The Expansionary Times

The Examiner

Will Obamacare Shackle America's Economic Future?

Will Obamacare Shackle America's Economic Future? (Part 2)— The Business Community Weighs In.

Pres. Obama at a rally celebrating passage of healthcare bill.

Reuters/Larry Downing

April 3, 201012:44 PM MST

Part 1 of this article described how Congress passed the trillion-dollarhealthcare bill just days after Moody’s Rating Agency had warned that America’s bloated debt could cost the US its

gold-plated AAA credit status. Part 2 will look at Obamacare’s potential financial, economic and political consequences.


The immediate response of the international financial community to the passage of Obamacare has been less than encouraging. The WSJ describes how, in the days following the bill’s passing, “investors turned up their noses at three big U.S. Treasury offerings. Demand was weak

for a $44 billion 2-year note auction on Tuesday, a $42 billion sale of 5-year debt on Wednesday and a $32 billion 7-year note sale Thursday.”


Perhaps the lenders figured out that the bill might greatly expand an already bloated US budget deficit. According to the New York Times, “The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.”


The reaction of many corporations to Obamacare can only weaken lenders’ confidence in the US economy. To adjust to the bill’s new regulations companies announced new writedowns reflecting a weakened profit picture for the coming years. AT&T's writedown of $1 billion dominated the headlines, but companies such as Deere & Co., Caterpillar; AK Steel, $31 million; 3M, Valero Energy, USA Truck Inc. and Prudential announced writedowns ranging in the $100 million-plus area. Verizon announced it was taking a $970 million charge due to new healthcare costs.


It is doubtful that AT&T, Verizon and others will be in much of a hiring mood after determining how Obamacare will shrink their bottom lines.


Worse, because the law changes the way companies can deduct the cost of prescription drugs in their retirees’ healthcare plans, companies might start terminating retirees’ health coverage and move as many as one of four retirees currently on private healthcare plans into the already financially unstable Medicare program.


At a seminar televised on C-Span, Fred Bergsten, head of the Peterson Institute for International Economics, noted that America is now by far the world’s largest debtor country, with a net foreign debt exceeding three trillion dollars and rising at a rate of a half-trillion to one trillion dollars more. Over the next 10-20 years, at this rate the US deficit will rise to 5 trillion dollars, to about 150% of GDP, he claimed.


Then Bergsten dropped this bombshell. ” “En route to it, the mother of all financial crises will happen.” Bergsten stated that “At some point, which could happen at any day now, the foreign financiers upon whom we depend, some of whom do not wish us well, could simply get tired of financing our debt level.”


As a result, interest rates would soar and the dollar would weaken dramatically. Most disturbing is his statement that “literally that crisis could happen at any time,” if we stay on this trajectory. He compared the budget erosion like “termites in the woodwork.”


Americans are already becoming nervous about the true cost of Obamacare. A USA TODAY/Gallup Poll taken a week after the bill’s passage revealed that nearly two-thirds of Americans feel that the bill costs too much and expands the government's role in health care too far.


The passage of this bill clearly drops the whole of the economy onto President Obama's lap. Up until now, Obama has enjoyed the luxury of blaming the Bush administration for the high

unemployment, declining wages, and rise in home foreclosures plaguing the nation. Now, critics can and most certainly will link Obamacare to every new layoff, business failure and tax increase, as well as the growing US debt. Not surprisingly, a CBS poll taken about a week after President Obama signed the bill into law showed his approval rating hitting an all-time low.


Democrats running for Congress and the Senate this year have to hope the public is not focusing on the health care bill as we head toward the Fall elections. Unfortunately for the Democrats, the GOP, as well as talk show hosts and Tea Party activists, from now until November will be reminding voters of the potentially dire economic consequences of Obamacare.

Obama's Drilling Plans Increase US Dependence on Foreign Energy

Obama's Drilling Plans Increase US Dependence on Foreign Energy (Part 1)

Drilling Rig In Alaskan Waters

April 16, 20101:11 PM MST

President Obama's new offshore drilling plan, which opens up some new areas off the US coast for future oil and gas exploration, was heralded as a breakthrough in America’s mission to end its dependence on foreign oil.


However, as experts sift through the particulars of Obama’s pronouncement, they are concluding that Obama’s new policies will actually make it more difficult for America to solve its ongoing energy dilemma. In effect, the President has restricted drillers’ access to the most fertile oil repositories which are located in the Arctic region. In fact, according to Rep. Trent Franks, Arizona Republican, the new policy ”closes more offshore drilling sites than it opens.”


On April 1 the President opened some areas off the coast of the southern Atlantic seaboard and in the Gulf of Mexico for possible future drilling. However, he simultaneously cancelled or postponed five potential lease sales in Alaska's oil-rich Chukchi and Beaufort seas off its northern shore. With a stroke of the pen Obama put on indefinite hold a good portion of oil exploration in the one area guaranteed to dramatically lessen our dependence on foreign oil and natural gas.


According to a 2008 US Geological survey report, the area north of the Arctic circle holds1.6 quadrillion ( 1600 trillion) cubic feet of undiscovered gas, or 30% of the world's supply. It also holds 83 billion barrels of undiscovered oil, 13% of the world's total. According to some estimates, the oil in America’s piece of this Arctic treasure, the Beaufort and Chukchi Seas, is equal to more than 16 years worth of imports from OPEC.


By comparison, the eastern Gulf of Mexico areas Obama just approved for drilling contain a relatively paltry 3 billion economically recoverable barrels. Moreover, experts are already questioning whether the other area mentioned in the announcement, off thecoast of Virginia, holds even 2 billion recoverable barrels.


The decision to declare Alaska’s northern waters off-limits to oil exploration could not have come at a worse time for an American economy desperately trying to crawl out of the Great Recession. Since 1973, every sudden spike in the price of oil has been followed by either a moderate economic downturn or severe recession. It is not hard to see the connection. A rise in energy prices makes just about everything else more expensive. Consumers forced to pay more for energy reduce their purchases of other items such as cars, clothing, vacations, and entertainment. Businesses suffer, workers are laid off.

The 2007 oil price spike to $150 a barrel was one of the major causes of the current downturn, the worst recession since the Great Depression of the 1930s. The International Energy Agency announced this week that rising oil prices are again poised to wreak global economic havoc. In spite of such warnings, the Obama administration has decided against aggressively expanding the US energy supply which might help keep a lid on the price of oil.




Part 2 of this article looks at the administration’s reasoning behind its decision to cancel the drilling leases in Alaska, and examines the political and economic ramifications of Obama’s evolving oil policy.




Will Obamacare Shackle America's Economic Future?

Will Obamacare Shackle America's Economic Future? (Part 1)— Moody's Seems To Think So


April 1, 20104:29 PM MST

A few weeks ago Moody’s Investors Service, the credit rating agency, issued a warning about the US economy that was largely ignored by the mass media. Moody’s said that unprecedented financial conditions in the US might cause rating agencies to lower the country’s credit score from its current AAA status, which it has maintained for decades, to a level much less conducive to easy borrowing.


Such a change would have a devastating effect on every American’s pocket book. Quite simply, a the Triple-A rating enables a country to borrow money at the lowest possible interest rates. The more secure a nation’s economy, the lower the interest rate it has to pay on T-Bills and other instruments.


If the US loses its gold-plated AAA rating, interest rates on everything will rise. Americans can anticipate being charged higher borrowing rates for home mortgages, autos, and credit cards.

Small businesses, already facing a credit squeeze, will now have to confront an even tougher credit market to stay afloat or expand. Without available capital to grow, small businesses will be even more reluctant to hire new workers than they have been throughout 2009.


Moody’s has shined a glaring spotlight on America’s precarious financial condition. In the first three years of the Obama presidency, the US will end up borrowing $3.7 trillion. That is more than the US borrowed in the first 225 years of its existence. The debt the government owes borrowers will likely reach 64 percent of GDP. At this rate, we can foresee a time when the government will owe more than the sum total of the nation’s output.


Most troubling is Moody’s statement that economic growth cannot prevent the US from literally going into default. “Growth alone will not resolve an increasingly complicated debt equation,” Moody’s said. To maintain its AAA rating, the US will have to make “fiscal fiscal adjustments” that might “test social cohesion.”

In short, the US must cut spending. However, Obamacare takes us into the opposite direction. According to former CBO directorDouglas Holtz-Eakin, this bill will raise the deficit by $562 billion over 10 years. Cato Institute's Alan Reynolds stated that when the bill is fully in effect, its expenses are likely to grow at least 7 percent a year, clearly outpacing revenues. At that rate, spending doubles every 10 years. Does anyone doubt that this bill will add trillions to the deficit?




Some observers are wondering how Nancy Pelosi could convince her fellow Democrats to pass this budgetary nightmare in light of Moody’s warnings. The answer could be that Pelosi already has figured out a way to pay for this bill. If one looks closely at the bill’s provisions, you can see that it is laden with new taxes, fees, and cutbacks in services.




Starting in 2011, employers must report the value of health benefitson W-2s. In other words, Americans will have to pay additional income tax on the value of their health benefits. There will be an additional tax on all private health insurance come 2013. Fines for not having health insurance will bring in a hefty amount. If these revenues do not restrain the deficit, Pelosi could have her Congress pass a national sales tax of 10% on all goods and services, something akin to the Value Added Tax in Canada and Europe.




Health services will be cut as well. In 2011, we will see cuts in Medicare Advantage and long- term hospital stays. Expect reduced reimbursement for MRIs, CT scans, and ambulance services. In 2013 there will be Medicare cuts to hospice and hospitals treating low-income seniors.




In Part 2 of this article, we will see that even these spending modifications and taxes have not quelled the business community’s nervousness about the economic impact of this bill on America’s economic future.




Obama's Drilling Plans Increase US Dependence on Foreign Energy

Obama's Drilling Plans Increase US Dependence on Foreign Energy (Pt. 2)-A Political Opening For GOP


April 19, 201010:55 AM MST

On April 1st President Obama announced the expansion of oil and gas exploration off the coast of the southern US and in the Gulf of Mexico. In the same policy address, he made another announcement, one that raises concerns about America’s energy future. He declared off-limits Alaska’s northern coast, an area that studies have shown can supply America with a prodigious amount of oil and natural gasfor years to come.

Secretary of the Interior Ken Salazar says Obama terminated energy development in these areas because of the "unanswered questions" about the environmental impact of drilling in the region’s Chukchi andBeaufort seas.. Salazar insists we need to engage in “the kind of scientific gathering that will give us the answers to some key questions." Geologists think such a rationale unsatisfactory. They contend that prior research has already determined that drilling will not harm the natural environment.


Salazar cited another quite different reason for not drilling off Alaska’s north coast. The Alaska region, he claims, is simply not as productive as everyone thinks! Such a conclusion would seem to fly in the face of an exhaustive 2008 US Geological Survey report which estimated that the Arctic Circle region holds 1.6 quadrillion ( 1600 trillion) cubic feet of undiscovered gas, 30% of the world's supply, and 83 billion barrels of undiscovered oil, 13% of the world's total.

Salazar believes that there is only the equivalent of 3 billion barrels of “economically recoverable” oil, loosely defined as oil worth the price per barrel to pursue.


Since the Obama speech the administration has moved to restrict drilling elsewhere. In response to complaints from environmentalists, the Bureau of Land Management announced it was going to delay a scheduled oil and natural gas lease sale in Montana and North and South Dakota to study the impact of potential greenhouse gases. TheAmerican Petroleum Institute says that this decision to factor greenhouse gases into the leasing decision takes BLM into “unchartered territory " and will delay or prevent much-need investment and development in the region.


The Administration is offering little hope that it will ever approve energy development of another major oil and gas repository, the Alaska National Wildlife Refuge. "The fact of the matter is that the Alaska National Wildlife Refuge is not on the map for exploration or development," Secretary Salazar said recently. "It never has been under President Obama.”


Obama clearly believes that we do not have to tap into our huge oil and gas reserves to solve our energy problems. He devoted much of his speech to praising alternative “clean and green” energy sources such as biomass, hybrid cars and advanced batteries. Delivering his address in an Air Force hangar, Obama directed the audience’s attention to a nearby fighter plane that “will be the first plane ever to fly faster than the speed of sound on a fuel mix that is half biomass.” If the Air Force can run on biofuels, Obama reasoned, so can the nation’s factories and homes.


The political ramifications of Obama’s decisions are enormous. The price at the gas pump has jumped from $2.00 to $3.00 since Barack Obama assumed the presidency. Political opponents will be quick to link any further increases in the price of gas to Obama’s unwillingness to tap into the Alaskan energy cornucopia. They will also point out that his decision to limit drilling in the nation’s Outer Continental Shelf will cost Americans jobs at a time when we desperately need job creation. According to the American Energy Alliance, opening the OCS will create

1.2 million jobs annually across the country and increase the GDP by $8 trillion.


From now until November, the GOP will most certainly remind Americans that the President is refusing to take the actions necessary to reduce energy dependence, lower gas prices, create jobs,

and shrink the national debt. A few days after the speech former Alaska Governor Sarah Palin, speaking at the Southern Republican Leadership Conference, mockingly described Obama’s drilling pronouncement as “stall baby stall,” not “drill baby drill.” At their national rallies the various Tea Parties slammed Obama’s reluctance to drill in the OCS and elsewhere. Libertarians, a growing force in both major parties, have broadened the debate to one over whether the Federal government is overstepping its Constitutional authority in telling states and private businesses where they can and cannot drill for oil, gas, and other minerals.


The President is correct that the US must develop a new generation of fuel sources. Unfortunately, biomass and windmills will not power the factories, cities, and homes of the American nation whose population will expand to 400 million by 2050. We must instead develop 21st century energy sources such as nuclear fusion, wireless energy technologies, as well as clean coal. We must also aggressively drill for the oil and natural gas in our Outer Continental shelf.


Without a pro-growth “expansionary” energy policy, the US cannot retain its position as global economic, political, and military leader.





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