Tuesday, July 25, 2017

United States Health Care - Paying More and Getting Less

Commonwealth Fund's most recent international comparison of health care certainly makes the United States health care system look like one of the weakest in the developed world.  The analysis compares the health care system in the U.S. to that of 10 other high-income nations, examining 72 indicators that measure health care performance in five domains - access, administrative efficiency, care process, equity and health care outcomes.  

Let's start by looking at a comparison of health care spending as a percentage of GDP among the 11 nations in the studying back to 1980:


As you can see, over the past 35 years, U.S. health care spending as a percentage of GDP has been the highest among all 11 high-income nations and the differential has been growing with time.  Back in 1980, U.S. health care spending totalled 8.2 percent of GDP; this has risen to 16.6 percent in 2014, 5.2 percentage points higher than the second place finisher, Switzerland.

Now, let's look at the rankings for the five domains as listed above:

1.) Access: includes two subdomains - includes two subdomains - affordability and timeliness of treatment


2.) Administrative Efficiency: includes four subdomains that measure barriers to care experienced by patients including availability of regular doctor, medical records and test results and three subdomains which measure patients' and physicians' time and effort required to deal with paperwork and insurance/government documentation.


3.) Care Process: includes four subdomains - preventative care, safe care, coordinated care and engagement and patient preferences


4.) Equity: compares health care performance for lower- and higher-income individuals


5.) Health Outcomes: includes three subdomains - population health outcomes, mortality amenable to health care and disease-specific health outcomes measures 


As you can see on this table, the United States performs well only on the care process domain and even then, it is still only in fifth place.  On all other domains, the American performance comes in last or second last place:


Obviously, when it comes to health care, the bottom line measure is mortality, particularly amenable mortality which is defined as:

 "...deaths from a collection of diseases such as heart disease, cancer, diabetes and appendicitis that are potentially preventable given effective and timely health care.  This serves as a marker that highlights the performance of a health care system.

Here is a graphic comparing the mortality amenable to health care rate for all eleven nations, showing the changes in the rate between 2004 and 2014:


In all countries, the rate of deaths related to a lack of effective and timely heath care dropped over the decade, however, the United States still has the highest amenable mortality rate.

Finally, let's close this posting with one last graphic that shows how, once again, the United States is the outlier when it comes to a comparison of health care system performance and health care system spending (as a percentage of GDP):


While Congress continues to quibble over health care for Americans, as we can see from the Commonwealth Fund study, no matter which political party is in control, Americans pay more and get less when it comes to health care provision and results. 


Monday, July 24, 2017

The Repercussions of the Federal Reserve's Monetary Experiment

With the Federal Reserve finally making moves toward normalizing monetary policy by raising interest rates and reducing the size of its bloated balance sheet, it's an interesting exercise to look at what has motivated this move outside of the supposed health of the economy.  As you will see in this posting, there is a repeated theme in comments made by various Federal Reserve insiders.

Let's start with the head of the Federal Reserve.  Here's a recent exchange from Janet Yellen's July 12, 2017 testimony before Congress on the subject of asset prices: (starting at the 57 minute 55 second mark):

Ms. Carolyn Maloney (D - NY 12th):  The Fed has suggested that the stock market is currently overvalued.  Are there other markets that you consider or see as overvalued as well and do you think a correction in any of these markets would cause problems for financial stability?

Janet Yellen:  So, in looking at asset prices and valuations, we try not to opine on whether they are correct or they're not correct.  But, on...as you asked, what the potential spillovers or impacts on financial stability could be on asset price revaluations.  My assessment of that is that as asset prices have moved up we've not seen a substantial increase in borrowing based on those asset price movements.  We have a financial system, a banking system that's well capitalized and strong and I believe it's resilient."

Here's Eric Rosengren, President Federal Reserve Bank of Boston from a speech given May 9, 2017 entitled "Trends in Commercial Real Estate":

"While an overheated economy followed by a recession is only one possible scenario, and certainly not my prediction, it helps to illustrate one way in which low cap rates might be of concern in the event of such a reversal. While all market participants should consider how their positions would be impacted by adverse scenarios, Figure 15 shows that leveraged institutions and government-sponsored entities have significant exposures to commercial real estate. In the
event of an adverse scenario such as a recession, these exposures could pose significant risks to these institutions.

While I am certainly not expecting such a scenario to occur, central bankers are charged with thinking about adverse risks to the economy. So current valuations in real estate are one such risk that I will continue to watch carefully."

Here's Figure 15 which shows that the banking sector has been a massive investor in commercial real estate, currently owning 53 percent of the total, up 9.6 percent on a year-over-year basis:



Here's Jerome Powell, Member of the Board of Governors of the Federal Reserve from a speech given January 7, 2017 entitled "Low Interest Rates and the Financial System":

"Low-for-long interest rates can have adverse effects on financial institutions and markets through a number of plausible channels, as listed on the next slide.  After all, low interest rates are intended to encourage some risk-taking.   The question is whether low rates have encouraged excessive risk-taking through the buildup of leverage or unsustainably high asset prices or through misallocation of capital.  That question is particularly important today. Historically, recessions often occurred when the Fed tightened to control inflation.  More recently, with inflation under control, overheating has shown up in the form of financial excess.  Core PCE inflation remained close to or below 2 percent during both the late-1990s stock market bubble and the mid-2000s housing bubble that led to the financial crisis.  Real short- and long-term rates were relatively high in the late-1990s, so financial excess can also arise without a low-rate environment.  Nonetheless, the current extended period of very low nominal rates calls for a high degree of vigilance against the buildup of risks to the stability of the financial system."

Here is slide 8 from his presentation which shows the risks associated with "low-for-long interest rates":


Here's Stanley Fischer, Vice Chairman of the Federal Reserve from a speech given June 20, 2017 entitled "Housing and Financial Stability": 

"It is often said that real estate is at the center of almost every financial crisis. That is not quite accurate, for financial crises can, and do, occur without a real estate crisis. But it is true that there is a strong link between financial crises and difficulties in the real estate sector…. 

But memories fade. Fannie, Freddie, and the Federal Housing Administration are now the dominant providers of mortgage funding, and the FHLBs have expanded their balance sheets notably. House prices are now high and rising in several countries, perhaps as a result of extended periods of low interest rates...

But there is more to be done, and much improvement to be preserved and built on, for the world as we know it cannot afford another pair of crises of the magnitude of the Great Recession and the Global Financial Crisis."

Here's John Williams, President Federal Reserve Bank of San Francisco from an interview on Australia Broadcasting Corporation television interview June 27, 2017 (11 minute 55 second mark): 

"We are seeing some reach for yield and some maybe excess risk-taking in the financial system with very low rates...


I am somewhat concerned about complacency in the market...The stock market still seems to be running pretty much on fumes.  It's very strong in terms of that.    It's something that clearly is a risk to the U.S. economy, some correction there -- it's something we have to be prepared for to respond to if it does happen."
 
And, last but not least, let's wrap up this posting by looking at what Janet Yellen had to say on 

June 27, 2017 in conversation with Nicholas Stern at the British Academy (1 hour 7 minute 45 second mark):

"Asset valuations are somewhat rich if you use some traditional metrics like price-earnings ratios, but I wouldn't try to comment on appropriate valuations and those ratios ought to depend on long-term interest rates and of course there is uncertainty about that...so...yes, by standard  metrics some asset valuations look high but there's no certainty about that."

As I recall, the last time we heard about the abandonment of traditional metrics for stock valuations was back in the late 1990s and very early 2000s when measures like price-earnings ratios were tossed out the window when tech sector stock prices were unhinged from reality.  We all know how that movie ended, don't we?

Here is a chart showing the trailing price-to-earnings ratio for the S&P 500 going back to 1987:


While not at the levels seen during the tech stock boom (or during the extraordinary period during  the Great Recession's plunge in profits), the PE ratio certainly appears to be reaching the point of  being "rich".

While the braintrust at the Federal Reserve rarely show their hand, there seems to be a subtle yet repeated comments about the possible negative repercussions of their long-term near-zero interest rate policies, in particular, the impact on asset prices.  One would think that they learned from their experiences with low interest rates and the bubble created in the American housing market but, apparently, some lessons are harder learned than others.



Friday, July 21, 2017

Washington - Which Nation is Really Interfering in the Electoral Process?

While the American media and Washington are expending substantial energy on the alleged Russian interference in the United States political theatre during the 2016 election cycle, another nation and its American promoters that invest substantially in Washington generally fly under the radar when it comes to political influence-peddling.

According to Open Secrets, the pro-Israel "industry" has made the following political contributions since 1990:


Here is how these contributions were divided along party lines:


Over the two and a half decades, Democrat candidates received $83.16 million or 62 percent of the total compared to $49.95 million or 38 percent of the total for Republican candidates.  As shown on this table, while the majority of the long-term benefits have gone to the Democrats, that amount has varied from a low of 49 percent in 2006 to a high of 75 percent in 1994:


As well, the pro-Israel "industry" has ranked between 27th and 60th place in a field of more than 80 other industries when it comes to their political contribution generosity.  Obviously, the pro-Israel "industry" is not a massive donor like the Securities and Investment, Real Estate and Legal industries but it is still a substantial player in Washington when it comes to "buying" political influence through political donations.

Here is a listing of the major pro-Israel sector donors during the 2016 election cycle: 


Here is a graphic showing more detail on how the donations from the pro-Israel sector were split in the 2016 election cycle:


And, lest we forget, here are the individuals who benefitted the most from the pro-Israel sector's generosity during the 2016 election cycle:


Look who appears at the top of the list - none other than Democratic candidate, Hillary Clinton!  Interestingly, Donald Trump does not even appear on the list of the luckiest recipients, in fact, he receive a mere $69,730 from the pro-Israel sector as you can see on this list of presidential candidates:


Let's look at the other side of political influencing in Washington, that of lobbying.  Here is a graphic showing how much the pro-Israel sector has spent on lobbying on an annual basis since 1998:


The latest election year saw the greatest amount spent by the pro-Israel sector with $4,537,343 spent in 2016.  A decade ago, that amount was only $1,779,535 or about 39 percent of the spending in 2016.

Here are the six clients that represented the pro-Israel sector in 2013:


Not surprisingly, the American Israel Public Affairs Committee or AIPAC was responsible for the vast majority of the pro-Israel spending on getting legislators to see things Israel's way in 2013.

Here is a list of the 23 lobbyists that represented Israel's interests in Washington during 2016:


Of the 23 reported lobbyists, 4 or 17.4 percent are classified as "revolvers", that is, former federal employees who are now employed as lobbyists.   It's interesting to see that at least one of the "revolvers", Gordon Bradley, has been employed as a political analyst by the Central Intelligence Agency, and has served on the Senate Foreign Relations Committee twice prior to his employment by AIPAC in 1995.  He obviously has an inside track to influencing decision-makers.

In closing, let's switch gears for a moment.  According to the Jewish Virtual Library, since 1949, U.S. foreign aid to Israel has totalled $129.808 billion with $79.823 billion of that being military aid and $30.897 being economic aid.  Military aid has steadily risen from around $300 million annually in the early 1970s to $3.1 billion annually in the period between 2013 and 2017.  There is no about; Washington is a big investor in Israel.

Obviously, Israel has a great deal of interest in what happens in Washington, so much so that the pro-Israel "industry" is willing to spend tens of millions of dollars to "influence" elections and lobby Congress to stay on the good side of its long-term American benefactor.  But, somehow and in some way, that's different than the allegations of Russian "influence" during the 2016 cycle.