Thoughts On Obamacare

I saw a clip of Obama yesterday telling an audience that the reason the Republicans are so hell bent on killing Obamacare is that they are afraid that if they let it through…people will actually like it…..making it impossible to do away with. He’s right you know….just look at Social Security, Medicare, Medicaid, Food Stamps….and dozens of other large federal programs…..How will we ever kill a program that gives free stuff to large voting blocks? We won’t….this, it seems is the Achilles heel of democracy….and will likely be the key to our downfall.

So let’s just admit it… Obamacare is just another government mechanism to give free stuff to a large voting block….probably Obamas voting block. I oppose Obamacare because it’s just another Welfare Program. Republicans, I suspect, oppose it primarily because it is Obama’s welfare program. So Republicans are on the right side of this, but they don’t exactly have the moral high ground.

I don’t know the actual cost…I’ve seen anywhere from $0 to $150B per year. It’s not huge, in a $3.8T budget, but it’s big enough. For about 4 years now, federal outlays have more or less stabilized at around 3.8T. For how long?….probably not much longer, but it’s still a tiny bit encouraging. On the Revenue side, since bottoming out at 2.3T in 2009, annual revenues have risen 30% to $3.0T, including a 12% increase in FY 2013 that just ended.

Four years ago, we were sitting on a 1.8T deficit….it pretty much looked like the end. If you were an optimist….and sat down and penciled out a best case scenario….reality has pretty much followed that script for 4 years now with flat cost and growing revenue. Don’t get me wrong, we aren’t saved….we still have an $800B annual deficit, which is enormous, but an optimist might say hey…if I can keep this streak for another 5 years, who knows, maybe I will actually balance the budget after all(now what to do with this $20T+ debt??).

And then comes Obamacare. After so much progress restraining cost(well…relative progress)…. why come in and create a new entitlement program? Instead of creating feel good programs like this, why not just skip the show, and just write checks to people. Why not give every citizen $50k per year? Or better yet, why not just give everyone a check for $10M and be done with it. Problem solved right? Well…no. You see, if I got a check for $10M tomorrow, I’d quit my job the next day…and so would everyone else, leaving me with the little problem of having $10M in my bank account….but nothing to buy, not even food. That would end quite poorly wouldn’t it?

The bottom line is….despite all of their noble (I assume) intentions, there are problems that government simply can not fix, and their attempts to do so will only make things worse overall. And that’s the problem with Obamacare….sure there are some people who will be better off, but the losses overall will far outweigh the benefits. All government programs are like this…from social security to the Park Service. Taking money from one group and giving it to another will always incur net losses, especially when there is an army of incompetent bureaucrats in the middle.

Honestly, even without Obamacare, the odds of this four year streak continuing were pretty slim. My current forecast is that we are pretty close to a bottom at $700-800B per year deficits for 2014 and 2015 before heading back up as entitlement programs drive outlays to outpace revenue gains. Throw in a recession anywhere in the next 5 years and the numbers get a lot uglier fast…and that’s without any Obamacare costs. I’ll add them to the model once I find a reliable source….(probably actuals sometime next year)

October 2013 Deficit Preview

While I suppose it’s all relative, October is kind of a dull month in regards to the deficit. It’s not a quarter, so no revenue surges to predict or Fannie/Freddie payday loans to analyze. We do have the backdrop of the government shutdown and the impending debt limit, but the shutdown probably won’t have a material affect on outlays…maybe a few Billion? The Debt Limit could get interesting, but I have to think it will be resolved by month end, and any federal worker back pay will have been paid in full.

I could be wrong about all of this, in which case so will be my forecast, but honestly, it’s going to be wrong anyway, so why add additional uncertainty? So, I’ll stick with the same ol’ playbook, guessing we see ~10% YOY revenue gains and moderate reductions in cost. For the record, let’s just say $225B of net cash revenues and $316B of outlays, good for a $91B deficit…which would be a material improvement over last year’s $123B October deficit.

Cash in hand as of 9/30 was $88B, so we would normally think there was enough cash on hand to get us to the end of the month, but I recall reading a CBO publication mentioning some intercompany cash true ups that happen in October that may increase intercompany debt by about $80B…which would require a paydown of $80B of external debt to stay under the limit. That would probably be offset by some additional “Extraordinary Measures”…according to the same publication, there were about $90B or so left in that tank. So…You have to believe that there is a good chance we make it to the end of the month, but getting past the heavy outflows of early November might be a challenge. Of course…a higher deficit over the month would pull forward the “default date”, while a lower deficit would push it out a few days. In the long run, it really doesn’t matter. I haven’t put out a FY 2014 forecast yet, but it will probably be in the $700-800B range regardless of whether we run out of cash on 10/17  or 11/3.


US Daily Cash Deficit September 2013

The US Daily Cash Surplus for 9/30/2013 was $24.2B pushing up the monthly surplus to $59B for the month just barely topping last year’s $58B surplus. For the day, revenues came in big at $41B on strong tax deposits and about $15B from Fannie/Freddie. The last day revenue surge picked up revenues sitting at +$2B (0.7%) YOY on 9/27 to +$43B, good for an impressive 14% YOY gain. Part of that was the extra business day, but hey, we’ll take it!!.

09-30-2013 USDD

At first glance, September was a solid month with impressive revenue gains, offset by cost increases that were primarily related to timing and an extra business day.

More to come over the next few days…just wanted to get this out.