$645 billion here… $645 billion there


Forget about politics when it comes to health care.

The big battle over health care has one big problem at its root.

That problem is not political.  The problem is not ethical.  Nor is it availability of service or quality of facilities and skills.

The problem is…”Where is the money to pay for it?”

The cost of health care as the Western world envisions it is simply demographically unsound…. we are too many… too old.

A recent New York Times article “States Need $645 Billion to Pay Full Health-Care Costs” shows that the Federal health care problem is just the tip of the iceberg.

This article says:  States and cities around the country will soon book similar losses because of new, widely followed accounting guidelines that apply to most governments starting in fiscal 2018.

The new Governmental Accounting Standards Board principles urge officials to record all health care liabilities on their balance sheets instead of pushing a portion of the debt to footnotes.

The adjustments will show that U.S. states as a group have promised hundreds of billions more in retiree health benefits than they have saved up. The shortfall amounts to $645 billion, according to a new report from The Pew Charitable Trusts based on 2015 data. That is in addition to the $1.1 trillion states need to pay for future pension benefits, according to Pew.

The new level of transparency around retiree health expenses for public workers could lower municipal bond prices and force new decisions to reduce or scrap retiree health benefits as a way of coping with ballooning future costs, some analysts and researchers said.

Most states have almost no money saved up for future retiree health care costs and treat the benefits as an operating expense. States had just $48 billion in assets set aside as of 2015 as compared with $693 billion in liabilities, according to Pew.

This is a global problem:  counties, cities, states, nations.

All of these institutions have too much debt.

Recently Standard & Poor’s lowered China’s sovereign credit rating from AA- to A+ and revised its outlook to stable from negative.  The US credit rating was lowered from AAA to AA+ over five years ago.  The UK dropped to AA after Brexit.

S&P also lowered their rating on three foreign banks with large exposure in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. would be unlikely to avoid default should China default on its sovereign debt.

Standard & Poor’s warned that China has piled on too much debt and done it too quickly.  The steep rise in borrowing threatens to destabilize the country’s financial system.

China’s growth has been the single biggest driver of global growth for a decade.

There has been excessive borrowing by local Chinese governments and companies but China’s consumers, who were previously known for saving are now quickly taking on debt.

Chinese consumer debt has doubled since the start of 2016.  This borrowing is expected to grow higher: The International Monetary Fund expects Chinese personal debt as a percentage of its economic output to double by 2022.

This growing debt in the US and China, the world’s two largest economies, means we will certainly see the loss of the dollar’s and yuan’s purchasing power.  Inflation is the easiest way to reduce debt without really paying it back in full.

What to do?

There are several steps one can take to protect against such loss.

If you are investing in bonds, consider buying bonds denominated in the currencies of the 11 lucky countries that still have a AAA credit rating at the sovereign level.

Countries with AAA Sovereign rating: Australia – Canada – Denmark – Germany – Liechtenstein – Luxembourg – Netherlands – Norway – Singapore – Sweden – Switzerland.

Interest rates will be low… some even negative, but  the currencies will remain strong.

Second, if investing in equities consider shares in these countries if they are also good value markets.

Good value AAA rated equity markets: Australia – Canada – Germany – Norway – Singapore.

Learn more about these good value markets here.

Third, find low cost, but effective ways to look after your good health naturally.

Health and wealth are so connected that it’s hard to think about one without considering the other.  Human nature has a hard time with delaying gratification. Filling desires quickly with loans create innumerable social, economic and health problems that are all exacerbated by excessive debt.

We cannot change the world’s economy nor this fact of human nature, but we can change ourselves so we put more money into our health bank, than we take out.  We invest financially in low debt places that offer good value.

Gary

(1) www.wsj.com:  States need 645 billion to pay for health care promises


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