“You Know It’s Coming…”

Authored by Jeffrey Snider via Alhambra Investment Partners,

After a horrible December and a rough start to the year, as if manna from Heaven the clouds parted and everything seemed good again. Not 2019 this was early February 2015. If there was a birth date for Janet Yellen’s “transitory” canard it surely came within this window. It didn’t matter that currencies had crashed and oil, too, or that central banks had been drawn into the fray in very unexpected ways.

Actually it did, at least with that last one. The world’s default setting remains central bankers. No matter how thoroughly they discredit themselves, in times of trouble people really, really want to believe there exists this technocratic savoir.

They can get it wrong time after time after time, but when things appear most dire it is almost like a defense mechanism this running back to “home” the Yellen’s, Bernanke’s, and Powell’s. The world looks like it is falling apart leading a central bank, any central bank to try something and for a time it appears to work.

It never does.

That was the winter and spring of 2015. After tremendous global upheaval, beginning in early February the BOND ROUT!!! was back on and Economists were all over the media pairing the “best jobs market in decades” with “oil price crash is a tax cut” nonsense. Relief was palpable. Even WTI rebounded sharply, from a low around $44 to back above $60 by May.

The UST 10s had been heavily bid, as they often are during these “unexpectedly” bad outbreaks, the yield falling sharply from about 2.40% in early November 2014 to a low around 1.70% at the end of January 2015. Long rates would retrace that entire decline and then some, arriving at 2.50% after nearly five months of cautious optimism.

These countertrends can last that long. The pattern repeats time and again. In 2008, following the announcement of Bear Stearns’ near failure (of all things), the same process played out. Throughout the spring of that year there was some level of speculation in markets that maybe, perhaps the Fed had finally caught up to the crash.

Sure, Bernanke had said subprime was contained but then he realized his error. The central bank then spent the rest of 2007 and early 2008 experimenting and working behind the scenes. The relatively orderly shepherding of Bear into JP Morgan convinced many there was at least a chance he had at long last succeeded. Some started to speculate, literally, the US would avoid a recession altogether.

Policymakers, at least, convinced themselves of that very outcome.

It didn’t work out that way, to put it charitably. 

In the grand scheme, central banks don’t matter. They just don’t. But people believe they do even those who have become legitimately jaded over their performance. The current version is Yellen/Powell has screwed up this exit, but the latter will realize his error(s) before it’s too late.

This is where we are in January 2019. Powell after being unshakably confident about the US economy in particular he has said all the right things this month. His dove is as chicken as chickens can get (until whatever comes next comes next).

In the short run, aided by promised RRR cuts and stimulus in China, softening in Mario Draghi, and whatever else some central banker might dream up, optimism can catch on and drive the markets for a while. Maybe even months at a time. In fact, if a months-long rally failed to materialize it would be the first time.

Nothing goes in a straight line. Markets move on probabilities, spectrums pieced together from incomplete information as well as outdated, outmoded myths and legends. Even during those mid-stride rallies in 2008 and 2015 the bond market (or oil) wasn’t actually saying Bernanke or Yellen had come up with the definitive solution, rather it was saying there wasn’t a 100% chance they hadn’t.

This is going to be a give and take; action and reaction like always. The more serious it becomes, the more serious the counterpunching. Powell’s already moved on skipping higher dots and going right to a “Fed pause.” It’s really easy if maybe he starts to sound more dovish still – hinting at rate cuts “if conditions warrant.”

You know it’s coming.

Markets will jump when he does. They always jump for the Fed in the short run. Then the anesthesia wears off and everyone feels the pain again.

That’s really all central banks offer. People have said monetary policy is like speed or heroin, some sort of highly effective stimulant. That’s not really an accurate characterization (especially given how there is no money in monetary policy; it is entirely psychology). The Bernanke’s of the world can only dull the pain for a little while at a time, so that you might forget all the big stuff that’s bothering you.

It’s like going to a psychiatrist for a gun shot wound, a medical professional predisposed to believing your gaping, bleeding hole is all in your mind; on to the pharmacy for Xanax instead of emergency surgery.

Anesthesia is a very good thing if at the same time the doctor giving it to you actually treats what’s wrong. Which, obviously, assumes he can diagnose and then remedy the disease or wound. If all he gives you is something to temporarily numb the agony? Your relief can feel so good but it comes with its own expiration.

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Is The “Shanghai Accord” 2.0 Coming

Over the weekend, when commenting on the latest rather disappointing RRR cut out of China (which would release just enough liquidity to offset liquidity drains via the MLP and repo) we pointed out another, far more important event which took place in late December, when traders were generally away on vacation, and when the PBOC indicated a critical shift in the official monetary policy description at the December Central Economic Work Conference, from “prudent and neutral” to “prudent with appropriate looseness and tightness”. 

While the language sounds fairly similar, the new description is surprisingly similar to what was adopted in 2015, just as monetary policy eased significantly and ahead of the famous “Shanghai Accord” of January 2016 when, as the world was careening to a bear market, a coordinated response from G-7 leaders and China sparked a massive rally in stocks as China unleashed another major monetary easing burst which impacted the global economy for the next year. Furthermore, as Goldman adds, “such official policy language, while subtle, can carry important information about the monetary policy stance.”

Which is why, as we commented on Sunday, “while traders were focusing on the latest words out of Fed Chair Powell, is the real “risk-on” catalyst the hint out of China that a new “Shanghai Accord” may be imminent? The answer is most likely yes, especially if the upcoming US-China trade talks fail to yield a favorable outcome, as the alternative would be even more pain for China’s economy.”

So now that we know that the latest trade talks indeed led to no tangible outcome, it increasingly does appear that something big is brewing behind the scenes, because as Charlie McElligott wrote this morning, on top of the expected RRR-cut last week, today we see a fresh “sources” story on Bloomberg according to which the Chinese MoF is said to propose a wider 2019 fiscal deficit amid the slowdown (2.8% for 2019 vs 2.6% in 2018).

Additionally, the MoF is open to the deployment of “special bonds” to finance local government projects for infrastructure, while not affecting the overall government budget, all clearly with the purpose of injecting a far greater fiscal stimulus into the rapidly slowing economy than markets may be expecting.

Finally, as Bloomberg reports, “Rare China Schedule Changes Suggest Major Policy Meeting Is Near,” noting that a rescheduling of the Chinese regional legislative meetings has not occurred in more than four decades and indicating that President Xi could be readying for a new Plenum this month, which in the past has been used to signal major reforms.

So while there is one key unknown – namely whether the US and the rest of the world will participate in what is shaping up to be a major stimulus a la “Shanghai Accord 2016” – it is increasingly looking like China, alone or with others, is preparing not only for a a major fiscal stimulus, but concurrently the telegraphing of a major economic “reform”, one meant to provide a major push to the local economy.

As for the rest of the world, with most developed economies rapidly slowing, and with Trump desperate to delay the coming recession as long as possible…

… it is just a matter of time before the key financial policymakers meet behind the scenes, and just like in January 2016, cobble together another major stimulus response, especially since unlike 2016, the world’s central banks are not only no longer stimulating the global economy…

… but are currently in the process of draining liquidity from the global market.

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Why Drug Traffickers Laugh at Trump’s Border Wall

“Our southern border is a pipeline for vast quantities of illegal drugs,” Donald Trump said last night while touting the merits of the “big, beautiful wall” he wants to build along the border with Mexico. The border, of course, is not a pipeline, even metaphorically. The pipeline is the route by which illegal drugs cross the border, and here is where the president runs into practical as well as semantical difficulty.

First of all, as Joe Setyon noted last night, illegal drugs that enter the country from Mexico are mainly smuggled through ports of entry, which would still exist no matter how much money the government spends on physical barriers. In 2017, according to the Drug Enforcement Administration (DEA), only “a small percentage of all heroin seized by [Customs and Border Protection] along the land border was between Ports of Entry.” The vast majority is carried through ports of entry by privately owned vehicles or commercial tractor trailers.

The DEA says illicit fentanyl enters the United States largely (maybe mostly, once you take purity into account) in packages delivered by mail or private courier services, either directly or through Canada. Nearly all of the fentanyl seized at the southern border in 2017 was coming in through ports of entry. The picture is similar for cocaine and methamphetamine, the two other drugs that Trump mentioned: The vast majority of the supply would be unaffected by a wall.

The pipeline metaphor is misleading because it invites us to imagine a single flow of drugs that could be blocked if only the government devoted sufficient resources to the effort. But drug traffickers react to enforcement efforts, and if one route becomes relatively perilous they can always switch to another. As Theresa Cardinal Brown explained in the May 2017 issue of Reason, “drug smugglers have already beaten Trump’s wall” through a variety of evasive maneuvers. Those include not just hiding drugs inside vehicles going through the wall at points of entry (the currently preferred method) but also using tunnels to carry drugs under the wall, flying or catapulting drugs over the wall, and transporting drugs around the wall on boats and submarines. Thanks to prohibition, Brown notes, “the profit incentives to find ways over, under, around, or through any border infrastructure are high, and the cartels have more than enough money to spend on R&D.”

That profit incentive—the huge “risk premium” that criminals can earn by producing, transporting, and selling illegal drugs—is the most fundamental problem with Trump’s fantasy of stopping drugs at the border, whether with a wall or with any other conceivable method. “Traffickers can typically purchase a kilogram of fentanyl powder for a few thousand dollars from a Chinese supplier,” the DEA says, “transform it into hundreds of thousands of pills, and sell the counterfeit pills for millions of dollars in profit.” Taking the average of two actual sales cited by the DEA, a kilogram of fentanyl that costs $2,600 can be pressed into 666,666 fake pain pills, each containing 1.5 milligrams of the active ingredient, generating about $10 million in revenue at $15 each.

No feasible amount of interdiction will stop people from taking advantage of a business opportunity like that, although increased enforcement may push traffickers toward more potent drugs, as illustrated by the shift from diverted prescription pain pills to heroin, from heroin to fentanyl, and from fentanyl to fentanyl analogs. Each of those steps reduces risks for smugglers and increases profits, but it also magnifies the dangers that consumers face by making potency more variable and less predictable. The government’s efforts to block the “pipeline” cannot stop drug use, but they can make it deadlier.

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Mom Tells Neighbors Her 9-Year-Old Daughter Could Help Them Do Chores, Cops Arrive With Child Labor Concerns

SarahA mother in Woodinville, Washington, posted an advertisement on behalf of her 9-year-old daughter, Sarah, who was willing to do housework—laundry, dishes, etc.—for neighborhood moms who needed help. Six hours later, the cops showed up to make sure Sarah wasn’t being abused or worked to death.

That’s according to Christina Behar, Sarah’s mom, who wrote me a letter about the incident.

“Apparently the ad generated multiple phone calls from paranoid neighbors thinking I was using my child as a slave,” wrote Behar.

This should spark some discussion of what we lose when we treat kids as incompetent or endangered, even though they’re quite ready to take on some responsibility in “the real world.” As that New York Times piece on the relentless demands of modern parenting made clear, many of us, wealthy or not, spend a whole lot of time and cash on our kids’ extracurricular “enrichment.” Let’s remember that making some money, dealing with some challenges, and assuming some responsibility are enriching childhood activities, too.

Here is Behar’s letter in full:

Dear Lenore:

My husband and I have three kids ages 9, 7 and 5. We have always tried to raise them to be independent and let them play outside for hours in our family-friendly suburban neighborhood outside of Seattle, walk alone to the neighbors, and have taught them how to cook, clean, do laundry and other household chores that we deem age appropriate. Inspired by your book [Free-Range Kids] I posted an ad on our neighborhood website advertising my daughter as a mother’s helper. Moms often ask me for her help and I figured I would take your advice and reach out to others in my neighborhood I may not know. This was the ad:

Mother’s Helper

Hello! My almost 10-year old is available as a mother’s helper. She is the oldest of three and is quite capable. She can fold and put away laundry, sweep, set tables, clean dishes, take out the trash, make beds, vacuum, make light meals, and keep your kiddo busy. We are a homeschool family so she has a flexible schedule. Please message me if you are interested in meeting with us.

Six hours later the Sheriff was knocking on our door. He was embarrassed and apologetic but said he had to do a welfare to check to make sure I wasn’t running a sweat shop! Apparently the ad generated multiple phone calls from paranoid neighbors thinking I was using my child as a slave.

You know I was thinking about it today—I was working in a church nursery with infants at nine years old, babysitting alone by 11, I had a paper route at 12, and was living on my own working almost full-time and going to college at 17. All those things would probably violate our state’s child labor laws today.

It’s a shame that our culture has resorted to this paranoia. It’s robbing our children of the pride that learning skills and hard work bring.

I’m keeping the ad up.

I wrote back to Behar asking about her own reaction to this experience. She responded:

I was shocked that a friendly ad for a child wanting to help a neighbor generated multiple calls to the police and resulted in an actual visit by an officer. Fortunately, in our case, he was sympathetic, although he did leave with a warning that I should never post anything about my child wanting payment for her services.

But my ad was no different than the fliers I made 20 years ago with my friends offering yard work or babysitting. What if I had mentioned compensation? Would Child Protective Services be investigating me then? When I told a few fellow mommy-friends about our surprise visit, I felt judged. I was met with silence or questions like, “Would you actually leave your kid at a stranger’s house?”

The knee-jerk distrust of all adults around all kids is a hallmark of our times. Where we could see verve, we see vulnerability. Where we could see neighbors helping neighbors we imagine the worst. Where we could see kids growing up with confidence and competence, we see a rising tide of anxiety.

Letting kids do some work for money isn’t making them into slaves. It’s making them into adults. That shouldn’t be a crime.

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Mortgage Applications Explode Higher As Rates Tumble, Shutdown Loomed

Seemingly encouraged by the dramatic slide in mortgage rates into the end of the year (and perhaps incentivized ahead of the shutdown that impacted IRS’ ability to income-verify), US mortgage applications exploded 23.5% last week, with both purchase and refinancing applications rising sharply.

Refinancing applications jumped 35.3% (up 80.4%, unadjusted). While some of the spike reflects seasonal noise, part of the increase is likely due to actual activity given the recent decline in mortgage rates.

Mortgage rates declined sharly last week. The effective rate on a conventional 30-year loan declined nine basis points to 4.88%, the lowest since April. As Oxford Economics points out, mortgage rates have declined 45 basis points from their recent peak in early November. Some of that decline is likely to be reversed in next week’s report given the recent backup in Treasury rates.

Oxford Economics notes that on an unadjusted basis, purchase applications were up 59.0% last week. Purchase applications finished December with a 1.5% gain and are starting January 6.6% above the December average. Those readings are positive for upcoming home sales reports, although the January increase is likely to moderate in the weeks ahead as seasonal impacts fade.

However, as Oxford Economics concludes, do not get too excited about this resurgence – due to holiday noise, the increases are likely overstating any strength in application activity.

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Even More Bad News For Apple

For those who thought that the latest news that Apple was slashing iPhone production again, this time by 10%, for the second time in 2 months was as bad as it would get, we have some bad news.

Earlier, when commenting on the latest production cut, we had a modest proposal: “Maybe, just maybe, they should consider cutting prices?”

Any other day, such a proposition would be apocryphal: after all Apple never makes wholesale price cuts – after all the key part of its cache and “coolness factor” is that its products are so unnecessarily expensive they are a status symbol.

Only in this time it appears that Apple listened to our “advice”, and according to the National Business Daily, prices of iPhone models at some Chinese vendors in Shenzhen have been cut. According to the paper, wholesale vendors in electronics product markets in Shenzhen city received price change notice from the U.S. on Jan. 8. The resulting price cut was for models including iPhone XR, iPhone 8, iPhone 8 Plus, iPhone X, iPhone XS and iPhone XS Max; Separately, the prices of new iPhone devices started to drop in a wholesale market in Shenzhen, where the iPhone XR had biggest price cut of 450 yuan ($66.02) at channel vendors.

“What does that matter?” Apple bulls will counter: after all, the world’s formerly biggest company is no longer a product company (at least since the shocking announcement that it would stop disclosing iPhone sales numbers late last year), and is instead only focusing on services.

Well, there is a problem here too, because as Nomura’s Jefrey Kvaal writes, Apple last week “offered a bit of a paradox.“

Specifically, Apple announced record F1Q Services revenue that easily exceeded consensus, before offering a “rather uninspiring” account of its holiday week Services revenue growth.  However, on Tuesday night Apple unexpectedly restated FY18 Services revenues for ASC 606, and as a result, Kvaal concludes that “the uninspiring view is the correct one” as Apple missed in Services too; this in turn has prompted the Nomura analyst to retain his view that “Services growth is in part dependent on now wobbling iPhone unit volumes.”

Here are the additional details from Kvaal’s note:

  • Wait…is Services good or bad? Apple noted Services revenue of $10.8bn as a bright spot in last week’s negative preannouncement. This exceeded consensus estimates by $300mn and represented 28% YoY growth.  Oddly, the very next day, Apple announced soft and seemingly contradictory holiday week App Store sales growth of 20%. New Year’s Day growth was only 7%. Please see AAPL: And In Other News, Services Underwhelms for more details.
  • Oh. It’s bad. Services revenue has slowed to ~20%, and missed.  The new ASC 606 standard required Apple to reclassify $2.6bn in 2018 revenue (from Apple Maps, Siri, and free iCloud) from Products to Services.  This adds $620mn to F1Q19 and lowers the Services growth rate to 18%. This is a miss; consensus had expected 24% growth.  F4Q18 Services growth was 27%.
  • Our Services estimates now imply a 2019 slowdown. Our FY19 Services forecasts now imply a growth rate of 20% rather than 28% given $2.6bn in higher revenue to FY18’s base. This aligns closer to recent App Store growth of 18% in F1Q based on SensorTower’s data. China’s decision to re-start gaming reviews should lift growth modestly – gaming is 80% of China App Store sales – though Apple’s holiday sales figures did not show as much improvement as hoped.  
  • Proof point that Services is not independent of Units. We believe it fair to argue Apple’s iPhone unit wobbles are slowing its Services business.  Apple’s installed base growth has slowed from ~15% to ~8%.  App Store growth has obviously slowed; we believe Apple Care revenue is also suffering from lower unit volumes.  
  • A bit of an unforced error.  Our preference would have been for a simultaneous disclosure of the unit weakness, holiday week sales, and accounting adjustments.

Summarizing, the “Kvaal call”, the Nomura analysts concludes that “It’s not just units but services too.” Of course, looking at the AAPL stock price over the past week, which has rebounded strongly on hopes of an imminent US-China trade deal (which we now know isn’t coming) and more stimulus by the Fed and FOMC, and recouped much of last Tuesday’s shocking revenue guidance cut, one would think that it is only smooth sailing from this point on for Tim Cook. One would be dead wrong.

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How Can I Preorder a Crate of Spicy Tomatoes?

HotTomatoThe spaghetti sauce recipe from Chef Anthony Bourdain uses 20 plum tomatoes and a pinch of crushed red peppers (personally I would prefer much more than a pinch of pepper). Now biotech researchers are suggesting that cooks could skip a step and simply use tomatoes engineered to produce their own pepper spice.

The ancestors of tomatoes and chili peppers went down their separate evolutionary paths nearly 20 million years ago. Derived from tiny pea-sized berries, tomatoes became milder as Native American farmers in South and Central America began domesticating tomatoes more than 8,000 years ago. Meanwhile Native American horticulturalists in Mexico 6,000 years ago turned wild bird peppers into domesticated varieties that continued to produce capsaicins (the compounds that give peppers their delicious hotness).

Now a team of researchers led by Agustin Zsögön, a plant biologist at the Federal University of Viçosa in Brazil, reports in the journal Trends in Plant Science that the genes for producing spicy capsaicin are dormant in tomatoes and could likely be reawakened via biotechnology. Instead of splicing new genes into tomatoes, researchers aim at activating existing genes in the plants. Various techniques that might be used to jump start capsaicin synthesis include using CRISPR genome-editing to modify genetic promoter sequences to turn on and turn up the dormant genes for capsaicin production in tomatoes.

Their main goal is not to get “hot” tomatoes into the produce aisle at your local grocery, but instead to use tomatoes to mass produce capsaicins for pharmaceutical purposes and/or as a pest deterrent. They note that yields of hot peppers seldom exceed 3 tons per hectare in about 4–5 months of growing, whereas is not uncommon to reach 110 tons per hectare for tomatoes during a 120-day cropping cycle.

The good news is that the U.S. Department of Agriculture has declared that it will not generally regulate genome-edited crop varieties. Therefore spicy tomatoes and hundreds of other genome-edited crop varieties now under development should be able to get to market sooner by escaping the ridiculously anti-scientific regulatory system that has so far slowed and stymied the development of beneficial biotech crops. I hope to dine on a “hot” tomato and melted cheese sandwich some day soon.

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Government Shutdown Means No New Beers, Because No Bureaucrats Are Working To Approve New Beer Labels

The ongoing partial shutdown of the federal government, now in its 19th day, means breweries around the country are unable to get the government’s permission to sell new types of beer—not because it’s dangerous or unhealthy to make new alcoholic drinks while government regulators are on furlough, but because there’s no one available to approve labels for cans and bottles of booze.

Those labels have to be approved by the Alcohol and Tobacco Tax and Trade Bureau (TTB), which is housed within the Treasury Department, one of the parts of the federal government affected by the shutdown. While the TTB’s main responsibility is collecting alcohol taxes—and don’t worry, it’s still doing that during the shutdown—the bureau is also charged with ensuring that beers, wines, and spirits accurately communicate details like the amount of alcohol by volume (ABV) and the mandatory Surgeon General’s warning. Without government approval, the drinks those labels envelope can’t be sold.

The turn-around time for this rote bureaucratic process is generally pretty quick, reports Philly.com’s Allison Steele, usually taking no more than a few weeks. But the shutdown has breweries rethinking their plans and even scrapping beers that were already in the pipeline. Michael Contreras, director of sales and marketing for the Pennsylvania-based 2SP Brewing Company, tells Philly.com that the brewery has canceled plans to make an imperial oatmeal stout, because it was unclear they would get label approval by the time the beer is ready.

At Atlas Brew Works in Washington, D.C., a brand new apricot IPA might have to be dumped because it’s already fermenting in the tanks but there’s no timetable for getting approval from the TTB. “That hurts, emotionally and monetarily,” Atlas founder and CEO Justin Cox tells DCist.

Other breweries are taking their frustrations directly to the president.

The longer the shutdown drags on, the more costly the consequences could be, with the potential to spread up and down the supply chain.

“If we can’t get our new labels approved in a timely manner, then it affects our entire operation. It hurts our employees, our farmers who provide our grain, our hops suppliers, our label printers, our box manufacturers and ultimately our distributors, retailers, and beer drinkers,” Bill Butcher, founder of Port City Brewing Company in Alexandria, Virginia, tells the Craft Beer Cellar newsletter. “This is a failure of government to do its job! Everyone suffers from the shutdown by slowing our business after we have busted our tails planning. It is inexcusable that this should happen.”

The Brewers Association, a trade group for small breweries, is advising breweries to expect longer waiting times for approval, even after the government reopens, because there will be a backlog of applications.

With the government shutdown grinding brewery operations to a halt, it seems like a good time to question whether the TTB’s role in approving beer, wine, and spirit labels is really necessary. After all, we’re not talking about oversight of anything that affects the safety or quality of the drinks themselves—the TTB’s involvement is just one more step that breweries and wineries must take before getting their product to the public, but it’s not a step that does much of anything in the public’s interest.

The other problem with the TTB is a First Amendment one. As Greg Beato pointed out in a 2008 feature for Reason, the TTB routinely denies certain labels for alcoholic beverages that would be considered perfectly fine to slap on any other product. “If you’re a perfume manufacturer and you’d like to name your latest fragrance Opium, no government agent will stop you,” he wrote. “The world’s flagship soda is called Coke. A company called Chronic Candy has been selling lollipops flavored with cannabis flower essential oil for eight years.”

But the TTB has used vague statues to justify blocking labels for beers that make references, usually, to drugs. In 2016, for example, a Minnesota-based brewery was told it could not sell a beer made with lavender extract, sunflower oil, and dates as “LSD Ale.” The exact same product, though, is perfectly legal to be sold under the name “Lavender Sunflower Date Honey Ale,” which is what Indeed Brewing Company ended up calling it. By any other name, right?

Instead of having to proactively approve every label for every alcoholic drink sold in America, the TTB’s bureaucrats could be relegated to an enforcement role. Breweries and wineries know what information they are supposed to include on their labels; if they fail to do that, let the TTB get involved. That’s how most other government agencies regulate consumer goods anyway. Better yet, do away with the TTB entirely and let the Federal Trade Commission enforce the beer label requirements if breweries fail to note the ABV of their brews.

The TTB is exactly the type of government agency that a shutdown should make us reconsider. When it’s operational, it causes problems. When it’s shut down, it causes other problems. Let’s get rid of it.

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$3.5 Trillion A Year: Is America’s Health Care System The World’s Largest Money-Making Scam?

Authored by Michael Snyder via The Economic Collapse blog,

If the U.S. health care system was a country, it would have the fifth largest GDP on the entire planet.  At this point only the United States, China, Japan and Germany have a GDP that is larger than the 3.5 trillion dollar U.S. health care market.  If that sounds obscene to you, that is because it is obscene.  We should want people to be attracted to the health care industry because they truly want to help people that are suffering, but instead the primary reason why people are drawn to the health care industry these days is because of the giant mountains of money that are being made.  Like so many other things in our society, the health care industry is all about the pursuit of the almighty dollar, and that is just wrong.

In order to keep this giant money machine rolling, the health care industry has to do an enormous amount of marketing.  If you can believe it, a study that was just published found that at least 30 billion dollars a year is spent on such marketing.

Hoping to earn its share of the $3.5 trillion health care market, the medical industry is pouring more money than ever into advertising its products — from high-priced prescriptions to do-it-yourself genetic tests and unapproved stem cell treatments.

Spending on health care marketing nearly doubled from 1997 to 2016, soaring to at least $30 billion a year, according to a study published Tuesday in JAMA.

This marketing takes many different forms, but perhaps the most obnoxious are the television ads that are endlessly hawking various pharmaceutical drugs.  If you watch much television, you certainly can’t miss them.  They always show vibrant, smiling, healthy people participating in various outdoor activities on bright, sunny days, and the inference is that if you want to be like those people you should take their drugs.  And the phrase “ask your doctor” is usually near the end of every ad…

The biggest increase in medical marketing over the past 20 years was in “direct-to-consumer” advertising, including the TV commercials that exhort viewers to “ask your doctor” about a particular drug. Spending on such ads jumped from $2.1 billion in 1997 to nearly $10 billion in 2016, according to the study.

As a result of all those ads, millions of Americans rush out to their doctors to ask about drugs that they do not need for diseases that they do not have.

And on January 1st, dozens of pharmaceutical manufacturers hit Americans with another annual round of massive price increases.

But everyone will just keep taking those drugs, because that is what the doctors are telling them to do.  But what most people never find out is that the pharmaceutical industry goes to great lengths to get those doctors to do what they want.  According to NBC News, the big drug companies are constantly “showering them with free food, drinks and speaking fees, as well as paying for them to travel to conferences”.

It is a legal form of bribery, and it works.

When you go to most doctors, they will only have two solutions to whatever problem you have – drugs or surgery.

And since nobody really likes to get cut open, and since drugs are usually the far less expensive choice, they are usually the preferred option.

Of course if doctors get off the path and start trying to get cute by proposing alternative solutions, they can get in big trouble really fast…

Today’s medical doctors are not allowed to give nutritional advice, or the American Medical Association will come shut them down, and even if they were, they don’t know the right things to say, because they weren’t educated that way in medical college. So instead, M.D.s just sling experimental, addictive drugs at symptoms of deeper rooted sicknesses, along with immune-system-destroying antibiotics and carcinogenic vaccines.

That’s why any medicine that wrecks your health is easy to come by, just like junk food in vending machines. The money isn’t made off the “vending” products, the money is made off the sick fools who are repeat offenders and keep going back to the well for more poison – it’s called chronic sick care or symptom management. Fact: Prescription drugs are the fourth leading cause of death in America, even when “taken as directed.”

Switching gears, let’s talk about hospitals for a moment.

When you go to the hospital, it is often during a great time of need.  If you are gravely ill or if an accident has happened and you think you might die, you aren’t thinking about how much your medical care is going to cost.  At that moment you just want help, and that is a perfect opportunity for predators to take advantage of you.

Just consider the example of 24-year-old Nina Dang.  She broke her arm while riding her bicycle in San Francisco, and so she went to the emergency room.

The hospital that Facebook CEO Mark Zuckerberg donated so much money to definitely fixed her arm, but later they broke her bank account when they hit her with a $24,000 bill…

A bystander saw her fall and called an ambulance. She was semi-lucid for that ride, awake but unable to answer basic questions about where she lived. Paramedics took her to the emergency room at Zuckerberg San Francisco General Hospital, where doctors X-rayed her arm and took a CT scan of her brain and spine. She left with her arm in a splint, on pain medication, and with a recommendation to follow up with an orthopedist.

A few months later, Dang got a bill for $24,074.50. Premera Blue Cross, her health insurer, would only cover $3,830.79 of that — an amount that it thought was fair for the services provided. That left Dang with $20,243.71 to pay, which the hospital threatened to send to collections in mid-December.

Most Americans assume that if they have “good health insurance” that they are covered if something major happens.

But as Dang found out, you can still be hit with crippling hospital bills even if you have insurance.

Today, medical debt is the number one reason why Americans declare bankruptcy.  Because of the way our system is set up, most families are just one major illness away from financial ruin.

And this kind of thing is not just happening in California.  The median charge for a visit to the emergency room nationally is well over a thousand dollars, and you can be billed up to 30 dollars for a single pill of aspirin during a hospital stay.

Our health care system is deeply broken, and it has been designed to squeeze as much money out of all of us as it possibly can.

Unfortunately, we are stuck with this system for now.  The health care industry is certainly not going to reform itself, and the gridlock in Washington is going to make a political solution impossible for the foreseeable future.

via RSS http://bit.ly/2sgFrnF Tyler Durden

Nope, Economists Don’t Agree a 70 Percent Top Marginal Tax Rate Is a Good Idea: New at Reason

|||Douliery Olivier/ABACA/Newscom

Economic commentators Matt Yglesias, Paul Krugman, and Noah Smith believe Rep. Alexandria Ocasio-Cortez’s (D–N.Y.) call for a 60 to 70 percent top marginal income tax rate is uncontroversial. According to all three, the New York Democrat’s proposal simply reflects the consensus of mainstream economics.

Their argument rests on two historical factoids. The first is that the rich paid higher taxes in the 1950s, and the economy grew just fine. The second “fact” is that an array of economists, from Nobel Prize winner Peter Diamond, to Thomas Piketty and Emmanuel Saez, have produced peer-reviewed research showing combined marginal rates as high as 70 to 80 percent are “optimal.”

But dig into these three papers, and you’ll find the results reflect philosophy as much as economics. These economists think they can plan the distribution of income to maximize “social welfare.” But they arrive at the decision to impose extremely high top marginal tax rates because they uniformly decide to put almost zero weight on the welfare of the rich, writes Ryan Bourne in his latest at Reason.

View this article.

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