now fewer than three long-range (LR) vessels holding gasoline in the area.

According to Reuters, citing traders, by the end of this week all remaining tankers could be discharged as the fuel’s owners seek to sell the gasoline or store it more cheaply onshore. “It’s not economical to store gasoline on ships now compared to before unless they have no buyers or land storage,” said one Singapore-based gasoline trader with knowledge of the deals. Ships recently used to store gasoline were chartered by Statoil, Total, Vitol, Gunvor and Unipec, trading arm of China state refiner Sinopec.

A typical LR tanker can store 55,000 to 75,000 tonnes of gasoline, depending on the size of the ship.

The reason why gasoline cargos are now starting to be aggressively offloaded is that the gasoline market forward price curve will flip to backwardation from July, meaning lower prices for future deliveries than for those sold immediately. That contrasts with the contango structure for the first-half of the year, with future deliveries more expensive than prompt cargoes, making it attractive to store gasoline for sale at a later date. A month ago, April in the forward curve was about $1 a barrel below May, with the June price about 30-40 cents below July. This contango will flip into backwardation from July.

The current weak market is in part due to an expected fall in gasoline imports from top regional consumer Indonesia, where state oil firm Pertamina is expected to reduce imports later this year as it negotiates deals to make more of the fuel. Even if the stored fuel is not sold, traders are shifting the gasoline into onshore tanks because they estimate it costs at least $100,000 less a month to hold the fuel on land.

According to Reuters, Chinese gasoline exports are also up more than 50 percent for the first four months of the year, although going forward, China could scale back its volumes. “Maintenance in May and June, particularly at (Chinese) teapot refiners will … lower gasoline output,” analysts at BMI Research said in a note to clients this week, while strong Chinese demand would help tighten the regional market.

Perhaps, but meanwhile Chinese gasoline stocks have never been greater as the country imports tremendous amounts of gas which apparently has no end-user demand, which is forcing China to store even more of it, both on land and in the sea.

And now that the curve is about to enter backwardation, all that gasoline stored at sea is about to come back to land, and bring China’s gasoline stocks to even higher record levels.

In other words, the global glut is now not only at the crude and distillate level, but also in global gasoline stocks.

It also means that contrary to conventional wisdom that Chinese end demand is driving global consumption, China is merely storing copious amounts of the refined crude production chain in land and on sea, in hopes demand comes back. So far it is failing to do that. 

And now, we await for the crude contango to tighten further and force some of the 200 million barrels of oil held at sea to come back on shore, where it will have to be promptly sold as much of the world’s onshore storage is practically full.

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Via The Economic Cycle Research Institute,

With all eyes on the timing of the Fed’s next rate hike, the reality remains that the U.S. economy will stay in a growth rate cycle (GRC) downturn. What we wrote around the time of the December rate hike remains true today: “With the GRC downturn set to deepen, a full-blown rate hike cycle remains improbable” (USCO Essentials, December 2015).
 
Notably, if the Fed does manage a mid-year rate hike – which itself is uncertain – that would amount to the longest gap on record between the first and second rate hikes.

 

A full-fledged rate hike cycle comprised of a succession of rate increases remains unlikely in the absence of a GRC upturn, which is not on the horizon. Furthermore, a recession starting late this year or early next year cannot be ruled out. Thus, rate cuts remain on the table over the coming year. Meanwhile, prospects for further rate hikes may run into other difficulties, given the global economic outlook.

In that context, ECRI’s 20-Country Coincident Index Growth Diffusion Index (20CIGDI, Chart), measuring the proportion of the 20 economies regularly monitored by ECRI whose coincident index growth rates have improved over a 12-month span, has already plummeted to a 38-month low. Please recall that, in the summer of 2014, in contrast to an upbeat consensus, ECRI predicted a global slowdown on the basis of this data and its long leading index counterpart, noting that, “with the 20CIGDI having rolled over and the [20-Country Long Leading Index Growth Diffusion Index] also in a cyclical downturn, reports of easing growth are likely to become more widespread internationally” (ICO, July 2014).

That became amply evident in the commodity price downturn that began around that time, as oil demand fell below expectations. Subsequently, the oil price decline was framed as an oversupply problem, as oil producers decided in the fall not to cut production.

Today, cyclical slowdowns are more widespread internationally than at any time in almost three years. Given the Fed’s recent emphasis on global growth, this may create another obstacle to its rate hike plans.

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Michael Lewis, the author of books such as "Flash Boys", "The Big Short", and "Moneyball" is set to come out with his latest work in December.

In "The Undoing Project: A Friendship That Changed Our Minds", Lewis sets out to answer the question of why people aren't as data driven as Billy Beane, the Oakland Athletics executive featured in "Moneyball". Lewis said of the book "It's the prequel to 'Moneyball'. It is the story of people figuring out how the mind works when it's faced with making investment decisions. How it functions in conditions of uncertainty."

For insight, Lewis turned to two psychologists, Daniel Kahneman and Amos Tversky reports the NYT

In his coming book, “The Undoing Project: A Friendship That Changed Our Minds,” which W.W. Norton & Company will release this December, Mr. Lewis finally tackles that question.

 

“The Undoing Project” explores the groundbreaking work of two psychologists, Daniel Kahneman and Amos Tversky, whose research into decision making and judgment has challenged fundamental beliefs about human nature. In study after study, they showed that when it comes to making decisions, humans are predisposed to irrationality. Their surprising findings have had profound implications for everything from behavioral economics and politics, to advanced medicine and sports.

 

Their work, and its impact, is hardly obscure. Mr. Kahneman won the 2002 Nobel Prize in Economics (Mr. Tversky died in 1996.) But Mr. Lewis wasn’t aware of their research, and how much it had influenced his own writing, until 2003, when he came across a reference to them in a review of “Moneyball” in the New Republic. He has been working on “The Undoing Project” on and off for the last eight years, and conducted countless interviews with Mr. Kahneman.

In a piece Lewis published in Vanity Fair, Lewis hinted that this would be a topic that would get covered someday down the road.

It didn’t take me long to figure out that, in a not so roundabout way, Kahneman and Tversky had made my baseball story possible. In a collaboration that lasted 15 years and involved an extraordinary number of strange and inventive experiments, they had demonstrated how essentially irrational human beings can be.

* * *

We hope that Lewis sends plenty of copies of his book over to the Marriner Eccles building, as it will explain to the Fed why all of the models in the world can't help centrally plan an economy in which irrational behavior exists.

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Hillary Clinton prepares to rebuke a seemingly anti-interventionist Donald Trump as she takes to the podium to explain why BenghaziLivesMatter and how she will keep Americans safe without building a wall, militarizing the police, and increasing domestic surveillance…

 

Live Feed:

 

Meanwhile, the RNC issues the following statement:

There isn’t a more flawed messenger on national security issues than Hillary Clinton, who as Obama’s secretary of state helped turn Libya into a jihadist playground, spearheaded the dangerous nuclear deal with Iran, and secretly called for bringing terrorists from Guantanamo onto U.S. soil.

 

And while Clinton was jeopardizing our national security by exposing classified information on her secret email server, her State Department left high-risk diplomatic outposts around the globe vulnerable to attack.

 

Hillary Clinton’s national security record reads more like a list of things not to do rather than a model of how to keep America safe and secure.

 

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Presented with no comment…

 

Source: Townhall.com

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When last week we showed how much the average health insurance premium proposal would rise in a 14 select states…

 

… but one state was missing: Texas, which is the health-care law’s third-largest market behind Florida and California. We now may have found the reason why.

According to the Houston Chronicle which cites federal regulator filings, Blue Cross and Blue Shield of Texas – the state’s largest insurer – has asked for rate hikes of nearly 60% for next year in three popular HMO plans. According to filings listed on healthcare.gov, Blue Cross and Blue Shield seeks increases between 57.33 percent and 59.35 percent for two of its Blue Advantage Plus plans. A Blue Advantage Health Maintenance Organization Plan is asking for a 58.6 percent hike.

The company, which is the only carrier to offer health coverage in all of Texas’ 254 counties, would not specify Wednesday what would happen if does not get the rate increase it says it needs. “No final decisions have been made regarding our 2017 Texas offerings,” spokesman Gustavo Bujanda said in a statement emailed to the Houston Chronicle.

“The rates we have submitted for review and approval are supported by strong actuarial principles, science and data,” the statement continued.

The company said in its request that the hike could affect nearly 603,000 Texans buying individual policies through the federal exchange mandated by the Affordable Care Act. It is not known what increases will be requested for employer-sponsored group policies. “The anticipated health risk of the people in any given market is the largest component of determining rate changes,” the company statement said.

Judging by the soaring premium, the “health risk” is likewise going through the roof: risk which it appears nobody had anticipated five years ago when the ACA tax was passed.

BlueCross is not alone: insurers across the nation have complained vigorously that they are losing money in the federal exchanges as some customers have proven more costly to cover than anticipated. Under the health-care law, an insurer can no longer deny coverage to someone based on her or his health status or pre-existing condition.

Texas Department of Insurance spokesman Ben Gonzalez confirmed his agency had received requests for rate hikes, but he said that because the insurer had marked them “confidential” he was unable to comment on the amounts. He said the department is “going to go back to ask more questions.”

To be sure, the Texas administrator is stumped by this soaring premium request: in Texas a rate request, especially one so large, must be deemed “not excessive, unfairly discriminatory and premiums must be reasonable in relations to the benefits provided,” Gonzalez said. In other words, he said, the agency will ask, “Is it justified, does the company need this?”

Something tells us that the answer is yes, and that this is only the start of even greater rate increases in coming years as the full impact of Obamacare on insurer top and bottom line is unveiled.

Even if Texas balks at the rate increase demand, it likely can do nothing about it. Stacey Pogue, a senior policy analyst at the Center for Public Policy Priorities in Austin, said Texas typically lacks the teeth in its insurance regulations to block a rate increase. “There’s not a process in Texas for it to be denied,” she said.

Ironically, the rate request may esclate all the way to the Federal level since Texas is one of five states that does not determine its own rate reviews for the federal exchange. Instead, any rate hike request is checked by the Insurance Department to make sure it complies with state law and is considered “actuarially justified.” The request then moves to the federal level, for the U.S. Health and Human Services Department to conduct the rate review for exchange plans. While HHS can ask for an adjustment, in practice the final rate increase is typically left up to the insurance company, Pogue said.

“Even if they find it unreasonable they can’t stop it,” she said.

* * *

Going back to the reason for the rate hike request, it is simple: the insruance company is spending far more than it is bringing in. Blue Cross and Blue Shield of Texas, for example, has said it lost $321 million last year in the individual market, both on and off the exchange, and that it spent $1.26 for every $1 it took in. The loss was also less than the $400 million loss it reported in 2014. It was due to those losses that the insurer said it was necessary to drop all preferred provider organization plans, typically favored by those with greater medical needs, across the state. Many of those who lost PPO coverage, including 88,000 in Houston, were shifted to HMO plans.

Other insurers won’t even bother asking for rate hikes. Instead companies such as America’s largest insurer, UnitedHealthcare, has said it plans to leave the exchanges in 2017 in Texas and most other states, has predicted it will lose about $650 million in the Affordable Care Act marketplace this year. Humana warned earlier this month it plans “a number of changes … to address the significant risk selection issues we have and continue to face.” The company reported a 46 percent loss in the first quarter of 2016, but analysts have said some that is due to expenses involved in a takeover bid by Aetna. Cigna has called its participation in the exchanges “contingent upon future market conditions and approval of our regulatory filings,” according to a previous email to the Chronicle.

To be sure, this won’t be Blue Cross and Blue Shield’s first rate hike request. Last year Blue Cross and Blue Shield of New Mexico, a division of the same parent company of Blue Cross and Blue Shield of Texas, asked for a 51 percent rate increase for its exchange plans. When New Mexico insurance officials refused, the company withdrew all individual plans from the state.

Withdrawing from Texas, which is the health-care law’s third-largest market behind Florida and California, may be more problematic for all involved..

Meanwhile, the government, realizing it has made a big mistake, is putting the onus on “the people” to push back:

Wichita Falls insurance broker Kelly Fristoe told the Associated Press that people in rural areas of Texas will be the hardest hit by the rate increase because Blue Cross and Blue Shield is often the only option in remote areas. Pogue said insurance regulators in many other states are more aggressive against large rate increases. “We need people who can push back in Texas,” she said.

Yes, the people – many of whom can not afford a 60% surge in their insurance costs – will push back, and it will be the only way they can: with their wallet. Which means either billions in diposable income will be removed from other sector of the economy (leaving economists stumped why retail spending is plunging) or will be forced spend much more on Obamacare. The silver lining: healthcare spending is on pace to surpass housing as the single biggest contributor to GDP. A few more quarters of Obamacare and it will be there.

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Short, intense directed apprenticeships that teach students how to learn on their own to mastery are the future of higher education.

So it turns out sitting in a chair for four years doesn't deliver mastery in anything but the acquisition of staggering student-loan debt. Practical (i.e. useful) mastery requires not just hours of practice but directed deep learning via doing of the sort you only get in an apprenticeship.

The failure of our model of largely passive learning and rote practice is explained by Daniel Coyle in his book The Talent Code (sent to me by Ron G.), which upends the notion that talent is a genetic gift. It isn't–in his words, it's grown by deep practice, the ignition of motivation and master coaching.

Using these techniques, student reach levels of accomplishment in months that surpass those of students who spent years in hyper-costly conventional education programs. The potential to radically improve our higher education system while reducing the cost of that education by 90% is the topic of my books Get a Job, Build a Real Career and Defy a Bewildering Economy and The Nearly Free University and the Emerging Economy: The Revolution in Higher Education.

Let's start by admitting our system of higher education is unsustainable and broken: a complete failure by any reasonable, objective standard. Tuition has soared $1,100% while the output of the system (the economic/educational value of a college degree) has declined precipitously.

A recent major study, Academically Adrift: Limited Learning on College Campuses, concluded that "American higher education is characterized by limited or no learning for a large proportion of students."

'Academically Adrift': The News Gets Worse and Worse (The Chronicle of Higher Education)

These two charts are the acme of unsustainability: college tuition has skyrocketed, along with federally funded student loan debt.

The typical graduate of a short, intense directed apprenticeship says "I learned more in a month here than I did in four years of college." This is a statement of fact, and it is the result of the methods deployed in structured on-the-job training.

It is a fact that passively listening to a lecture does not generate the sort of mastery that creates economic value or the sort of deep understanding that is the goal of a classic liberal arts education.

It's also a fact that rote practice also doesn't lead to mastery, and often kills the very passion for a subject that in more productive programs jumpstarts mastery.

Our higher educational system has failed so badly that many students are incapable of writing/communicating effectively. In a world of rapidly changing technologies across every field and an emerging economy that places an ever-higher premium on collaboration and clear communication across multiple time zones and languages, the ability to write clearly is absolutely essential.

To "graduate" students with poor writing skills is completely unforgivable. Yet in the current system, if a student logs the requisite number of credits, a diploma is duly issued, regardless of how little he/she actually learned.

Here's a six-month program that could replace four years of hyper-costly, ineffective university.

1. Teach the students how to learn on their own, for the rest of their lives. This could take as little as a few hours or days. Once a student learns how to pursue deep learning and deep practice on their own, they don't need years of classrooms–they just need the guidance of someone experienced in the field, i.e. a structured apprenticeship.

2. One semester in a wide variety of on-the-job experiences. Once students are given real experience in a variety of fields and industries, it's likely some spark of ignition will occur and they'll find the motivation to pursue real mastery instead of a worthless credential.

3. Directed apprenticeships plus online lectures/workshops by the best lecturers viewed before or after the students' real work. The key to learning deeply and learning fast is to push right up against the current level of competence, where failure occurs and can be addressed one piece at a time.

Interestingly, Coyle notes that the most successful incubators of talent around the world are generally in makeshift or decrepit buildings, not fancy new gleaming buildings of the sort that dot American college campuses. Surrounded by luxury, who feels any hunger to learn anything voraciously?

The entire "campus experience" should be jettisoned, not just as an overly expensive infrastructure but as a detriment to fast, deep learning that is the foundation of mastery.

It isn't that hard to teach students how to improve their writing/communications skills very quickly, and give them a taste of the classic liberal arts education so many people claim is the goal of $120,000 four-year programs that fail to generate a deep understanding of anything remotely leading to mastery.

Give them a single sentence by Melville, Austin, et al. and have them compose a sentence that is like the original in cadence, structure and meaning in one minute flat. Go, go, go. Then break down each phrase and each component and work through each one to improve their first efforts, step by step. Repeat the process, always under intense time pressure.

Then take them out into the real world to report a journalistic story by interviewing people, checking facts, confirming quotes from sources, question the received wisdom around the topic and compose the story in journalistic style. Once again, break down their efforts line by line in comparison with a professional journalists' story on the same topic.

Then, in the second class… more doing the work at a breakneck pace, more being pushed beyond their current level of expertise, more corrections of errors and weaknesses, step by step, in a pressure-cooker of deadlines.

I can pretty much guarantee the students in such a directed apprenticeship will learn more about writing in a week than they would in a year of conventional coursework.

Short, intense directed apprenticeships that teach students how to learn on their own to mastery are the future of higher education. We can continue to squander trillions of dollars on an ineffective system until it finally collapses under its own weight, or we can admit the current contraption is unsustainable and a failure, and move on to a better, cheaper system.

via http://ift.tt/1Po6LIS Tyler Durden