China"s Raging Against Dying Of The Light (Or Why Peak Employment Is Imminent)

Authored by Chris Hamilton via Econimica blog,

China"s working age population is clearly defined as those aged 16 to 50 years old for females (55 for "white collar" females) and 16 to 60 years old for males.  China mandates retirement at these outer age limits.  Perhaps of some interest should be that this working age population peaked in 2011 and has been declining since.  This decline will continue indefinitely as China has a collapsing childbearing population (detailed HERE), net emigration (outflow), and a still decidedly negative birthrate.

There is no evidence to believe the working age declines will abate any decade soon.  As the chart below shows, China"s potential workforce will be shrinking indefinitely... and by 2030 China"s potential workforce will be over 100 million fewer than the 2011 peak (an 11% decline)...and only further down from there.

China has one of the youngest average retirement ages in the developed world.  On average, according to a recent study (HERE), Chinese leave the work force by age 55 compared to age 63 in the US (Norway has the latest average departure at age 67).  So, perhaps China will be raising the retirement age to curb the ballooning 60+yr/old population entering retirement (chart below)?  More on that later.

Comparing the working age population versus the 60+yr/old population (chart below).  A shrinking potential workforce since peaking in 2011 and a rapidly growing elderly population.

Below, that elderly growth versus the working age depopulation as a % of all adults (chart below)...think hockey stick.  After nearly six decades of maintaining a consistent 60+yr/old % of the adult population...the elderly explosion is just beginning.

If we take the now declining total potential working age population vs. China"s still rising total number of employed individuals (according to Statista)...the chart below shows that if China adds just a mere million employees a year (about a third of the annual average employment growth seen from "06 through "16)...that by 2030 China"s employment will exceed 100% of the potential workforce.  Wait...what?!?  Or perhaps working from the premise that people who don"t exist can"t be employed...it"s time to start considering China"s employed population is set to begin falling.

This idea that there are "millions upon millions of Chinese just waiting to be incorporated into the workforce"...not so much.  While a continuing shift from rural to urban is likely, China has already or will soon experience peak employment. Simply put, there will be fewer consumers of everything (homes, cars, appliances, etc.) every year than the year before. 

Whatever overcapacity exists now will be joined by massive increases in excess housing, excess production, excess shopping malls as this depopulation plays out over the coming years and decades.

Five big points here:

1) China ends one child policy, with little to no impact...

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  Although China implemented its one child policy in 1979 and officially phased it out in 2015, China"s birthrate was actually consistently higher than most of the other major economies in East Asia (Japan, S. Korea, Taiwan, Singapore...chart below) and only N. Korea"s fertility rate is currently higher.

  
  

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  None of these other East Asia nations ever implemented birth restrictions.  Instead, their populaces chose not to replace themselves responding to the availability of birth control, surging costs of child rearing, and inclusion of females into the workforce, etc.  Simply put, the one child policy was inevitable and has now organically gone global.  The phase out of this policy will have little to no impact of China"s fertility rates.

  
  

2) China to raise retirement age, but no time soon...

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  In early 2015, China suggested it would detail in 2017 (which I still have not seen) a gradual, multiyear process to raise the retirement age (China"s version of political suicide).  Suggestions focused on slowly, incrementally, raising female retirement ages to match males and likewise, pushing retirements out by a month or two per year.  However, none of this was even suggested to start within the next five years and like most things, almost surely be back-end loaded so any real impacts are overstated.  Regardless Communist or "Capitalist" politicians, the game is the same.  A little "razzle-dazzle" that ensures any negative policy impacts never occurs on your watch.

  
  

3) China to institute Universal Pension Plan...

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  In late 2015, China said "We will achieve a basic pension for all employees nationally".  Currently, about 800 million of China"s 1.3 billion are eligible for state pensions.  According to Sinosphere, pensions for non-state employees vary widely, as high as 3000 RMB ($480) month in Beijing to as little as 80 RMB for rural farmers.  Civil Servants pensions are generally higher than those of non-state employees.  The party statement said, China would be;

  
  
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    “Building a fairer and more sustainable social welfare system.

    
    
    
    

    Implementing plans for every person to take part in social insurance.

    
    
    
    
    
    

    Diverting capital from state-owned enterprises to social security funds.

    
    
    
    
    
    

    
    

    Offering all urban and rural residents insurance for serious illness.”

    
    

    
    
    
    
  
  

4) Chinese wages & average per capita disposable income rising but gains are hugely variable...

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  While Chinese factory wages in tier 1 urban areas are now inline with Portugal or S. Africa, this terrific rise has created it"s own problems.  The rise in wages has been met with inflationary spikes in rents, fuel, food, etc. etc.  Average disposable income has risen in the urban areas but flat at best across rural China.  However, the response of employers to the spectacular rising wages has been automation, a shift away from labor intensive production, and outsourcing to lower cost countries.  This is at odds with the generally low skill/low education rural population looking for opportunity in the urban areas.  The breadth and size of further gains in disposable income is likely to be limited.  Economically, a declining total number of workers making marginally more money will not provide the desired growth.

  
  

5) China cannot export its way out of this...

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  The annual change to the 0-64yr/old combined populations of the 35 OECD nations (US, Canada, Europe, Japan, S. Korea, Australia/NZ) plus China, Brazil, and Russia begin declining in 2018 (chart below).  The core populations of the nations responsible for consuming 80%+ of all Chinese exports have peaked and begin shrinking.  Fewer consumers every year than the year before, indefinitely.  As for the nations that are doing all the growing, India and Africa, they consume about 4% of all Chinese exports.  BTW, the chart below shows when each nation/region 0-64yr/old population began declining.

  
  

Simply put, China is offering to increase and broaden it"s pension system to a ballooning population of elderly but will have a decreasing potential number of employees from which to pay for that increase?!? 

How will China achieve this?  Well, as the chart below shows, as Chinese core population growth has been decelerating, Chinese debt growth has been accelerating. 

While China"s GDP and energy consumption have led the world, they have not responded in kind to China"s debt explosion and exponentially more will be necessary to continue to show "growth".  Over a third and perhaps half of all the debt has been mal-invested in a housing bubble for a population that is never coming. 

What comes next isn"t going to be good for China nor the rest of the world as China looks to flood a depopulating nation with new debt only creating more housing overcapacity... China will look to beat the Japanese at the debt game.

For instance, the Chinese public-pension system as of 2014, took in 2.33 trillion yuan in revenue and paid out almost 2 trillion...with 3 trillion in net funds.  The net outflows and drawdown of those net funds is imminent.

But not to worry, the Communist Party explained that..."We will look at some opportunities with higher yields but will contain risk".  Again, no details were offered.  However, one asset it is clear the Chinese will not be buying...US Treasury"s (chart below, showing the net purchases since the debt ceiling debate of July 2011 according to TIC).  Since that date, China has been a net seller of US Treasury debt despite running record US dollar surplus" (BLICS = Belgium, Luxembourg, Ireland, Cayman Island, Switzerland).

From 2000 "til July 2011, China recycled 50% of its dollar trade surplus into US Treasury debt accumulating over $1.3 trillion.  Since July 2011, China has net sold over $100 billion and as of October, held about $1.2 trillion (chart below).

But I"m pretty sure those dollars aren"t sitting fallow and are finding their way into some asset, probably one in particular that is selling on the cheap about right now.

 

Almost A Third Of Americans Are Working Beyond Age 65

There is a huge disparity in employment rates among over 65s across different countries...

You will find more statistics at Statista

As Statista"s Niall McCarthy notes, a recent OECD report found that the highest rates of people working beyond 65 are in Asia with Indonesia particularly notable as having a 50.6 percent employment among those in the 65-69 age group. That figure is high elsewhere in Asia, standing at 45 percent in South Korea and 42.8 percent in Japan.

In contrast to Europe where there were widespread protests when the retirement age was raised even slightly, much of Asia has actually been supportive of increases in the mandatory retirement age. Reasons for support include everything from a desire to maintaing a fit and active life to more obvious concerns about finances.

New Zealand has no compulsory retirement age and it is another country with a high employment rate among older people with 42.6 percent of those aged 65 to 69 still working. The rate is far less in Australia at 25.9 percent while it"s 31 percent in the United States.

In Europe where all those protests happened, the rate is lower still. In the United Kingdom, the employment rate for 65-69 year olds stands at 21 percent while in France and Spain, it is only 6.3 and 5.3 percent respectively.

China's Oil Demand Is Far Ahead Of Last Year's Pace

Authored by Robert Rapier via OilPrice.com,

OPEC recently released its Monthly Oil Market Report which covers the global oil supply and demand picture through July.

OPEC crude oil production decreased by 79,000 BPD in August to average 32.8 million BPD. This marks the first OPEC production decline since April and was primarily driven by sizable outages in Libya.

The cartel revised global oil demand growth for 2017 upward by 50,000 barrels per day (BPD) to 1.42 million BPD. The group reports strong growth from the OECD Americas, Europe, and China.

Global oil demand for 2018 is expected to grow by 1.35 million BPD, an upward revision of 70,000 BPD from the previous report. Growth next year is expected to be driven by OECD Europe and China.

China’s oil demand rose by 690,000 BPD in July, marking a 6 percent year-over-year (YOY) increase. China’s total oil demand reached 11.67 million BPD in July. Year-to-date data indicates an average growth of 550,000 BPD, more than double the 210,000 BPD growth recorded during the same period in 2016.

China’s gasoline demand was higher by around 0.10 million BPD YOY, driven by robust sports utility vehicle (SUV) sales, which were around 17 percent higher than one year ago.

China’s overall vehicle sales in July rose by 4 percent YOY, with total sales reaching 1.7 million units.

The numbers from China are interesting given the constant refrain of weakening Chinese demand. This seems to be wishful thinking based on China’s investments in clean technology.

China is the world’s top market for electric vehicles, and they recently announced that they have started “relevant research” and are working on a timetable for implementation of a ban on vehicles powered by fossil fuels.

That news followed previous announcements by France and the U.K. that they would ban the sale of vehicles powered by fossil fuels by 2040. These countries are making bets that electric vehicles (EVs) will be ready for near universal adoption when these bans go into effect. By making these bets, they are trying to create a self-fulfilling prophecy.

China may indeed join the ranks of countries banning fossil fuel vehicles. This news helps drive the narrative that the age of oil is nearing its end, but China is a long way from reining in its oil consumption growth.

EVs may lag lofty expectations, in which case governments may have to revisit or delay these announced bans. And even if bans and mandates end up having the desired effect, it’s going to take time.

That’s certainly not a knock on EVs. This is not a zero-sum game because the number of drivers is growing. It is possible — and I would argue that it is highly likely — that we will see both explosive growth in EVs for the next decade, and growing oil demand.

Visualizing America's Disappearing Workforce

In his September 2017 paper entitled "Where Have All the Workers Gone? An Inquiry into the Decline of the U.S. Labor Force Participation Rate", Alan B. Krueger of Princeton University explores the dramatic fall in labor force participation in the U.S. from 1997 to 2017.

As Statista"s Martin Armstrong shows in the infographic below, over the last twenty years, the rate has fallen the most for the under 20"s, with the share of 16 to 17 year olds in work dropping by 18.4 and 16.2 percentage points for men and women, respectively.

You will find more statistics at Statista

As Krueger reports, last year, Italy was the only OECD country which had a lower participation rate of prime age men than the United States. One of the reasons posited by the research is the opioid crisis currently ravaging the country. Labor force participation rates have fallen more in areas where more opioid pain medication is prescribed. According to the Centers for Disease Control and Prevention, the amount of opioids prescribed in 2015 was three times higher than it was in 1999.

As noted in the paper, while the direction of causality is not clear, a 2017 report by David Mericle entitled "The Opioid Epidemic and the U.S. Economy" states that “the opioid epidemic is intertwined with the story of declining prime-age participation, especially for men, and this reinforces our doubts about a rebound in the participation rate.”

But as we pointed out previously, after spending months, or maybe even years, running very complicated regressions that your simple mind could never possibly understand, Krueger would like for you to believe that it"s the growing opioid epidemic that is forcing men to sit on their couches all day rather than look for work.  Here"s a summary of his findings from the Brookings Institute:

The increase in opioid prescriptions from 1999 to 2015 could account for about 20 percent of the observed decline in men’s labor force participation (LFP) during that same period.

In “Where have all the workers gone? An inquiry into the decline of the U.S. labor force participation rate” (PDF), Princeton University’s Alan Krueger examines the labor force implications of the opioid epidemic on a local and national level.

Among other findings, the research suggests that:

• Regional variation in opioid prescription rates across the U.S. is due in large part to differences in medical practices, rather than varying health conditions. Pain medication is more widely used in counties where health care professionals prescribe greater quantities of opioid medication, with a 10 percent increase in opioid prescriptions per capita is associated with a 2 percent increase in the share of individuals who report taking a pain medication on any given day. When accounting for individuals’ disability status, self-reported health, and demographic characteristics, the effect is cut roughly in half, but remains statistically significant.

• Over the last 15 years, LFP fell more in counties where more opioids were prescribed. Krueger reaches this conclusion by linking 2015 county-level opioid prescription rates to individual level labor force data in 1999-2001 and 2014-16. For more on the relationship between prescription rates and labor force participation rate on the county-level.

Krueger also provided this very helpful map proving that opioid abuse is highly correlated to unemployment.  Of course, it couldn"t possibly be the case that opioid abuse is the result of high unemployment and the associated depression that goes along with it...no, the opioid abuse definitely came first.

So, what is Krueger"s solution to help reverse the seemingly perpetual decline in labor force participation rates?  If you guessed "Obamacare" then you"re absolutely right...and unfortunately, no, that is not a joke...here is the excerpt from page 38 of Krueger"s paper:

Third, addressing the decades-long slide in labor force participation by prime age men should be a national priority. This group expresses low levels of SWB and reports finding relatively little meaning in their daily activities. Because nearly half of this group reported being in poor health, it may be possible for expanded health insurance coverage and preventative care under the Affordable Care Act to positively affect the health of prime age men going forward.

And while we would never presume to be smart enough to question the very thorough, impartial research of a Princeton economist, we do wonder whether it"s in any way relevant that labor force participation rates seemingly started to decline in 1965...

...at exactly the same time that welfare spending started to surge?

It"s probably just a coincidence.

Former BIS Chief Economist Warns "More Dangers Now Than In 2007"

Having warned in the past that "the system is dangerously unacnhored," former chief economist of the Bank for International Settlements, William White, told Bloomberg TV overnight that the current situation "looks very similar to 2008," adding that OECD sees "more dangers" today than in 2007.

The chairman of Economic and Development Review Committee at OECD, warned that prices are very high - in particular for high yield assets, VIX is very low, house prices are rising strongly, equity markets rising, and all these are a source of concern.

Additionally, White noted:

• India’s debt problems go back a long way, and there are significant governance issues, including at state-owned banks.


• China’s debt situation isn’t a lot different to India’s, but the acceleration of loans and credit growth in China is very fast


• It’s not just the debt level in China that is worrisome, but the speed that it’s accumulating; maybe some of these loans won’t be repaid or serviced.


• We don’t have a liquidity problem that central banks can solve - if we have too much debt, we have a debt resolution or insolvency problem and only governments can address problems like that.


• World needs more fiscal expansion, structural reforms, and also have to look closely at debt write-off some of it and maybe recapitalize financial institutions.


• We have got the mix of income that goes to capital versus labor wrong in many countries, and we need to look at that.


• Central bank tightening is inevitable, but have to be careful.

As White concluded previously,

"it is every man for himself. And we do not know what the long-term consequences of this will be,"

and it appears to be getting worse.

Winning: U.S. Crushes All Other Countries In Latest Obesity Study

When President Trump promised last fall that under a Trump administration America would "would win so much you"ll get tired of winning," we suspect this is not what he had in mind.  According to the latest international obesity study from the Organization For Economic Co-operation and Development (OECD), America is by far the fattest nation in the world with just over 38% of the adult population considered "obese."

Here are some stats from the OECD"s latest study courtesy of the Washington Examiner:

-  In 2015, an estimated 603.7 million adults and 107.7 million children worldwide were obese. That represents about 12 percent of all adults and 5 percent of all children.

-  The prevalence of obesity doubled in 73 countries between 1980 and 2015 and continuously increased in most of the other countries.

-  China and India had the highest number of obese children. China and the U.S. had the highest number of obese adults.

-  Excess body weight accounted for about 4 million deaths — or 7.1 percent of all deaths — in 2015.

-  Almost 70 percent of deaths related to a high BMI were due to cardiovascular disease.

-  The study finds evidence that having a high BMI causes leukemia and several types of cancer, including cancers of the esophagus, liver, breast, uterus, ovary, kidney and thyroid.

-  In rich and poor countries, obesity rates increased, indicating "the problem is not simply a function of income or wealth. Changes in the food environment and food systems are probably major drivers. Increased availability, accessibility, and affordability of energy-dense foods, along with intense marketing of such foods, could explain excess energy intake and weight gain among different populations. The reduced opportunities for physical activity that have followed urbanization and other changes in the built environment have also been considered as potential drivers; however, these changes generally preceded the global increase in obesity and are less likely to be major contributors."

Of course, obesity in the "fast food nation" is hardly a new epidemic though the rate of change is fairly staggering.

Meanwhile, Michelle Obama"s crusade against childhood obesity didn"t seem to work all that well...

But that "Turn-ip for what?" video was so clever...shocking it was ineffective.

Finally, for all of you who will undoubtedly sign up for a brand new gym membership as part of your New Years resolution to shed the extra pounds in 2018...you might as well just give up now because the OECD predicts we"re all just going to get much fatter over the next 15 years.

OECD projections show a steady increase in obesity rates until at least 2030 (Figure 5). Obesity levels are expected to be particularly high in the United States, Mexico and England, where 47%, 39% and 35% of the population respectively are projected to be obese in 2030. On the contrary, the increase is expected to be weaker in Italy and Korea, with obesity rates projected to be 13% and 9% in 2030, respectively. The level of obesity in France is projected to nearly match that of Spain, at 21% in 2030. Obesity rates are projected to increase at a faster pace in Korea and Switzerland where rates have been historically low.

Can Britain Afford To Be A Hard Power?

Authored by Matthew Jamison via The Strategic Culture Foundation,

Recently the UK Royal Navy and Ministry of Defence unveiled their brand new aircraft carrier HMS Queen Elizabeth at a cost of 3 Billion Pounds. This at a time when UK national finances are under heavy pressure and the country has been experiencing seven years of severe austerity.

It has recently come to light that in true Ministry of Defence fashion (poor project management & wasteful spending, duplication, poor planning, lack of oversight and accountability) the true costs are set to rocket even further for more aircraft needed to be able to land properly on HMS QE. How very British. The decision to go ahead with a brand new and very expensive aircraft carrier for the UK at a time of acute social and economic headwinds has been hailed by some as an exciting new weapon in Britain"s hard power arsenal that will allow Britain to «punch above her weight» in world affairs and global power projection rankings in Jane"s Weekly.

Some however question if Britain can really afford such an expensive project such as a new aircraft carrier when the Prime Minister Theresa May repeatedly said during the recent General Election that there was no magic money tree for nurses, police, firefighters, doctors, in essence all public sector workers – yet there is 1 Billion Pounds for the DUP and 3 Billion Pounds for a new aircraft carrier that perhaps given the cost and the reality of Britain"s position in the world could have been done without. The cost goes to the heart of the politics of reality and a realism that is sorely lacking in British foreign & defence policy. Can the country really afford such an object when 3 Billion Pounds could have been a major boost to a National Health Service under severe strain? Or imagine what 3 Billion Pounds could do to improve social housing? Or 3 Billion Pounds invested in a National Bank dedicated to helping the carers of those suffering from Alzheimer"s and/or Dementia?

The decision to go ahead with the HMS Queen Elizabeth exemplifies everything that is currently wrong and indeed utterly divorced from reality with the current Government. It goes to the heart over the debates surrounding what kind of country Britain really is, wants to be and should be. Is Britain in reality a strong, successful, competent hard military power with an indispensable, irreplaceable military role to play in world affairs as former Prime Minister Tony Blair would have the country believe with his vision of British foreign policy? Or is it a country with some sections of its public and establishment divorced from reality, still living in a bygone imperial era clinging tenaciously to a shameful period of time in British history and politico-cultural-militarist narratives that are just simply false?

Is it in reality a country with tremendous assets mainly within the soft power field of the arts and humanities such as language, culture, entertainment, acting, drama, academia, museums, libraries, sport, music as well as cutting edges in science, technology and engineering. However beyond that sphere of soft power the British have quite a mixed and mediocre record. The British economy is the most unproductive in the G7, one of the most unproductive economies in the OECD. British efficiency and rigour are substandard as is the work ethic to a great degree. Very little proper thought, planning and analysis goes into project management in Britain. The quality of good management and leadership in Britain is sorely lacking whether it be in the political, governmental, economic, or indeed military sphere. Nothing ever really works properly or functions correctly in Britain from its transport infrastructure, customer services, public services etc.

Which brings us back to the decision to build this aircraft carrier at such a huge cost in the first place. What is Britain trying to prove? Why must its Ministry of Defence spend billions upon billions of taxpayers money creating weapons of mass destruction, «boys toys», when there are so many internal problems in the country crying out for social and economic redress. Further more Britain has become a disruptive force in world affairs. It has steadily taken on the role of disruptor in what was seen as the traditional Western Alliance of North America and Europe. At this time of acute international challenges and turbulence in world affairs it is Britain which has become a major contributor to such turbulence and has added to the complexity of the problems facing the international community, not lessened those problems. With this new found role Britain must be treated accordingly. The British have sadly played up to all the worst stereotypes regarding Britain during this period and have demonstrated on a massive scale how unreliable, undependable and two faced they can be. All the brand new, multi-billion pound shiny aircraft carriers (that don"t even properly work once set out to sea) in the world will not be able to gloss over that fundamental truth of regarding the collective, national character.

Perhaps it is time for future British Governments to disabuse themselves of the vanity and pretentiousness that previous British Governments both Labour and Tory have exhibited regarding Britain"s military power. Perhaps it is time to face facts and come to terms with reality. Britain can have a significant role to play within the soft power sphere. But as a hard power, taking part in massive American led military interventions whether it be in Iraq, Afghanistan, Libya and allowing an incompetent and poorly governed Ministry of Defence to continually waste so much taxpayers money as if they had a guaranteed government/taxpayer «Magic Money Tree» must be brought to an end. Furthermore at this time of extreme economic and social challenges that Britain is facing it would be a very wise course of action indeed if Britain were to focus a lot more of its time, resources and energy on putting its own house in order rather than spending vast amounts of money on maintaining a non-essential, non-vital role as a very junior, supporting member of the American Western Alliance.

Greatest Fools? The Countries That Trust Their Government Most (And Least)

Trust in government serves as a vital driving force for a country"s economic development, increases the effectiveness of governmental decisions, as well as leading to greater compliance with regulations and the tax system. As Statista"s Niall McCarthy notes, the level of confidence in a country"s government is generally determined by whether people think their government is reliable, if it can protect its citizens from risk and whether or not it is capable of effectively delivering public services.

The latest edition of the OECD"s Government at a Glance report has found that confidence in government varies widely between countries.

You will find more statistics at Statista

Unsurprisingly, Greece has the lowest level of confidence in its government, unsurprising given the economic pain it has suffered since the onset of the financial crisis. In recent years, Greece has had to deal with multiple elections, bank shutdowns, defaulting, the introduction of capital controls and being on the frontline of the European migration crisis. That has all led to 13 percent of the Greek public having confidence in their government. South Korea also has a low level of confidence at 24 percent, most likely due to President Park Geun-hye"s impeachment scandal.

In the United States, the White House is struggling to shake off allegations of Russian collusion and only 30 percent of the public have confidence in the government. The United Kingdom is also enduring turbulent times amid its Brexit negotiations and 41 percent of the public have faith in their government.

At the other end of the spectrum, 58 percent of people in Russia and Turkey trust their governments while India (the nation that just surprised the entire nation by making its banknotes illegal) has the highest confidence levels at 73 percent. Greatest Fools?

The Fed Has An Alarming Low-Inflation Problem

With all the talk of central bank hawkishness in the last week, one might assume there was some inflation to point to. It is quite the opposite. It is one thing to talk about inflation being below the Fed’s target of 2%, it is an entirely different issue to see it flirting with deflation! Shorter-term trends of core-inflation are very near to 0%, levels we haven’t seen since the great recession and the advent of quantitative easing.

In its most common form, inflation is quoted by measuring its percentage change compared its level 12 months ago, the so-called year-over-year (YoY%) metric. But, shorter-term periods can be measured to get a sense of more recent trends as well as if there is acceleration or deceleration in the metric. The shorter the period measured, the more volatility the metric has, and so year-over-year (YoY%) has become the standard. It also has the added benefit of eliminating any seasonal effects.

In the charts below, we show the two top-tier measures of consumer price inflation, the Fed-preferred core PCE deflator, and the core CPI; with its common year-over year (YoY%) format, 6 months back annualized, and 3 months back annualized. Comparing the three gives a sense of acceleration of deceleration. If the 3mo. is less than the 6mo. is less than the 12mo., there is deceleration and vice-versa, there is acceleration.

 

But, beyond these charts, evidence of low inflation abounds. The headline versions of these numbers (including oil and food) are negative over the last three months, the ‘prices paid’ component of the manufacturing ISM number fell by a large amount in a release on Monday (7/3), the ‘prices paid’ component of the Service-sector ISM is now contracting, inflation expectations in all indicators have been falling since February, and the OECD published a report yesterday (7/4) that the inflation rate has fallen for four straight months in G-20 economies.

Despite the excitement last week at the prospect of global central banks moving away from easy money policies, there is no fundamental basis for this. We expect that the Fed will soon need to move to a neutral from tightening bias.

And The Country Receiving The Most Asylum Applications In The World Is...

According to the latest OECD report published today, the (OECD) country receiving the most new applications for asylum last year was Germany...

You will find more statistics at Statista

As Statista"s Martin Armstrong notes, this is perhaps not so surprising, given the welcoming stance offered by Chancellor Merkel"s government amid the refugee crisis.

The most common countries of origin for applicants in Germany were Syria, Afghanistan and Iraq.

In second place, but due to a completely different set of circumstances, the U.S. received 261,970 applications, mainly from El Salvador, Mexico and Guatemala.

Canary In The Coal Mine: Unfunded Liabilities Have Turned Illinois Into A "Banana Republic"

Authored by Daniel Lang via SHTFplan.com,

Illinois is the perfect example of what happens when your state is run by fiscally irresponsible dunces for decades.

The state is buried debt, and hasn’t passed a budget in over 700 days. 100% of their monthly revenue is being consumed by court ordered payments, and the Illinois Department of Transportation has revealed that they may not be able to pay contractors (who are working on over 700 infrastructure projects) after July 1st if the state doesn’t pass a budget. To top it all off, the state’s credit rating is one step away from junk status, the lowest of any state. Because of these factors, Illinois may become the first state to declare bankruptcy since the Great Depression.

Governor Bruce Rauner has gone so far as to call his state a “banana republic.”

The state’s comptroller has admitted that “We are in massive crisis mode.”

And a reporter for the Chicago Tribune thinks Illinois has gone so far past the point of no return, that the state should be broken up. He recently wrote what basically sounds like a suicide note for Illinois.

Dissolve Illinois. Decommission the state, tear up the charter, whatever the legal mumbo-jumbo, just end the whole dang thing.

We just disappear. With no pain. That’s right. You heard me.

The best thing to do is to break Illinois into pieces right now. Just wipe us off the map. Cut us out of America’s heartland and let neighboring states carve us up and take the best chunks for themselves.

The group that will scream the loudest is the state’s political class, who did this to us, and the big bond creditors, who are whispering talk of bankruptcy and asset forfeiture to save their own skins.

But our beloved Illinois has proved that it just doesn’t deserve to survive.

So how did it get to this point?

The root of the problem is Illinois’ unfunded pension liabilities, which amount to $130 billion. The state’s leaders simply promised what could not be delivered. Most of their employees can retire in their 50’s, and many of them will receive 1-2 million dollars over the course of their retirements. As the debts associated with those pensions reached astronomical levels, the government increased taxes so much that many of the wealthiest and most productive citizens and businesses have moved away, leaving an even smaller tax base to draw from.

In short, Illinois is in a death spiral, but it’s not alone. Illinois is merely the canary in the coal mine.

We’re only hearing about Illinois right now because the percentage of their pensions that have been funded is the lowest in the nation. However, there are plenty of states that aren’t too far behind Illinois. There are plenty of states with a higher debt to GDP ratio, and more debt per person. And it’s not just public pensions. The pension funds for every company in the the S&P 500 are underfunded by $375 billion. Before the last financial crisis, they were fully funded. And globally, the problem is far worse. 20 countries in the OECD, whose members include every western and developed nation, have a combined $78 trillion in unfunded liabilities, from both private and public pensions.

During the economic crash of 2008, we all saw how contagious an economic calamity could be. A crash in one market can put many others over the edge, and cause them to crash as well. What started with a subprime mortgage crisis in the United States, quickly turned into a global economic crash that we still haven’t truly recovered from.

So when Illinois does crash and burn as a result of their pension funds (and it is a matter of when, not if), then it’s time to buckle up. It could be just the beginning of a global financial unraveling that will affect us all.

WTI Plunges To 7-Month Lows - Enters Bear Market As HY Bonds Crater

WTI Crude has entered a bear market (down over 20% from its highs) amid concerns OPEC-led output cuts won’t succeed in rebalancing the market (and not helped by the fact that Libya is pumping the most crude in 4 years).

For the first time since Nov 2016, WTI front-month traded with a $42 handle...

Here are eight factors that are behind the current fall in oil prices according to Arab News:

1. High exports from OPEC: Despite the reduction in production from oil producers, the level of exports is still high as many tanker-tracking data showed. Morgan Stanley in a report on June 8 said that tanker-tracking data showed that waterborne exports increased strongly in May across the world, up by 2.2 million bpd from April and 3.3 million bpd from May 2016.

2. High global oil inventories: Saudi Energy Minister Khalid Al-Falih told Arab News’ sister publication Asharq Al-Awsat in an interview on June 19 that oil inventories globally are down following the deal. The Organization for Economic Co-operation and Development’s (OECD) oil stocks went down by 65 million barrels from their peak in July 2016. However, Al-Falih acknowledged that US stocks are falling less than expected. As for the market, the fall in inventories is too slow to trigger a price response. The International Energy Agency (IEA) estimates that oil stocks in the OECD are still at 292 million barrels above their five-year average. Energy researcher Bernstein estimates that US stocks must go down by 4 million barrels every week for it to go back to normal levels.

3. Concerns on gasoline demand: The outlook for US gasoline consumption this summer is a concern. Gasoline stocks rose 2.1 million barrels and gasoline inventories currently sit at 242.4 million barrels, or 9 percent, above the five-year average of 223 million barrels, according to the US Energy Information Administration (EIA) data.

4. Increase in the number of rigs: The number of US oil rigs is continuing to rise. Drillers added more oil rigs for a 22nd straight week, marking the biggest streak in at least three decades, according to weekly data from Baker Hughes released on June 16.

5. Worries about supply in 2018: The IEA said in its report on June 14 that supply from non-OPEC producers next year may offset cuts from OPEC and its allies. Oil demand is set to grow by 1.4 million bpd in 2018 but supplies outside OPEC will grow even faster, by almost 1.5 million bpd.

6. Oil prices in contango: Brent and West Texas Intermediate (WTI) crudes, down almost 15 percent since late May, are both trading in contango, with forward prices higher all the way into the next decade. Contango is a structure that normally denotes weak demand for spot cargoes as it means oil prices in the future are higher than today’s, thus it makes producers store crude for future sale.

7. Return of oil output from Libya, Nigeria: Libyan oil production this week is up by 200,000 to 300,000 bpd from early May. Nigeria is also pushing for an additional output of 200,000 bpd this month. The market is concerned that this will add to oversupply, but Al-Falih said on June 19 that the increase is within agreed limits set by the original deal last year.

8. Speculation: Al-Falih blamed volatility in oil prices on speculative trading as many are trading on headlines and on forecasts of supply growth from resources “that may not happen.”

HY Bonds are getting hit led by a spike in HY Energy risk...

“People are getting a little fatigued waiting for the production cuts to have effect,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass., says by phone.

“Between the U.S. shale activity and Libya and Nigeria seeing their production go up some, that’s making people very nervous about the near-term prospects”

Tonight"s API inventory data may provide further impetus for this move.

Something Changed In 2014

For all the talk about the various "tools" in central bankers" arsenals to influence monetary policy, to manipulate stock markets and to soak up global bonds (they now hold more than a third of the total $54 trillion in in global bonds), the fundamental - and very simple - purpose of any "developed" central bank is one: to restore and boost consumer (and in recent years investor) confidence during times of stress, promoting a vibrant economy in which the velocity of money is high, where commerce and economic transactions are ample, and where inflation (at least in a Keynesian world) is sufficiently high to gradually inflate away the debt burden and reduce the incentive to save. Boost confidence, the thinking goes, and everything else will follow from there.

And while that may historically have been the case, something changed significantly in 2014.

This is obvious from one chart in the latest OECD Economic Outlook report issued earlier today, which shows that while consumer and the all important business confidence do indeed go hand in hand...

... when it comes to the correlation between consumer confidence and global retail sales growth, arguably the core driver behind a global economy that is predicated upon spending (in the US this is roughly 70% of GDP) the correlation broke spectacularly in 2014 as shown in the chart below for reasons that are not quite clear.

What may have caused this dramatic divergence is not clear. This is what the OECD says on the topic:

In a number of countries, confidence measures have rebounded to a much greater extent than "hard" indicators of activity, raising issues about the reliability of the signals provided by these measures for future activity. While global business confidence appears to remain a useful signal of likely developments in global industrial production, the association between consumer confidence and global retail spending has fallen sharply in recent years, suggesting that limited weight should be given to fluctuations in this measure in the absence of supporting developments in "hard" indicators of spending and income. This disconnect has also been apparent in the early part of 2017, especially in the advanced economies, with consumption growth moderating despite rising confidence, in part due to the drag on purchasing power from higher headline inflation.

In other words, the OECD is clueless. And while one potential answer may emerge from the following chart of global policy uncertainty which started rising roughly the same time the correlation between retail sales and confidence collapsed...

... it is hardly the full answer.

Which begs the question: even though central bankers may still influence consumer confidence and overall sentiment, if the link between sentiment and spending - the beating heart of any developed economy - is now broken, just what role do central banks play in this post-divergence world, and is there even a need for them?

Source: OECD

Goldman Warns Of "Sharp Oil Price Drop", Inventory Glut "If Backwardation Is Not Achieved"

Increasingly some of the more prominent sellside analysts appear to be picking and choosing ideas from their competitors. Earlier, it was JPM echoing Goldman"s reco when it cut its 10Y yield forecast. Now, in a note previewing the outcome of this week"s OPEC meeting and proposing a way forward for OPEC, Goldman"s Damien Couravlin adopted the "backwardation" idea presented last week by Morgan Stanley"s Francisco Blanch.

As a reminder, Blanch"s latest thesis on oil market dynamics, is that "OPEC’s goal for the oil market is not a specific price level, but reaching backwardation", (which is also why he does not believe that OPEC will proceed with deeper cuts as this would likely mean ceding more market share to U.S. shale production).

Fast forward to Monday, when Goldman"s energy strategist Damien Couravlin effectively cribbed the whole note by writing that while "oil prices are rebounding with stock draws and greater certainty on an extension of the production cuts" and a "9 month extension would normalize OECD inventories by early 2018" he warns that he sees "risks for a renewed surplus later next year if OPEC and Russia’s production rises to their expanding capacity and shale grows at an unbridled rate."

How can OPEC avoid this boom-bust cycle again and achieve both fiscal stability and rising revenue through oil market share gains? He argument is that "only sustained backwardation can restrain access to the large pools of private equity and HY credit capital."

We believe that low deferred prices can achieve this by (1) increasing the opportunity cost of shale’s capital providers to hedge out their oil price exposure, (2) lowering expected equity valuation and (3) increasing expected leverage levels. Costs will also play a role in setting shale’s growth path but we do not forecast sufficient inflation at this point to achieve the required slowdown next year.

In other words, Goldman observes that curtailing access to capital is required to slow shale grow, and is urging OPEC to eliminate the biggest loophole that has allowed shale to keep producing despite lower prices, namely the contango that has allowed US producers to not only hedge production at affordable prices but to continue expanding production even as OPEC nations have been forced to limit their own output, ceding market share to US producers. 

How can OPEC achieve this? Goldman"s answer is that the bank believes "that OPEC and Russia should (1) extend/increase the cuts until stocks have normalized, (2) express the goal of growing future production, and (3) gradually ramp up production to grow market share but keep stocks stable and backwardation in place."

Goldman concedes that "achieving this will be difficult, but we see templates in both OPEC’s modus operandi of the 1990s of managed but flagged growth and the rationalization of shale growth in US gas, both with backwardation."

The bank also highlights one major risk to its thesis: that cheap, mostly junk-rated credit will remain abundant, allowing shale to continue expanding production regardless of the fundamentals: "while oil hedge ratios are low for 2018, the main risk to this view is that funding markets remain resilient to lower deferred prices, with little HY debt maturing in the coming years."

What does all of the above mean for OPEC"s announcement on Thursday? Under such a proposed framework, "we believe that OPEC should announce a decisive cut on May 25, as normalizing stocks is a required first step (likely a 9 month extension)." Such an announcement would have a two-fold impact on oil prices: first, when it comes to Goldman"s near-term price target, the firm says that its year end Brent spot price forecast remains at $57/bbl. Things change when going beyond the 2017: here Goldman for the first time adds a significant caveat:

"we now forecast that deferred prices will need to decline with 1- to 2-yr WTI forwards of $45/bbl. This leaves us expecting high total returns for being long oil, delivered through backwardation, but recommending that producers increase their hedge coverage. If backwardation is not achieved, however, we see risks that prices fall sharply next year as OPEC reverts to growing market share through volumes."

Just to recap, here is Goldman"s summary of what it dubs "OPEC"s dilemma":

Herein lies the OPEC dilemma - a return to production capacity in 2018 to grow market share would lead to a sharp collapse in prices. This would extend the tug of war between OPEC and shale with the former ramping up production in 2015-2016 and 2018 but shale growing sharply in 2013-14 and 2017.

This dilemma is well illustrated with Saudi Arabia. While the Kingdom reduced its fiscal deficit in 1Q17, its roll back of austerity measures necessitates higher oil revenues in 2018 to prevent renewed large deficits. While further cuts in 2018 to support oil prices near $60/bbl would guarantee such higher fiscal revenues, this strategy would prove self-defeating longer term as high cost producers globally would ramp up activity at such prices, reducing Saudi’s long-term revenues. In turn, we do not believe that Saudi’s spare production capacity is large enough to be able to grow volumes sufficiently in 2018 to offset a sustainable decline in prices to $45/bbl and keep oil revenues at 2017 levels.

How can OPEC therefore achieve both fiscal stability and rising revenues through market share gains? We believe that the answer to this question is backwardation as low deferred prices can restrain access to capital for higher cost producers such as shale. Furthermore, backwardation maximizes low cost producers’ revenues relative to higher cost producers that hedge, as they instead sell all their production at spot prices.

Finally, we will note that the irony embedded of Goldman"s latest analysis is two-fold: on one hand the bank has to come up with a comprehensive strategy to bypass the liquidity gusher unleashed by the Fed and other global central banks. One issue with the Goldman analysis is that while it may be absolutely correct, and that backwardation will likely impair the fundamental profile of US shale producers, all that would result in is higher yields for corporate issuers which in turn would lead to an oversubscribed, bidding frenzy as the buyside rushes to allocate "other people"s money" in distressed names. As such, Goldman"s assumption of an efficient capital allocation process in a time when there is $18 trillion in excess liquidity is almost certainly wrong.

Funding aside, what is also ironic is that a US investment bank, one which effectively controls the White House, is tasked with conceptualizing a scenario which leads to a Saudi "victory" in the war with shale, an outcome which would result in thousands of lost US jobs, even as Saudi state revenues recover, and save the kingdom from its recent near budgetary death experience. It begs the question: if push comes to shove, will the Goldman Trump White House pick the side of the US shale industry, or that of Saudi Arabia, which this weekend announced intentions to purchase $350 billion in US arms over the next decade. Unfortunately, the answer is not self-evident.

Here Are The Three Choices Facing OPEC Next Week

The last time OPEC (and Non-OPEC) member nations sat down to attempt a coordinated increase in oil prices by cutting production they succeeded... for about three months. Every since then, oil has been on a gradual declining path, boosted by a surge in US shale output and declining global demand, with WTI recently even sliding sliding below OPEC"s implicit price floor of $50/barrel. Which is why on May 25, after the failure of the first 6 month production cut, the same nations will try the same exercise, this time looking to cut output for 9 months, and hoping for a different outcome.

At least that is the general expectation. Overnight, BofA"s Francisco Blanch has released a note previewing next week"s OPEC meeting titled "OPEC: extend and pretend", and which boils down to the 3 choices faced by OPEC: maintain, curb, or hike output. For its part, BofA believes that OPEC will extend cuts and hope demand recovers. Additionally, Blanch also states that oOPEC’s goal for the oil market is to reach backwardation, not a specific price level and does not believe that OPEC will proceed with deeper cuts as this would likely mean ceding more market share to U.S. shale production.

As Blanch explains in the summary, the global oil market deficit is smaller than the bank thought (see the dramatic, 500kb/d downward revision to global demand growth in chart 2 below) and as a result the cartel is struggling to bring down global stocks. This situation presents a major challenge for the cartel, as OPEC is targeting a shift in the term structure of global crude markets and not a specific oil price band according to Blanch: the idea is to penalize forward sellers and squeeze refiners. But soft demand in India and Mexico, a warm US winter, and an OPEC crude oil production overhang from 4Q16 have gotten in the way of a good plan.  

Which brings up a question that has been floated by some (including this site) in recent days: "Why not cut further?"

 Well, according to BofA, if OPEC cuts production even more, it will likely lose additional market share to US shale and prices may not move up much more. Conversely, if OPEC hikes output, oil prices could collapse to $35/bbl, setting the cartel on an even more difficult fiscal path. In our view, most OPEC members can not afford either scenario at this point. With many member countries already experiencing large government and current account deficits at current oil prices, neither lower prices nor a permanent loss in output are appealing options.

As a result, BofA is confident OPEC will stay the course, keeping production on hold over 6 to 9 months and hoping that demand improves.

Below are some some select excerpts fromthe BofA note:

The global oil market deficit is smaller than we thought…

We updated our global oil balances last week, lowering our Brent and WTI crude oil prices for this year and next by $7 to $10/bbl on average (see The crude reality). While we still see a sizeable deficit in 2017 of 610 thousand b/d, we are now projecting a balanced global oil market in 2018 (Chart 1). The change in our projections is coming from weaker than expected demand (Chart 2) and a faster-than-expected surge in the US rig count. The joint OPEC and non-OPEC cuts agreed last December are certainly helping support oil prices this year, but US shale production is coming back too fast into 2018.

 

... and the cartel is struggling to bring down global stocks

Crucially, total OECD inventories are now declining from much higher levels, as stocks actually built from 2,985 million barrels at the end of last year to 3,025 million barrels at the end of March (Chart 3). Soft demand in India and Mexico, a warm winter, and an OPEC crude oil production overhang from 4Q16 have prevented a faster draw in inventories. This situation presents a major problem for the cartel, as it is now apparent that it will take longer to reach the 5-year average levels in OECD total oil inventory targeted by OPEC. In particular, onshore crude oil inventories remain very high in the US (Chart 4), as a tight WTI-Brent spread in 1Q17 prevented a boost in US crude exports and continued to attract barrels to US shores.

 

OPEC"s goal is backwardation, not a specific price level…

A key point to understand is that OPEC is targeting a shift in the term structure, not a specific oil price level. After all, the price level for oil will be set by the most expensive marginal barrel in the market, which is US shale for now. In fact, OPEC first set the cuts in motion to shift the term structure of the market away from contango, contributing to flatten the Brent crude oil curve at a $55-57/bbl level (Chart 5). As we previously highlighted (see The oil price war is over), Saudi revenues will likely be higher over the next 10 years if it avoids a market share war with shale and other cartel members (Chart 6).

 

…in order to penalize forward sellers, squeeze refiners

Yet the market has realized in recent weeks that forward oil prices in the $55 to $57/bbl range are too attractive for shale producers. And as the US rig count continued to surge, inventors gave up on their long positions, helping oil prices drop across the term structure in the past month. With drilling activity and productivity gains continuing to improve, there is just too much shale in the pipeline. Yet North American producers are still under-hedged (Chart 7), suggesting that the next move up in crude oil prices as we approach peak seasonal demand is likely to center mostly on near-dated crude contracts (Chart 8) and not in 2018 calendar prices.

Putting it all together, BofA says that heading into the May 25 meeting, the cartel basically faces three choices.

1. First, OPEC could cut production beyond the 1.2mn b/d agreed in December and encourage non-OPEC members to deepen the cuts.


2. Second, OPEC could increase output aggressively and restart the oil price war.


3. And third, OPEC could keep the cuts at the current levels for the next 6 to 9 months and hope for oil market demand conditions to improve.

What will OPEC do? According to BofA, "the cartel will extend the cuts and pretend everything is fine." Which likely means that as oil prices fail to rebound, next March it will be same time, same place for OPEC which will again be scrambling to find some solution to a world in which it is no longer the marginal price setter.

Forget ObamaCare, RyanCare, Or Any Future ReformCare - The Healthcare System Is Completely Broken

Authored by Charles Hugh-Smith via OfTwoMinds blog,

It"s time to start planning for what we"ll do when the current healthcare system implodes.

As with many other complex, opaque systems in the U.S., only those toiling in the murky depths of the healthcare system know just how broken the entire system is. Only those dealing daily with the perverse incentives, the Kafkaesque procedures, the endlessly negative unintended consequences, the soul-deadening paper-shuffling, the myriad forms of fraud, the recalcitrant patients who don"t follow recommendations but demand to be magically returned to health anyway, and of course the hopelessness of the financial future of a system with runaway costs, a rapidly aging populace and profiteering cartels focused on maintaining their rackets regardless of the cost to the nation or the health of its people.

Ask any doctor or nurse, and you will hear first-hand how broken the system is, and how minor policy tweaks and reforms cannot possibly save the system from imploding. Based on my own first-hand experience and first-hand reports by physicians, here are a few of the hundreds of reasons why the system cannot be reformed or saved.

Say 6-year old Carlos gets a tummy-ache at school. To avoid liability, the school doesn"t allow teachers to provide any care whatsoever. The school nurse (assuming the school has one) doesn"t have the diagnostic tools on hand to absolutely rule out the possibility that Carlos has some serious condition, so the parents are called and told to take Carlos to their own doctor.

Their pediatrician is already booked, so Carlos ends up waiting in the ER (emergency room). Neither the school nurse nor the parents see the symptoms as worrisome or dangerous, but here they are in ER, where standards of care require a CT scan and bloodwork.

Hours later, Carlos is released and some entity somewhere gets an $8,000 bill--for a tummy-ache that went away on its own without any treatment at all.

Since the Kafkaesque billing system rewards quick turn-arounds, observation is frowned upon unless it can be billed. So if observation is deemed necessary (to avoid any liability, of course), Carlos might be wheeled into an "observation room" filled with other people, where a nurse pops in every once in a while. This adds $3,000 to the bill.

(Never mind the stress on Carlos being in such unfamiliar surroundings; he might have felt better if he hadn"t been subjected to the anxieties that come with being enmeshed in the healthcare system"s straight-jacket of standards of care.)

If Carlos doesn"t feel better after all this, then the bill is set to balloon bigtime because an overnight stay in the hospital is the next step--and if there isn"t a 100% certainty that there is no chance of his stomach-ache becoming something serious, then the system will insist on overnight observation as the only legally defensible option.

There are other ways to increase the fees without actually providing additional care; was Carlos receiving "critical care"? Of course he was, because, well, it pays better, and by definition any ER visit is critical care.

This example is just the tip of the iceberg, but you get the point: all institutional care decisions ultimately revolve around thwarting future liability claims and maximizing the billing value of each interaction or procedure.

You"ve probably seen some of the racketeering that passes for "business as usual" in the pharmaceutical arm of the "healthcare" industry. A pharma company that spent $500,000 trying to keep pot illegal just got DEA approval for synthetic marijuana (via Chad D.)

Pinworm prescription jumps from $3 to up to $600 a pill (via John F.)

Off-patent medications double or triple in cost, and then double or triple again with a few years, without any justification. To extend expiring patents, Big Pharma corporations petition the FDA to change the target audience for the med, and this trivial administrative change awards the corporation years more of lucrative patent protection.

The scams are endless, the skims are endless, the fraud is endless, the waste is endless, the fortunes expended to limit "winner take all" liability claims are endless, the paperwork churn is endless and the perverse incentives and negative unintended consequences are endless.

Everyone knows the system is unsustainable, perverse and insane, but they are powerless to change it within the system as it is. The usual sort of political horsetrading that passes for "reform" yielded ObamaCare, which did essentially zero to limit costs or cartel rackets.

A system based on parasitic predation by all the cartel players cannot be reformed or saved from its own perverse incentives and skyrocketing costs. The foundations of U.S. healthcare are rotten to the core. "Reform" is an appealing delusion, but the rot is so deep and so pervasive it is embedded in the society and the culture, beyond the reach of legislative overhauls, no matter how well-meaning.

This chart-fest reflects the trends that cannot be reversed by policy tweaks and tucks: The U.S. spends more than twice as much per person than our advanced competitors such as Japan and France.

The U.S. spends 2.5 times more per person than the OECD (i.e. the industrialized nations) average:

Wages have risen 16%, GDP rose 168%, and healthcare soared 818%. Do you reckon wage earners might have a hard time paying for healthcare nowadays?

If healthcare had risen only as much as official inflation, each household would be saving $10,000 per year--$100,000 each decade. $100K here and $100K there, and pretty soon you"re talking real money in a conventional wage-earner household budget.

Projections of skyrocketing Medicare and Medicaid program costs guarantee national bankruptcy. The projection of 90 million Medicare enrollees is predictable, but there is no reason to believe costs will be limited to $20,000 per enrollee annually.

U.S. healthcare costs more in every category than other healthcare systems. Tweaking policy in one slice does nothing to limit the staggering increases being logged in all the other tranches of the system.

America"s healthcare system is the perfection of the fraud triangle: the pressure to increase billings, fees and profits is immense, the rationalizations are unlimited (it"s within the legal guidelines, etc.) and the opportunities for fraud are equally unlimited.

Individual caregivers and administrators want a different, better role and a better outcome, but each is trapped in the system as it is--and reform is impossible given the systemic foundations, incentives and legal framework.

It"s time to start planning for what we"ll do when the current system implodes. We might start by considering The "Impossible" Healthcare Solution: Go Back to Cash (2009).