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.





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