A Huge Threat to the U.S. Budget Has Receded. And No One Is Sure Why

Link: https://www.nytimes.com/interactive/2023/09/05/upshot/medicare-budget-threat-receded.html?smid=url-share

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For decades, runaway Medicare spending was the story of the federal budget.

Now, flat Medicare spending might be a bigger one.

Something strange has been happening in this giant federal program. Instead of growing and growing, as it always had before, spending per Medicare beneficiary has nearly leveled off over more than a decade.

The trend can be a little hard to see because, as baby boomers have aged, the number of people using Medicare has grown. But it has had enormous consequences for federal spending. Budget news often sounds apocalyptic, but the Medicare trend has been unexpectedly good for federal spending, saving taxpayers a huge amount relative to projections.

….

Some of the reductions are easy to explain. Congress changed Medicare policy. The biggest such shift came with the Affordable Care Act in 2010, which reduced Medicare‘s payments to hospitals and to health insurers that offered private Medicare Advantage plans. Congress also cut Medicare payments as part of a budget deal in 2011.

But most of the savings can’t be attributed to any obvious policy shift. In a recent letter to the Senate Budget Committee, economists at the Congressional Budget Office described the huge reductions in its Medicare forecasts between 2010 and 2020. Most of those reductions came from a category the budget office calls “technical adjustments,” which it uses to describe changes to public health and the practice of medicine itself.

Older Americans appear to be having fewer heart attacks and strokes, the likely result of effective cholesterol and blood pressure medicines that became cheap and widely used in recent years, according to research from Professor Cutler and colleagues. And drug makers and surgeons haven’t developed as many new blockbuster treatments recently — there has been no new Prozac or angioplasty to drive up spending. (Medicare is currently barred by statute from covering the new class of expensive anti-obesity drugs.)

….

Medicare may even wind up saving money because of Covid-19 — because the older Americans who died from the disease tended to have other illnesses that would have been expensive to treat if they had survived, according to an analysis from the Medicare actuary.

Author(s): Sanger-Katz, Margot; Parlapiano, Alicia

Publication Date: 5 Sept 2023

Publication Site: NY Times

Social Security is Running Out of Time and Money, What Do Biden and Trump Propose?

Link: https://mishtalk.com/economics/social-security-is-running-out-of-time-and-money-what-do-biden-and-trump-propose

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Please consider the Biden-Trump Plan to Cut Social Security

  • Joe Biden: “I guarantee you I will protect Social Security and Medicare without any change. Guaranteed,” the president said in March. 
  • Donald Trump: “I will do everything within my power not to touch Social Security, to leave it the way it is.” A pro-Trump super PAC launched an ad attacking Florida Gov. Ron DeSantis for his efforts as a member of Congress to restructure benefits.

While Trump promised to not touch SS, Biden said he would protect SS “without any change“.

Biden’s “guarantee” is impossible, by existing law. 

The pledge to not change a thing means automatic benefit cuts starting in 2033 according to the bipartisan Congressional Budget Office (CBO). 

Author(s): Mike Shedlock

Publication Date: 15 April 2023

Publication Site: Mish Talk

Why Interest Rates Could Drive a Debt Crisis

Link:https://www.nationalreview.com/2022/02/why-interest-rates-could-drive-a-debt-crisis/

Excerpt:

The average interest rate paid by Washington on its debt has fallen from 8.4 percent to 1.5 percent over the past three decades. However, economic variables tend to fluctuate, and only a fool would assume that a current economic trend will last forever. In the past, economic forecasts and markets told us that high inflation and high unemployment cannot happen simultaneously, that the late-1990s tech-stock bubble wouldn’t burst, and that national housing prices can never fall. Just last year, the Federal Open Market Committee consistently underestimated current-year inflation by three full percentage points. Interest-rate forecasts have proven spectacularly wrong for 50 years.

But now, economic commentators assure us that soaring federal debt is affordable because interest rates will remain low forever.

By contrast, the Congressional Budget Office projects that rates will nudge up to 4.6 percent over three decades. That is easily possible. After all, a broad range of studies show that the projected 100 percent of GDP increase in federal debt over the next three decades should, by itself, add three percentage points to interest rates. Added federal debt over the past 15 years also put upward pressure on interest rates, but this was offset by low productivity, baby-boomer savings, and Federal Reserve policies that pushed rates downward. For interest rates to remain low, those offsetting factors would have to accelerate much further to counteract the three-percentage point effect of future debt.

Author(s): Brian Riedl

Publication Date: 4 Feb 2022

Publication Site: National Review

How to Stop Politicians From Cooking the Books

Link: https://www.wsj.com/articles/budget-reform-deficit-government-spending-3-5-trillion-reconciliation-bill-fasb-biden-11631465087

Excerpt:

The federal government ran budget surpluses from 1998 to 2001. Yet the national debt went up in every one of those four years. How can debt go up when you’re running surpluses? Easy, borrow the surpluses then flowing into the Social Security Trust Fund and call it income. Any corporate CEO who tried this stunt would go to jail. But no CEO would try because Wall Street made such boldface accounting fraud impossible more than a century ago.

…..

How can we stop politicians from so casually lying to their stockholders (you and me) for their own short-term political benefit and to the country’s long-term financial detriment? What’s needed is the equivalent of the reforms forced on corporations 140 years ago.

One justification for the Federal Reserve is to keep the power to print money out of the hands of politicians. A Federal Accounting Board would keep the power to cook the books out of their hands as well. Like the Fed, it would be run by a board of seven members, all professional accountants of long experience, serving 14-year terms. They could be removed only for cause. One member would be appointed chairman, serving a four-year term.

The board would take over the duties of the Congressional Budget Office, and the White House Office of Management and Budget would be reduced to formulating the annual budget. The board would estimate future revenue and the costs of all legislation. It would also set the rules for how the federal books must be kept (no calling borrowed money “income”), and would determine if they are accurate and complete, as a CPA does for corporate books.

Author(s): John Steele Gordon

Publication Date: 12 September 2021

Publication Site: Wall Street Journal

The problem with a 100-year US government bond

Link: https://qz.com/1962075/the-problem-with-janet-yellens-100-year-treasury-bond/

Excerpt:

The US is running up debt like never before, and one of the reasons Washington can get away with it is because interest rates are hovering around their lowest levels ever. This raises the question—should the Treasury lock in these rates for 50 years? How about a century?

Government borrowing is under renewed scrutiny as politicians consider their third mega-spending package to support the US economy, adding to more than $3 trillion already earmarked since the onset of the Covid-19 pandemic. Federal debt owned by the public is expected to ramp up from 81% of GDP this year to nearly 100% in 2030, the highest ratio since 1946, according to Congressional Budget Office (CBO) projections in December. That ratio could hit 180% by 2050, by far the highest debt burden the US has ever had.

Debt levels are high, but the government’s borrowing cost is low. In March, 10-year Treasury bond yields fell below 1% for the first time and they’ve only ticked up modestly since, rising to about 1.1%. That helps explain why the US has amassed so much debt and, yet, is spending less on interest expense than it did in the 1980s and 1990s. The worry is that the unprecedented mountain of debt could have to be refinanced at higher yields down the road.

Author(s): John Detrixhe

Publication Date: 27 January 2021

Publication Site: Quartz