Having It All
Thursday, February 23rd, 2006
By Michael Lombardi, MBA for Profit Confidential
A new federal government report says that by the year 2015, $1 out of every $5 spent in the U.S. will go to health care. Within 10 years, 20% of our gross domestic product (GDP) will be health expenditures. Comparatively, all manufacturing in the U.S. today equals about 20% of GDP.
With the baby boomers turning 60, higher health costs will become a fact of life in America. One estimate has the U.S. government spending an average of $12,320 per citizen on health care by 2015.
How are we going to pay for it all I ask?
The cost of Hurricanes Rita and Katrina, the wars in Afghanistan and Iraq, health care, a huge military budget, and more… Where will the money come to pay for it? Annual U.S. deficits in the mid-trillion range can’t go on forever. But, if you want to have it all, you need to run huge deficits.
And, that brings me to my economic message and thought for today. Just yesterday I spoke about how the Federal Funds Rate has jumped about 400% since mid-2004. But, look at the action of the U.S. dollar since 2004. You would think that a country raising interest rates so aggressively would see it’s currency rising in value against other currencies.
But, that hasn’t happened in America. No, the U.S. dollar has actually been supported by higher U.S. interest rates as opposed to rallying in light of higher rates. It’s like the foreigners are almost expecting a higher rate of return for their U.S. dollars and getting it.
Depending on what figures you believe and follow, about half of all U.S. bonds are now bought buy foreigners—a place for them to park all those U.S. dollars they have accumulated by selling goods to Americans. If the U.S. wants to continue running massive deficits, it will be increasingly dependent on foreigners to finance its debt.
Foreigners won’t be happy with low returns for their U.S. dollars any more because of the massive U.S. debts. And, if the returns don’t continue rising, foreigners might just decide to park their cash somewhere else. Did anyone say gold?
NEWSFLASH—Moody’s Investors Service reports downgrading General Motor’s bonds to B2. While the company sits with $19.5 billion in cash, Moody’s said it is uncertain “the company will be able to achieve all of the steps necessary to establish a competitive wage, benefit and supplier cost structure outside bankruptcy.” About 40% of companies that have their bond rating lowered to B2 default on their bond payments within 10 years after being downgraded to B2.
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Tags: GDP, gold, U.S. dollar
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
