The US Healthcare Dilemma

The United States spends $3.5 trillion on health care each year—nearly $11,000 per person. As a percentage of gross domestic product, we spend more than any other advanced nation in the world, including Australia, Canada, Denmark, France, Germany, Japan, New Zealand and the United Kingdom. And our medical spending continues to grow at twice the rate of inflation. But all that money has not made Americans healthier than the rest of the world. According to the World Health Organization the US Healthcare system ranks 37th, and US life expectancy ranks 31st – in both cases well behind every single western European country. We spend more yet end up with less. What the ….?


Here are some other annoying statistics compared to those nations that rank higher:

  • Americans actually spend less time visiting the doctor or the hospital
  • Americans have twice times as many tests – MRI, CT, PET, PSA, etc
  • Prescription drugs are much more expensive in the USA
  • Americans do have excellent care and results when it comes to cancer, but that’s about it.

So, let’s look at the healthcare programs we currently have in place. According to the Kaiser Family Foundation:

  • 57% of the population is covered by employer-sponsored private health insurance
  • 20% are on Medicare (government plan for people above 65 years of age)
  • 13% are on Medicaid (government plan for people with very low income)
  • 2% are Military or Veterans (government plan)
  • 8% are Uninsured

No one is particularly happy with the programs currently in place. In 2010 the Affordable Care Act was passed by a government controlled by Democrats. The Act became effective in 2014 and has significantly reduced the number of Uninsured, but many issues remain.

And, just in case you have a short memory or think that Obamacare is the source of all of our healthcare problems, look at this chart. It shows that health care premiums were rising significantly for years before ACA became law. In fact, between 2000 and 2005, private company healthcare premiums rose 69%!!


Since 2010, Republicans have campaigned to repeal and replace this law but now that they control all three levels of government, their first attempt (March 2017) to follow through failed because they could not gain consensus within their own party. Like the new President Donald Trump said in early March 2017: “Who knew that healthcare was so complicated?”


What’s the solution?

We know that Republicans can’t live with Obamacare, and Democrats won’t support anything new that the Republicans propose, so let’s explore something that is already in place: Expanding Medicare.


Since 1966, the US government has been administering a national single-payer insurance program for anyone over 65 years of age called Medicare. In 2017, Medicare provided health insurance for 66 million people. This program is funded by:

  1. A Medicare Tax of 2.9% which is paid by employers and workers (each pay 1.45%). This premium is compulsory for everyone who earns income and this revenue primarily covers hospitalization expenses. (Part A of Medicare).
  2. Medicare enrollees pay an optional monthly premium for medical coverage (Part B – doctors and various tests) and prescription drug coverage (Part D).
  3. Medicare enrollees can supplement their insurance plans for a higher level of coverage by purchasing additional, optional coverage from private insurance companies (Part C).
  4. Medicare enrollees pay a deductible and co-pay fees depending on the care needed.
  5. People at the highest income levels pay a surcharge on income above $250,000.
  6. Money from general taxation

The last point (#6) needs some explanation. The total cost of Medicare is approximately $700b per year but the revenues raised from items 1-5 are not enough to cover all of the outlays for this program. Therefore the government supplements Medicare with $500b per year from general taxation revenues to make up the deficit. The reason for the deficit is that Medicare is a program just for old people – who consume the most health care (average healthcare spend for person above 65 years is $22k vs $7k for a person 40 years of age and $4k for a child). If Medicare were available to younger people, the revenue raised would easily cover their costs – certainly for Part A coverage.

When first introduced Medicare was not perfect.  Over the years it had to go through 11 adjustments to make it better. Today Gallop surveys show that 80% of Americans are satisfied with Medicare. It works and it’s much simpler to understand and administer than any of the private plans: (You must be enrolled in Part A and you have choices when it comes to Part B and Part D. That’s it! A mandate for the basics and then plenty of options.)


If we stopped clowning around with the ACA and the AHCA and whatever else the politicians dream up and just adopt Medicare-for-All for the entire country we would actually solve many problems:

  • Everyone who earns income or has earned income in the past would qualify and everyone would be covered (using existing Medicare rules).
  • The system would be dramatically simplified for the patient and the health-care provider thereby driving out costs.
  • While you are working, everyone would pay a Medicare Tax/Premium deducted at source and the amount would increase gradually, over 10 years, to 12% (8% for the employer and 4% for the employee – which means that a family earning $100,000 per year would be paying $330 per month in healthcare premiums for basic Part A coverage.) Because everyone would pay a monthly premium, we can remove the “entitlement” label from this program.
  • Optional supplemental coverage would be possible – just as it exists in Medicare today, and that would add $300 per month to that same family bill.
  • Within 10 years the system would be self-funding

OK, I know what you’re thinking: A government program is less efficient than a private program. But according to the Congressional Budget Office, Medicare per capita expenditures have historically been lower and over the next decade Medicare’s per capita spending is projected to grow at a rate of 2.5 percent each year, compared to private insurance’s 4.8 percent.

Or, maybe you were thinking: this is a huge increase in the current Medicare tax from 3% to 12%. Yes and no. Employers and Employees are already paying significant health insurance premiums. We just don’t call it a tax. Today, for a family of 4, the average employer’s portion of health insurance is $18,000 per year and the employee’s portion is $4,500.

US Medicare has been in place for 50 years, there are 66 million enrollees and because 10,000 people are turning 65 every day, this group will growing by 2-3 million per year until 2040. These people like Medicare, are not moving to any other kind of program and they have the political clout to prevent politicians from messing with their plan. Veterans could easily be transitioned to Medicare thereby eliminating the duplication and delays within the VA. The trick will be to get those people currently on private employer-supported plans to the Medicare-for-All plan. The Insurance Lobby won’t like it and some politicians will suggest that this is an attempt to turn America into Europe by offering socialized medicine. Get over the label – we already have that in Medicare and Social Security. And maybe, on the issue of Healthcare – something which affects every single person in this country – we should consider a model that has proven it delivers better results than the one we currently have in place.

Terrorism in the USA since September 11, 2001

Terrorismthe systematic use or threatened use of violence in order to intimidate a population or government and thereby affect political, religious, or ideological change.

Since the coordinated attack on America by radical Islamist terrorists on September 11, 2001, the country has been vigilant about preventing another such event.   While our counter-terrorism initiatives and forces have undoubtedly foiled other similar attacks, they have not been able to anticipate or curtail all attacks – particularly when they are undertaken by “lone wolves” – people who act independently of and with minimal guidance, training or financial resources from our enemies – and who have been living and working in the USA for many years.

Since 9/11 there have been 23 mass shootings/attacks (where 3 or more people were killed) which have been deemed “terrorist attacks”. Some of these attacks were carried out by radicalized followers of Islam – and are classified as “Islamic terrorism”. Other attacks, while just as horrible, are classified as “domestic terrorism”.


Here’s a list of what are commonly believed to be the Islamic terrorist attacks on US domestic soil since 2011:

Beltway Sniper, DC                          October 2002             10 killed         3 injured

Perpetrators:   John Allen Muhammad, born Baton Rouge, ex-Army (17 years), motive unknown

Fort Hood                                          November 2009         13 killed         44 injured

Perpetrator:     Nidal Malik Hasan, a US Army Major, born in Arlington VA, decorated Army veteran for 21 years,

Boston, Mass                                     April 2014                  6 killed         270 injured

Perpetrator:     Dzhokhar and Tamerlan Tsarnaev, born in Chechnya, US citizens since 2012

Chattanooga, TN                               July 2015                    6 killed            2 injured

Perpetrator:     Muhammad Youssef Abdulazeez, born in Kuwait, US citizen since 2003, killed US military personnel at recruiting station

Orlando, Florida                               June 2015                   49 killed         53 injured           

Perpetrator:     Omar Mateen, born in NY, shot patrons at an Orlando night club

San Bernadino, California               Dec 2015                     16 killed         23 injured

Perpetrator:     Syed Rizwan Farook, born in the United States, killed people at a holiday party.


Here’s what’s interesting about the perpetrators of these crimes:

  • Four of the seven were born and educated in the USA.
  • Six of the seven were US citizens for several years before they became radicalized.
  • For whatever reason, they became disenchanted with America. Our Constitution, system of government, freedom of religion and freedom of speech was not enough to maintain their loyalty to the USA.
  • They appear to have been self-radicalized as there was minimal contact with foreign terrorists.
  • Although we don’t have psychological profiles for all of them, they were probably mentally disturbed (how else could one justify such mass-murder).


What about Domestic Terrorism?

Under current United States law, set forth in the USA PATRIOT Act, acts of domestic terrorism are those which: “(A) involve acts dangerous to human life that are a violation of the criminal laws of the United States or of any State; (B) appear to be intended – (i) to intimidate or coerce a civilian population; (ii) to influence the policy of a government by intimidation or coercion; or (iii) to affect the conduct of a government by mass destruction, assassination, or kidnapping; and (C) occur primarily within the territorial jurisdiction of the United States.

During the same period (post Sept 11, 2001), the following events have been deemed to be acts of “domestic terrorism”.

Capital Hill Massacre, Seattle        March 2006               7 killed         2 injured

Perpetrator:     Kyle Aaron Huff, born in Montana, shot people at a rave after-party


Knoxville Unitarian Church           July 2008                    2 killed         6 injured

Perpetrator:     Jim David Adkisson, born in Tenn, ex-Army, did not like Democrats, Liberals, and homosexuals; shot church goers with shotgun


West Memphis Shooting                  May 2010                   4 killed         2 injured

Perpetrators:   Jerry and Joseph Kane, born in Arkansas, disliked federal government, shot cops


Tucson, AZ                                        Jan 2011                     6 killed         13 injured           

Perpetrator:     Jared Lee Loughner, born in Tucson, US House Rep Gabrielle Giffords and a US Judge were among the victims


Aurora, Colorado                             July 2012                    12 killed         70 injured                       

Perpetrator:     James Eagan Holmes, born in San Diego, shot people in a cinema


Wisconsin Sikh Temple                   Aug 2012                    7 killed         4 injured

Perpetrator:     Wade Page, born in Colorado, ex-Army, white supremacist


Sandy Hook, Conneticut                  December 2012          28 killed        3 injured

Perpetrator:     Adam Lanza, born in New Hampshire, killed children at middle school


Christopher Dorner shootings        (LA)    Feb 2013            5 killed        6 injured

Prepetrator:     Christopher Dorner, born in NY, ex-Navy, ex-LA police officer, shot police because they committed “brutality”


Washington Naval Yard                  September 2013        12 killed        3 injured

Perpetrator:     Aaron Alexis, born in NYC, ex-Navy, shot military personnel


Overland Park, Kansas                    April 2014                  3 killed

Perpetrator:     Frazer Miller Jr, born in North Carolina, white supremacist, killed Jews


Las Vegas, Nevada                            June    2014                5 killed

Perpetrator:     Jared & Amanda Miller, born in Washington State, killed police and shoppers


Charleston, SC                                  June 2015                   9 killed         1 injured

Perpetrator:     Dylann Roof, born in South Carolina, white supremacist, killed blacks who were attending church service


Roseburg, Oregon                             October 2015             10 killed         9 injured

Perpetrator:     Chris Harper-Mercer, born in Los Angeles, ex-Army, killed college kids who were attending class, claimed sexual frustration


New York City                                  November 2015         3 killed

Perpetrator:     Ismaaiyl Abdullah Brinsley, born Brooklyn, NY. Killed police as revenge for police killing of Eric Garner and Michael Brown.


Colorado Springs Planned Parenthood      Nov 2015        3 killed           9 injured

Perpetrator      Robert Dear, born in South Carolina, claimed to be an “extreme evangelist” and a “warrior of unborn babies”, shot police, nurses & patients


Baton Rouge, LU                               July 2016                    4 killed          3 injured           

Perpetrator:     Gavin Eugene Long, born in Kansas City, ex-Marine, shot police officers


Fort Lauderdale, FL                         Jan 2017                     5 killed           36 injured

Perpetrator:     Esteban Santiago-Ruiz, born in Alaska, ex-military, shot people in baggage claim at airport



Here are some interesting observations about the perpetrators of these domestic terrorism crimes:

  • In all case they were American-born citizens.
  • Seven (43%) were ex-military
  • All but 1 were “Christians”.
  • All had some kind of hate / revenge motive
  • Clearly they all had some kind of mental health issues (just like the Islamists)
  • Despite their mental health issues, these people were able to obtain military weapons
  • Since September 2001, the total number of people killed in domestic terrorist attacks (125) is greater than the number (100) killed by the Islamic terrorists.


We have only been confronting “Islamic terrorists” since 2001, but we have been dealing with domestic terrorists since the early 1900’s. The most egregious events were:

  • Wall Street bombing in 1920 when 33 people were killed and 143 were injured
  • Tulsa race riot in 1921 when 300 people were killed and 800 were injured
  • Bath Michigan bombing in 1927 when 45 people were killed and 58 were injured
  • Oklahoma City bombing in 1995 when Timothy McVey used a truck bomb to kill 168 and injure 680
  • Atlanta Olympic park bombing in 1996 when 1 person was killed and 111 were injured

In all of these cases, the perpetrators were American citizens. None were Muslims.


The fear of terror is an emotion that cannot always be rationalized with data, but this analysis shows that some of our fear of foreign terrorists is overblown. I’m not suggesting that Islamist terrorists don’t pose a threat or that we should stop being vigilant. The data however tells us that the greater threat does not come from foreign nations, but from our own citizens.

The new President Donald Trump

Donald Trump was elected President of the United States on November 8, 2016. The day before the election, virtually every poll predicted that he would lose to Hillary Clinton by 3-4%, but Trump’s coalition of white, uneducated, working class men – particularly in the rust belt states of Ohio, Pennsylvania, Michigan and Wisconsin (all formerly Democratic states) gave him the upset victory. Even though Clinton won the popular vote by approximately 2.8 million votes, she lost the state-determined Electoral College vote 306 – 232. Clinton got considerable support from African Americans, Latinos, college educated people and those who lived in major urban centers, but she did not energize these people (or millenniums) to the same degree that Obama did 4 years earlier.

Trump appealed to voters with a nationalist “America First” policy and his “Let’s Make America Great Again” slogan. Because he was always likely to say something bizarre and controversial he received unprecedented free media coverage at the many rallies he held across the country. During these rallies his campaign promises were constantly repeated to the point where the public became intimately familiar with them. In fact, during the final days on the campaign trail, he promised his supporters that “every dream you ever dreamed for your country” will come true if he becomes president. Here’s a partial list of those promises (most which are supposed to be put into effect in the first 100 days).

  1. Build a wall on the southern border and make Mexico pay for the wall.
  2. Create a Deportation Task Force and deport 2-3 million illegal aliens.
  3. Repeal Obama’s executive orders on Immigration (DACA) and backgrounds checks for guns.
  4. Repeal and replace Obamacare
  5. Ban Muslims from entering the USA (later modified to ban immigration from terror-prone countries and implement “extreme vetting”.)
  6. Kill the Transpacific Trade Partnership deal which encourages free trade with Asian countries
  7. Renegotiate the North American Free Trade Agreement – which created free trade with Canada and Mexico.
  8. Revoke the Nuclear deal with Iran.
  9. Revoke the Paris Climate Change Accord which was agreed by 190 countries and stop all funding to the UN which in any way supports Climate Change measures.
  10. Stop US companies from re-locating their plants to Mexico (or other countries) by imposing a tax on their goods when they try to bring them back into the US.
  11. Reduce the top marginal tax rate from 39% to 33%.
  12. Reduce corporate taxes from 35% to 15%.
  13. Impose term limits on members of Congress.


For a complete list of his own “100 Day Contract with the American Voter” – see this link:

Notably, he also promised to:

  • Grow the economy by at least 4% per year
  • Cut the federal budget by 20%
  • Eliminate the $19 trillion public debts within 8 years
  • Create 25 million new jobs
  • Dismantle the Dodd-Frank Act and the Consumer Protection Act
  • Prosecute and imprison Hillary Clinton (something he backed away from within 5 days of the winning the election).

For a complete list of his 282 promises (in his own words), see this link:

I was not a Trump supporter, but he did get elected, so he deserves a chance to make good on his promises. Let’s see how he does.


Syria explained

There has been a lot of news and controversy about Syria in the last 2 years, so here are some facts and some recommendations:

First some history:

From 1516 – 1919, the region we now call Syria was ruled by the Ottoman (Turkish) Empire – which was based in Constantinople (now Istanbul). During this time the territory of Greater Syria included modern Syria, Lebanon, Israel, Jordan, Palestinian Authority, Gaza Strip and parts of Turkey and Iraq.

During WW I, the Ottomans decided to support Germany and when the war ended, they lost most of their territory and the modern Syrian state was established as a French mandate 

The country gained independence as a parliamentary republic on 24 October 1945 when Syria became a founding member of the United Nations

The current Arab Republic of Syria came into being in late 1961 but remained an unstable nation until a coup d’état by the Ba’athist party – which has been in power ever since. This “government” enacted an Emergency Law from 1963 to 2011, effectively suspending most constitutional protections for citizens (eg. It was illegal to form another political party).

Bashar al-Assad, the current president has been president since 2000 and was preceded by his father Hafez al-Assad,  who was in office from 1970 to 2000. Even though there are national, parliamentary elections every four years, the Arab Socialist Ba’ath Party (controlled by Bashar al-Assad) has controlled 85% of all seats and therefore the government since 1973.

Syria is home to diverse ethnic and religious groups, including Syrian Arabs, Greeks, Armenians, Assyrians, Kurds, Circassians, Mandeans and Turks. Religious groups include Sunnis, Christians, Alawites, Druze, Mandeans, Shiites, Salafis, and Yazidis. Sunni Arabs make up the largest population group in Syria, but al-Assad and his government are from the Alawite tribe (a branch of the Shia form of Islam) which represents only 10% of Syria’s population.

So, Bashar al-Assad and his Alawite government are effectively dictators of Syria.


















The current mess

Since March 2011, Syria has been embroiled in an uprising against Assad and the Ba’athist government as part of the Arab Spring – a popular uprising in Middle Eastern countries who began to rebel against their strongmen dictators. 

In Syria, the conflict began when residents took to the streets to protest the torture of students who had put up anti-government graffiti. Protesters demanded reforms, the ouster of President Bashar al-Assad, allowing political parties, equal rights for Kurds, and broad political freedoms, such as freedom of the press, speech and assembly. In reply the Syrian government launched a series of crackdowns. Security forces used tanks and snipers shot and killed protestors, water and electricity were shut off and began confiscating flour and food. As the war continued, Al-Assad used chemical weapons and cluster bombs on civilians in violation of international human rights. 

The war is now being fought among several factions:

  • Assad and his allies (Iran and Russia) want to suppress and control the rebels and continue to rule the country as in the past (with no real democracy).
  • The rebels and their allies (USA and western European countries) want to remove Assad and move the country towards a democratically elected government.
  • The Islamists (ISIS and al-Nusra) want to remove Assad, eliminate democracy as an idea and run the country as an Islamist state.
  • The Syrian Kurds want to split off a section of the country which would give them their own independent state (north-eastern Syria)

As of May 2016 the country is controlled as follows:

  • Al-Assad government held 40% of Syria (66% of the population);
  • ISIL-held territory constituted 20–30%;
  • Rebel groups 20%
  • Kurds 20%.


Since the war began

  • Syria was a country of 20 million people – now the population is approximately 13m
  • 440,000 Syrianians have been killed
  • 14 million Syrians require humanitarian assistance, of which 7 million are internally displaced within Syria, and over 6 million are refugees outside of Syria
  • Many Syrians refugees have escaped to Turkey (1.5m), Lebanon (1m), Jordan (1m) and Western Europe (1m). This is creating a series of economic, cultural and political issues in those countries accepting such unprecedented number of refugees.
  • As of August 2016, Canada has accepted 33,000 Syrian refugees and the USA has accepted 7,500.
  • The world has contributed over $17b towards humanitarian aid for Syrian refugees – led by Turkey (8b), USA (4.5b), European Commission (1.8b), UK (1.5b), Germany (1.2b) and Canada (1b)

Because of the complex nature of the combatants and their goals, there appears to be no obvious end to this war (or even to a cease-fire in order to get food and medical supplies to civilians caught in the cross-fire).


What’s the solution?

Everybody has an opinion on this – so here’s mine:

  1. Russia, the USA, Turkey and Western European countries must create a 50 square mile territory inside Syria where displaced Syrian refugees can be housed, fed and protected until the war ends. This will address the humanitarian crisis that currently exists inside the country and significantly reduce the mass migration of refugees to other countries.
  2. Tribal and religious differences are such that the only way to end the conflict is to partition Syria into sections that align with their cultural norms. Of course this option is already being criticized by idealists who prefer an “all or nothing” plan – and that’s what keeps with war going. Assad is the biggest opponent of this idea because he is unwilling to give up any control of the country – regardless of how long the war lasts or how many Syrians are killed.
  3. ISIS in Syria exists because of the vacuum of power and control. Once the government (Alawites), the rebels (pre-democracy) and Kurds agree on a partition arrangement and stop fighting each other, they must unite to defeat ISIS.


Clinton Foundation donations

Right now, the media is intrigued by the fact that people who made donations to the Clinton Foundation subsequently received access to certain government officials including then Secretary of State Hillary Clinton.   The suggestion is that this is “pay for play”. In other words, they paid to get access and during that access they asked for special favors. Whether they received any special favors has not been proven.   Regardless, the process seems questionable.

However, when Sheldon Adelson, the Koch Brothers, George Soros, Saban Capital, the Auto Workers Union or the Israel Lobby have multiple meetings with political candidates to make their requests before they make a contribution, no one considers this behavior inappropriate. Why?

Furthermore, if any person or group makes a sizable contribution to a politician is it reasonable to expect that once that politician gets elected, the politician will take a call or meeting with that person or group? Of course.

The offense is not taking a meeting or granting people or lobbyists access to government officials. The offense occurs when you can connect the dots between the donation and a government policy that then favors that person or group. And by that standard, every lobby in America that has successfully advocated for their cause should be fined trillions of dollars.

So let’s be consistent in how we apply these standards.

Obama does it again ?

angry bald eagleHere’s the rumor:     First it was the $20 bill, now President Barack Obama is ready to replace the bald eagle, which has been America’s national animal and mascot for 234 years!

But Actually ….

The National Bison Legacy Act, which designated the bison as the national mammal of the United States, was passed by the Republican Congress in April 2016.

While this legislation will give the United States its first national mammal, it will have no effect on the bald eagle’s status as the United States’ national bird, nor as its national symbol.


Oil Prices – what’s going on?

The oil industry went into a panic when prices dropped to a 13-year low of $26.02 per barrel in February 2016 (from $107 in July 2014). But, as the chart below shows, oil prices have been volatile for some time.

oil prices chart

In fact, from 1970 until 2003, oil averaged $25 per barrel. Then in 2004, prices suddenly doubled and then more than doubled again – reaching a record high of $141 in June of 2008.  These increases were due to a series of global events: a significant increase in global oil consumption among developing nations and a reduction in supply due to – Hurricane Katrina in the Gulf of Mexico (2005); reduced production by Iran due to their geo-political issues; and the war in Iraq. Then in late 2008 the global financial crisis severely reduced demand and oil fell dramatically only to recover to $100+ within 12 months.

But, since August 2014 oil prices have been on a steady decline. The reasons are many:

  • Oil consumption (demand) did not increase to anticipated  levels, particularly in China and Europe.
  • North American production increased by 70% from 2008-2015. Hydraulic fracking of shale oil was a major factor.
  • Other forms of energy (wind, solar) were beginning to become main-stream options.
  • Despite lower demand, increased supply and lower prices, OPEC refused to cut back their production – something they had done consistently in the past to manage prices.

So, a lower demand with increased supply meant that prices had to drop until existing inventories were reduced, high-cost oil production operations (shale) shut down thereby no longer adding to the supply and low-cost production countries (OPEC) started considering production cut-backs. In other words, the market would correct itself when cost of production was much higher than the price. By March 2016 that became the reality and many high-cost producers shut down thereby reducing the new supply of oil. As a result prices recovered to $50 by June 2016.

Nobody really knows what oil prices will be in the future but some experts believe that we should prepare for oil to hover around $50 per barrel for the foreseeable future. Here’s why this makes sense:

  • In January 2016, the USA lifted the 40-year ban on exporting US oil thereby increasing the global supply
  • Shale oil production can come back on-stream quickly as inventories are depleted
  • China and Argentina are now developing their own shale oil production capabilities
  • To compete with shale drillers, conventional oil players are improving their field productivity by focusing their resources on more easily recoverable reserves (thereby lowering their production costs).
  • The rise of electric cars, which do not burn gasoline, could negate the historical 1% organic growth rate in oil demand.
  • Even if OPEC countries decide to reduce production to manage prices, the US and other shale-oil producing countries will increase production to fill the gap.

The bottom line is that we now have more global supply options than ever before.

$50 oil puts some producing countries under considerable stress as they grapple with less oil revenue in their national budgets. Venezuela, Nigeria, Iraq, Iran, and Russia could be forced to address substantial budget deficits within the next five years.   Gulf Council producers such as Saudi Arabia, the United Arab Emirates, Kuwait, and Qatar have amassed considerable wealth during the past decade through cash reserves and sovereign wealth funds, but even these countries could come under stress in the next decade because they have committed to significant infrastructure and social spending programs that are heavily dependent on their oil revenues.

But $50 oil also has some major advantages:

  • Consumers are paying a lot less for a gallon of gasoline thereby increasing their overall spending power
  • Industries which are heavily dependent on oil – airlines, trucking and farming – are also benefiting from reduced costs
  • Countries which must import oil (India, European nations) are saving tens of billions annually and can deploy this cash to other deserving projects.

For decades we debated when the world would eventually run out of oil. That is no longer the question. Instead, the issue now become who will control oil’s future and how and when will the world transition away from it. The impact of this disruptive force on the earnings of companies that produce oil, and those that consume it, is likely to be substantial and sustained.


US Federal Government Deficits and the National Debt

Every year our federal government spends more money that it takes in – thereby creating an Annual Deficit.  The cumulative result of all these deficits has created an enormous National Debt.   Everyone is very frustrated by the Deficits and the size of the National Debt, but most people only know some of the facts.  So, here are the data:

The chart below shows the Federal Budget and Deficit for some years 2007-2015 

2015 US Federal Budget

Federal government Income comes from various taxes and duties.

Permanent income taxes were established in 1913 and are the largest source of revenue (45%) for the federal government.   From 1913 – 1981 the top marginal income tax averaged approximately 70%.  That changed in 1982 with the Reagan tax cuts and top marginal rates have averaged 35-39% since that time.

The second largest source of revenue (31%) is taxes collected for Social Security (which started in 1935) and Medicare (which started in 1965).  These are considered “payroll taxes” and are paid equally by the employer and the employee.  The rates for Social Security have risen from 1% in 1935 to 6.2% today and that rate is applied to a maximum income amount of $118,500 (not more if you earn more).  The rates for Medicare have risen from .35% to 1.45% today and until 1993 they were applied to a maximum income amount of $135,000, but today there is no maximum amount – so you could be charged 1.45% on income of $1m or more.  To be clear, the employer and the employee both pay these taxes at the same rates.

The third largest source of revenue (10%) is corporate taxes.   These taxes were first introduced in 1909 and since that time they have varied greatly.  From 1950-1968 the top marginal corporate tax rate was 50%.  From 1970-1987 the top marginal rate was 40%.  Reagan reduced this rate to 34% and in 2016 it is 35%.  However, there are many deductions and loop-holes in the corporate tax system and many large, profitable companies pay an effective tax rate considerably lower than the 35% rate.  (eg.  Despite earning billions in Income,  GE, Boeing, Prudential Qualcomm, Time Warner, CBS and Verizon have paid less than 10% in corporate tax on their income in each of the last 5 years).

Excise Taxes, Custom & Duties combined are the fourth largest source of revenue (5%).  Starting with President Reagan and continuing through President Clinton, America adopted a “free trade” policy to encourage trade among our trading partners (the largest of which are China, Canada, Mexico, Japan and Germany).   This in turn has led to a lowering of duties and tariffs such that only 30% of all imported goods into the USA are subject to tariffs.  Our current level of income from custom duties and duties is at a historic low.

Since 1955, Federal Government Income has averaged 17.5% of GDP.   With the reductions in income, corporate and excise taxes noted above, Federal Income fell to 15% of GDP for the period of 2000-2012.  Today, it is at 18.2% of GDP.


Federal Spending – where does the money go?

On an annual basis, our federal government spends approximately  $3.7 trillion.  The four biggest spends are for:

  1. Social Security (created in 1935), Unemployment and Labor  – $877 billion;
  2. Medicare (created in 1965) and Health  – $921 billion;
  3. Military – $562 billion;
  4. Interest on Debt – $260 billion.  When taken as a percentage of GDP, our interest spend is at an all-time low.  Currently it takes 7% of annual government spending (compared to 15% of spending in the 1990s when interest rates were higher).  If interest rates rise our annual interest payments would likewise rise thereby compounding our problems.

These four areas alone consume 71% of the $3.7 trillion in spending.   Most people agree that these four areas are considered “Mandatory” spending – programs that were established by Congress years ago and are not subject to annual review.  (You could argue that Military spending is “discretionary”, but try lowering the military budget and see how far you get with that.)   That leaves 24% of the budget which is considered “discretionary” – that portion of the budget that is decided by Congress through the annual appropriation process.  These programs include Food Assistance, Housing, Unemployment, International Affairs, Energy, Transportation, Veteran’s Affairs and other Government administration.   In total, these programs cost approximately $1.1 trillion per year.

In 2015, we spent approximately $439 billion more than we had in income, and so we borrow that $439 billion from various sources (more on that below) – and that’s the Annual Deficit.


Deficits are nothing new

Since 1900 our federal government has had a deficit in all but 14 years – that’s 101 years of deficits.  And THAT is what has created our National Debt of $19 trillion.


Modern day Presidents on Deficits and the National Debt:

Despite their campaign promises to balance the budget and reduce the National Debt, our Presidents and Congressional Leaders have accomplished very little on this issue. The Federal Debt has increased under every president in the 21st Century.  (The last time the Federal Debt did not go up was in 1895!).  Here’s the track record of the modern-day presidents:

  • During the 1980’s President Reagan never once proposed a balanced budget for adoption by the Congress and deficit spending soared during his presidency and as a result the Nation Debt almost tripled from $907 billion to $2.6 trillion.
  • During the 1990’s, President Clinton did have a budget surplus in the last 4 of his 8 years in office but the National Debt increased (slowly) from $4 trillion to $5.6 trillion during his administration.
  • During the 2000’s President Bush ran a deficit in every year and increased the National Debt from $5.6 trillion to $10.5 trillion (caused primarily by the recession of 2001, reduced revenue from tax cuts and the wars in the Middle East).
  • During the Obama administration, there was a deficit in every year and the National Debt increased from $10.5 trillion to $19 trillion (caused by the Financial Crisis of 2008-09 and the on-going wars in the Middle East.)

If there is a small amount of good news, it’s that since 2009 our deficits have been falling.  But, they are projected to grow dramatically starting in 2017.

2015 US Deficits

This recent temporary decrease in deficits from was due to:

  • The economic recovery and growth in our GDP after the TARP spending;
  • Increased revenue from economic growth and various additional taxes (from 2.1 trillion in 2009 to $3.4 trillion in 2015); and
  • Winding down of the Middle Eastern wars;
  • Relatively low increases in spending (from $3.3 trillion on 2009 to $3.4 trillion in 2015)


To whom do we owe the National Debt?

  • About 37% of our $19 trillion in debt is owed to foreign governments and investors.  We owe China $1.3 trillion and Japan $1.1 trillion – combined that’s about 13% of the total debt. We owe other international investors another $3.7 trillion.
  • The rest of our debt (about 63%) is owed to private investors, other federal and local government agencies.  (eg about 30% of the total federal debt is owed to the Social Security Trust account – more about that in another post).

The chart below only goes to 2011 and shows a National Debt of $16.4 trillion.   As of February 2016, the National Debt is $19.2 trillion. Note the sudden increase in our Debt from 1980.

2015 US National Debt

Why does this happen?  The reasons are many:

  • Deficits and National Debt are not new to America.  We had a huge National Debt in 1778 because of the monies borrowed to fight the Revolutionary War.  The Debt ballooned right after the Civil War and jumped again after WW I and WW II.  But, from 1950-1980 the Debt grew only at the rate of inflation.   Then as you can see from the chart above – starting in approximately 1980, the Debt grew exponentially.
  • Simply put, our spending has been growing more quickly than our revenue.  The income tax and corporate tax cuts in the 1980’s have largely remained in place and this has restricted revenue growth to a level considerably lower than the growth of spending.
  • Some people do not believe that we should balance the budget.  They believe that the Deficits are actually “investments” in our future and are therefore justified – as long as the cost of paying for interest on the debt if a relatively low percentage of GDP.
  • Politicians are indebted to lobbyists who helped get them elected, and every lobbyist has their pet spending program.  Speaking about spending cuts in general terms is appealing to everyone, but when it comes time to  reduce or eliminate a specific program, the resistance grows.   As a result, very few programs, once initiated, are ever curtailed.


How do we fix this?

In 1798, when the newly formed country had a significant debt following the Revolutionary War,  Thomas Jefferson first suggest that a solution to this problem would be to add a balanced-budget amendment to our Constitution which would require that the government cannot spend more than its income. But that idea did not pass in 1798 and although politicians have regularly proposed it during their election campaigns, no such provision has been adopted by any Congress of either party.   Oddly, such balanced-budget provisions have been added to the constitutions of 49 US States and the countries of Germany, Hong Kong, Spain, Italy and Switzerland – proving that it is possible to balance the budget of a government if there is a determination to make it happen.   (Note: Most balanced-budget provisions make an exception for times of war, national emergency, or recession, or allow the legislature to suspend the rule by a supermajority vote.)

 It’s popular rhetoric for politicians to suggest that they would fix this problem by just eliminating some federal departments entirely.  But the fact is that you can’t eliminate the annual deficit even if you completely eliminate the Environmental Protection Agency ($8 billion) and the Department of Energy ($30 billion), all Food Stamps ($70 billion) and the Department of Education ($60 billion).  Many people believe that these departments deliver some value and therefore would be opposed to shutting them down, but even if you closed them ALL the Annual Deficit would only be reduced by $168 billion.  Which still leaves a deficit of about $271 billion using the 2015 data.  But, the most recent projections are that given our current revenue and spending plans, our deficits will increase dramatically over the next 10 years.

The only way we can ever balance the budget is by having the Congress and the President work together to address the issue by:

  1. spending a lot less on ALL programs – including the so-called Mandatory / Entitlement programs; and
  2. growing the economy so that taxpayers – individuals and corporations – earn more and therefore pay more in income taxes; and
  3. revising and simplifying the tax code – to make it fair and easier to understand and comply with for everyone ; and
  4. raising income by means of additional taxes – such as a federal Value Added  Tax (which most western countries have already adopted).

Of course two of these ideas, while financially sound, are hugely unpopular and no politician would ever be elected by suggesting them.  Even if these ideas  were to be proposed while in office, the same party would have to control the House, the Senate and the Presidency AND they would have to have the courage to overcome the objections of the lobbyists (the people who provide the political campaign financing to these politicians) who all want their programs to be protected.   That’s why, politically, this is hard if not impossible.

The prescription above – like most prescriptions – has a bitter taste.  Everyone knows that this is the cure to our problem, but in our current political climate, it is highly unlikely that we will take the medicine.  Instead, our political leaders will rant about the problem and then, once elected, they will take credit, not for eliminating the deficit or the debt, but for simply slowing down its growth.  That solves nothing.

This story does not have a happy ending.


Why does Pessimism sound so smart (esp when things are so good)

March 24, 2016

By Tom Gardner (CEO and Founder of The Motley Fool) and Morgan Housel

real gdp per person

“For reasons I have never understood, people like to hear that the world is going to hell,” historian Deirdre N. McCloskey told the New York Times this week.

It’s hard to argue.

Despite the record of things getting better for most people most of the time, pessimism isn’t just more common than optimism, it also sounds smarter. The pessimist is intellectually captivating, garnering far more attention than the optimist, who is often viewed as a naive sucker.

It’s always been this way. John Stuart Mill wrote 150 years ago: “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.” Matt Ridley wrote in his book The Rational Optimist:

If you say the world has been getting better you may get away with being called naïve and insensitive. If you say the world is going to go on getting better, you are considered embarrassingly mad. If, on the other hand, you say catastrophe is imminent, you may expect a McArthur genius award or even the Nobel Peace Prize.

In investing, a bull sounds like a reckless cheerleader, while a bear sounds like a sharp mind who has dug past the headlines – despite the record of the S&P 500 rising 18,000-fold over the last century. Yes, 18,000 times over! Wharton Professor Jeremy Siegel is often chided as a perma-stock-bull, blindly cheering for a higher market every time he goes on TV. But he’s done it since the early 1980s, a period in which the market increased in value 40 times over.

And so, we delight in movies like The Big Short and carp about the collapse of Enron. And that’s great. They’re extremely instructive. But we make a mistake by over-emphasizing them. . . rather than obsessing over medical breakthroughs, the enduring success of companies like Starbucks or, the exciting prospects for self-driving cars, et cetera.

This problem goes beyond investing.

Harvard professor Teresa Amabile shows that those publishing negative book reviews are seen as smarter and more competent than those giving positive reviews of the same book. “Only pessimism sounds profound. Optimism sounds superficial,” she wrote.


There’s clearly more at stake with pessimism. Daniel Kahneman won the Nobel Prize for showing that people respond more strongly to loss than gain. It’s an evolutionary shield: “Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce,” Kahneman once wrote.

Here are two other reasons that pessimism gets so much attention.

  1. Optimism appears oblivious to risks, so by default pessimism looks more intelligent. But that’s a wrong way to view optimists. Most optimists will tell you things will get ugly, that we will have recessions, bear markets, wars, panics, and pandemics. But they remain optimistic because they know that, like the universe, healthy markets grow. To the pessimist a bad event is the end of the story. To the optimist it’s a slow chapter in an otherwise excellent book.
  2. Pessimism requires action, whereas optimism means staying the course. Pessimism is “SELL, GET OUT, RUN,” which grabs your attention because it’s an action you need to take right now. Optimism is mostly, “Don’t worry, stay the course, we’ll be alright,” which is easy to ignore since it doesn’t require doing anything. Remember, it is enduring optimism that has earned a return of 18,000X over the last century. The opposite approach has failed, terribly.

Should you ever listen to pessimists? Of course. They’re the best indication of what’s unsustainable, and thus the catalyst for what must change. They lay down the breadcrumbs on pathways for entrepreneurs to run their innovative minds (think, Elon Musk and Tesla).

For long-term investors, though, an optimistic view that humanity will profitably solve the world’s greatest problems is the right frame of mind

Our Irrational Fear of Terrorism

fear of terrorismTerrorism: noun

  1. the use of violence and intimidation in the pursuit of political aims.

Based on the amount of time politicians and the media spend talking about terrorism, you would think that this is the top threat facing America’s existence.  And all of this talk is having an impact:  in a recent Gallup poll, 51 percent of respondents said they’re personally worried about becoming a victim.   In the last year, I  have met people who are afraid to fly or even leave their communities because they believe they will be harmed in some way by a terrorist.

Fear is an emotion and somewhat irrational.  Psychologists tell us that our fears are exaggerated when we don’t know the probability of an outcome.  So in an effort to calm everyone down, let me at least give this a try with some facts and statistics:

Since 2002,  approximately 200 people have been killed by terrorists on US soil – an average of 14 per year.    That’s 14 people out of 320 million – or 0.0000044% of the population per year.

Let’s compare that to the likelihood of dying in the USA from other causes:

  • 30 people per year die from lightning strikes – so you are 2x more likely to be killed by lightning than to be killed by a terrorist.
  • 150 people per year are killed by deer (usually from a deer hitting your car) – so you are 11x more likely to be killed by a deer than to be killed by a terrorist
  • 400 people per year die of drowning in their bathtub – so you are 28x more likely to die in your own tub than to be killed by a terrorist
  • 1,000 people per year die in train accidents – so you are 71x more likely to be killed by a train than to be killed by a terrorist
  • 10,000 people per year die by being shot to death – so you are 714x more likely to be shot to death by someone in your neighborhood than to be killed by a terrorist
  • 30,000 people per year die in car accidents – so you are 2,143x more likely to die while driving than to be killed by a terrorist
  • 35,000 people per year commit suicide – so you are 2,500x more likely to kill yourself than you are to be killed by a terrorist
  • 80,000 people per year die from drinking too much alcohol – so you are 5,714x more likely to drink yourself to death than you are to be killed by a terrorist
  • 90,000 people per year die of Alzheimer’s, 145,000 people per year die of respiratory disease,  and 600,000 people per year die of heart disease – so you are 6,428x; 10,357x and 42,857x more likely to die from those causes than from terrorist attacks.

AND, in case you are worried about being killed by a terrorist while you are not in the USA, it turns out that the leading cause of deaths for Americans traveling abroad is not terrorism, or murder … or even crime of any type.  It’s car crashes.  The U.S. Department of State reports that  47 U.S. citizens were killed worldwide as a result of terrorism in 2011. That figure includes deaths in Afghanistan, Iraq and all other theaters of war.

Regardless of these facts, we apparently are more concerned about being killed by terrorists than all of those other causes of death put together.   But  apparently we find that taking a bath, riding a train, owning a gun, driving a car or drinking alcohol is a convenience we value more than the 112,400 people who die from these activities.  Last time I checked, there was no nation-wide war on taking a bath because 400 people per year die while doing it.

Look, I’m not saying that terrorism isn’t a threat.  It is. But we are over-reacting to the degree to which the terrorists threaten our lives or existence as a country.  This fear is being perpetuated by the media and by politicians who are exaggerating the impact of every terrorist event in the world for their own self-interest (politicians because they want to replace the current government and media who love the ratings).  The fact is that actual terrorist activity in America, while real,  is relatively minor compared to the other things that threaten our lives and our society.   We don’t panic when there’s a multi-car or train accident, a mass murder by street gangs, or bikers or drug dealers or even when we read that death by Alzheimer’s will become even more deadly that it already is.  So why panic now?  Even if terrorist activity doubles next year, you are still more likely to be killed by lightning.

So let’s put this into perspective:  Terrorist activity is a threat and it is a crime and we should take it seriously.  We must continue to fight this crime with the same approach we used when  new medical diseases – like Polio, Malaria, AIDs, or Ebola – threatened our society.  In each of these instances, a calm and rational approach was successful in overcoming the threat. It took some time but ultimately we won the battle.   We did not win by creating irrational fear in the hearts and minds of our citizens.  The same is true with terrorism.  Let’s keep it in perspective.