The damage to the USA economy due to inflated health care costs is huge. A significant portion of the excessive costs are due to policies the government enacts (which only make sense if you believe the cash given to politicians by those seeking to retain the excessive costs structure in the USA the last few decades buy the votes of the political parties and the individual politicians).

In 2015, Humira (a drug from Abbvie to treat rheumatoid arthritis that is either the highest grossing drug in the world, or close to it) costs $2,669 on average in the USA; $822 in Switzerland; $1,362 in the United Kingdom. This is the cost of a 28 day supply.

All the prices shown here are for the prices reported are the average allowed costs, which include both member cost sharing and health plan payment. So it only includes costs for those covered by health plans (it doesn’t include even much larger price tags given those without insurance in the USA).

Harvoni (a drug from Gilead to treat hepatitis C is also near the top of drugs with the largest revenue worldwide). This is also a drug that has been used as a lightning rod for the whole area of overpriced drugs. One interesting thing is this is actually one that is not nearly as inflated in the USA over other countries nearly as much as most are. Again, for a 28 day supply the costs are $16,861 in Switzerland; $22,554 in the United Kingdom and $32,114 in the USA. Obviously quite a lot but “only” double the cost in the USA instead of over triple for Humira (from Switzerland to the USA).

Tecfidera is prescribed to treat relapsing multiple sclerosis. The cost for a 30 day supply vary from $663 in the United Kingdom to $5,089 in the USA ($1,855 Switzerland).

There are actually some drugs that are more expensive outside the USA (though it is rare). OxyContin is prescribed to treat severe ongoing pain and is also abused a great deal. The prices vary from $95 in Switzerland to $590 in the United Kingdom ($265 in United States).

The report also includes the cost of medical procedures. For both the drugs and the procedures they include not only average but measures to show how variable the pricing is. As you would expect (if you pay attention to the massive pricing variation in the USA system) the variation in the cost of medical procedures is wide. For an appendectomy in the USA the 25th percentile of cost was $9,322 and for the 95th was $33,250; the average USA cost was $15,930. The average cost in Switzerland was $6,040 and in the United Kingdom was $8,009.

As has been obvious for decades the USA needs to stop allowing those benefiting from the massively large excessive health care costs in the USA from buying the Democrats and Republicans support to keep prices so high. But there has been very little good movement on this front in decades.

Related: USA Heath Care System Needs Reform – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – USA Spends $7,960 per person Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009) – Drug Prices in the USA (2005)

In 1965 foreign ownership of USA stocks totaled about 2%, in 1990 it had risen to 10% and by 2015 to 26%. That the foreign ownership is so high surprised me. Holdings in retirement accounts (defined benefit accounts, IRAs etc.) was under 10% in 1965, rose to over 30% in 1990 and to about 40% in 2015. The holdings in retirement accounts doesn’t really surprise me.

The combination of these factors (and a few others) has decreased the holding of USA stocks that are taxable in the USA from 84% in 1965 to 24% in 2015. From the report

As with much economic data it isn’t an easy matter to determine what values to use in order to get figures such as “foreign ownership.” Still this is very interesting data, and as the report suggests further research in this area would be useful.

Related: There is No Such Thing as “True Unemployment Rate” – The 20 Most Valuable Companies in the World – February 2016 (top 10 all based in the USA) – Why China’s Economic Data is Questionable – Data provides an imperfect proxy for reality (we often forget the proxy nature of data)

Effectively the rich end up subsidizing the low rates for the poor, which is a very sensible setup it seems to me. The market functions fairly well even though it is distorted a bit to let the poor (or anyone that uses very little electricity) to pay low rates.

In a country like Malaysia as people become rich they may well decide to use a great deal of electricity for air conditioning (it is in the tropics). But their ancestors didn’t have that luxury and having that be costly seems sensible to me. Allowing the poor to have access to cheap electricity is a very good thing with many positive externalities. And subsidizing the rate seems to be a good idea to me.

Often you get bad distortions in how markets work when you try to use things like subsidies (this post is expanded from a comment I made on Reddit discussing massive bad investments created by free electricity from the power company to city governments – including free electricity to their profit making enterprises, such as ice rinks in Puerto Rico).

View of downtown Johor Bahru from my condo (a small view of Singapore visible is in the background)

With the model of low residential rates for low usage you encourage people to use less electricity but you allow everyone to have access at a low cost (which is important in poor or medium income countries). And as people use more they have to pay higher rates (per kwh) and those rates allow the power company to make a profit and fund expansion. Often in developing countries the power company will be semi-private so the government is involved in providing capital and sharing in profits (as well as stockholders).

The USA mainly uses central air conditioning everywhere. In Malaysia, and most of the world actually, normally they just have AC units in some of the rooms. In poor houses they may well have none. In middle class houses they may have a one or a couple rooms with AC units.

Even in luxury condos (and houses) they will have some rooms without AC at all. I never saw a condo or house with AC for the kitchen or bathrooms. The design was definitely setup to use AC in fairly minimal ways. The hallways, stairways etc. for the “interior” of the high rise condos were also not air conditioned (they were open to the outside to get good air flow). Of course as more people become rich there is more and more use of AC.

Related: Traveling for Health Care – Expectations – Looking at the Malaysian Economy (2013) – Pursuing a Growing Economy While Avoiding the Pitfalls That Befall to Many Middle Income Countries – Singapore and Iskandar Malaysia – Looking at GDP Growth Per Capita for Selected Countries from 1970 to 2010 – Malaysian Economy Continues to Expand, Budget Deficits Remain High (2012) – Iskandar Malaysia Housing Real Estate Investment Considerations (2011)

As my recent post noted, adding 50,000 jobs a month is the new 150,000 in the USA due to demographic changes. That means job gains in the last year have added about 180,000 jobs per month above the 50,000 needed to accommodate growth due to demographic changes (a larger population of adults.

The change in total nonfarm payroll employment for August was revised from +136,000 to +153,000, and the change for September was revised from +142,000 to +137,000. With these revisions, employment gains in August and September combined were 12,000 more than previously reported.

Household Survey Data

Both the unemployment rate (5.0%) and the number of unemployed persons (7.9 million) were essentially unchanged in October. Over the past 12 months, the unemployment rate dropped by 70 basis (from 5.7%) and 1.1 million fewer people are listed as unemployed.

Among the major worker groups, the unemployment rates for adult men (4.7%), adult women (4.5%), teenagers (15.9%), whites (4.4%), blacks (9.2%), Asians (3.5%), and Hispanics (6.3%) showed little or no change in October.

The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 2.1 million in October and has shown little change since June. These individuals accounted for 26.8% of the unemployed in October.

The civilian labor force participation rate was unchanged at 62.4% in October, following a decline of 0.2 percentage point in September. The civilian labor force participation rate has remained stubbornly low as jobs have been added to the economy quickly over the last few years. This has resulted in the unemployment rate falling more quickly than if (as usually happens) the better job prospects bring people back into the labor force (and back into looking for work – even those than gave up for awhile while the job market was bad).

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) edged down by 269,000 to 5.8 million in October. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. Over the past 12 months, the number of persons employed part time for economic reasons has declined by 1.2 million.

Establishment Survey Data

Total nonfarm payroll employment increased by 271,000 in October.

Employment in professional and business services increased by 78,000 in October, compared with an average gain of 52,000 per month over the prior 12 months. Health care added 45,000 jobs in October. Within the industry, employment growth continued in ambulatory health care services (+27,000) and in hospitals (+18,000). Over the past year, health care has added 495,000 jobs.

Employment in retail trade rose by 44,000 in October, compared with an average monthly gain of 25,000 over the prior 12 months. Food services and drinking places added 42,000 jobs in October. Over the year,
the industry has added 368,000 jobs. Construction employment increased by 31,000 in October, following little employment change in recent months. Over the past 12 months, construction has added 233,000 jobs.

Employment in mining continued to trend down in October (-5,000). The industry has shed 109,000 jobs since reaching a recent employment peak in December 2014.

Employment in other major industries, including manufacturing, wholesale trade, transportation and warehousing, information, financial activities, and government, showed little or no change over the month.

The average workweek for all employees on private nonfarm payrolls remained at 34.5 hours in October. The manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime edged up by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.7 hours.

In October, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $25.20, following little change in September (+1 cent). Hourly earnings have risen by 2.5 percent over the year. Average hourly earnings of private-sector production and nonsupervisory employees increased by 9 cents to $21.18 in October.

Related: USA Adds Another 255,000 Jobs. Unemployment Rate To 7.9% (October 2012) – USA Economy Adds 151,000 Jobs in October and Revisions Add 110,000 More (2010) – USA Unemployment Rate Reached 10.2% (October 2009) – Over 500,000 Jobs Disappeared in November 2008

While this remains bad news the rate at which heath care is increasingly costing those in the USA has been slower the last 5 years than it has been in past years. Basically the system is getting worse at a slower rate than we used to be, so while that isn’t great, it beats getting worse as quickly as we used to be. For the last 5 years the rate of increase has been between 3.6% and 4.1%.

GDP has increased more than inflation. As the GDP grows the economy has more production for society to split. The split between the extremely wealthy and the rest of society has become much more weighted to the extremely wealthy (they have taken most of the gains to the overall economy in the last 20 years). Health care has a similar track record of devouring the gains made by the economy. This has resulted in health care spending soaring over the decades in an absolute basis and as a percentage of GDP.

The slow down in how badly the health care system has performed in the USA has resulted in the share of GDP taken by the health care system finally stabilizing. Health care spending has remained near 17.4% since 2009. While hardly great news, this is much better news than we have had in the last 30 years from the USA health care system. The percentage of GDP taken by the USA health care system is double what other rich countries spend with no better health results.

It is similar to if a team started as a championship team and then got worse every year and now they have finally stopped getting even worse. Granted they have become the worst team in the league but if, say, their record has now been 5-55 for 3 years in a row, they at least are not winning fewer game in each subsequent year anymore. But you can hardly think you are doing a great job when you are clearly the worst team each and every year.

Obviously there is a need for much much more improvement in the USA health care system. Still stopping the growth in spending, as a percent of GDP, is a positive step toward drastically decreasing it to reach a level more in live with all other rich countries. Even this goal is only to have the USA reach a level of mediocrity. If you actually believe the USA can to better than mediocre that would imply a combination of drastic declines in spending (close to 50%) and drastic gains in outcomes. Decreasing spending by 50% would put the USA at essentially the definition of mediocre – middling result with average spending.

Health Spending by Type of Service or Product

• Hospital Care: Hospital spending increased 4.3% to $936.9 billion in 2013 compared to 5.7% growth in 2012. The lower growth in 2013 was influenced by growth in both prices and non-price factors (which include the use and intensity of services).
• Physician and Clinical Services: Spending on physician and clinical services increased 3.8% in 2013 to $586.7 billion, from 4.5% growth in 2012. Slower price growth in 2013 was the main cause of the slowdown, as prices grew less than 0.1%, due in part to the sequester and a zero-percent payment update.
• Other Professional Services: Spending for other professional services reached $80.2 billion in 2013, and increased 4.5%, slower than the 5.0% growth in 2012. Spending in this category includes establishments of independent health practitioners (except physicians and dentists) that primarily provide services such as physical therapy, optometry, podiatry, or chiropractic medicine.
• Dental Services: Spending for dental services increased 0.9% in 2013 to $111.0 billion, compared to 2012 when growth was 2.2%. Out-of-pocket spending for dental services accounted for 42% of all dental spending while private health insurance accounted for 47% (I am not sure how the remaining 11% was paid – medicare? VA? all government health care?)
• Other Health, Residential, and Personal Care Services spending grew 5.8% in 2013 to $148.2 billion, the same rate of growth as
  in 2012. This category includes expenditures for medical services that are generally delivered by providers in non-traditional settings such as schools, community centers, and the workplace; as well as by ambulance providers and residential mental health and substance abuse facilities.
• Home Health Care: Spending growth for freestanding home health care agencies decelerated in 2013, increasing 3.4% to $79.8 billion following growth of 4.5% in 2012. Medicare and Medicaid spending accounted for approximately 80 percent of total home health care spending in 2013.
• Nursing Care Facilities and Continuing Care Retirement Communities: Spending for freestanding nursing care facilities and continuing care retirement communities increased 2.4% in 2013 to $155.8 billion, up from growth of 2.0% in 2012. The faster growth in 2013 was primarily due to an increase in Medicare spending after a one-time downward rate adjustment for skilled nursing facilities in 2012.
• Prescription Drugs: Retail prescription drug spending grew 2.5% to $271.1 billion, compared to 0.5% growth in 2012. Faster growth in 2013 resulted from price increases for brand-name and specialty drugs, increased spending on new medicines, and increased utilization. I believe this is classified as retail to exclude all the costs for prescription drugs used in hospitals, nursing homes, etc. that is counted elsewhere.
• Durable Medical Equipment: Retail spending for durable medical equipment reached $43 billion in 2013, and increased 4.2%, slower than the 5.6% growth in 2012. Spending in this category includes items such as contact lenses, eyeglasses and hearing aids.
• Other Non-durable Medical Products: Retail spending for other non-durable medical products, such as over-the-counter medicines, medical instruments, and surgical dressings, grew 4.0% to $55.9 billion in 2013. This was a faster rate of growth than in 2012, when spending grew 1.8%.

Health Spending by Major Sources of Funds:

• Medicare: Medicare spending, which represented 20% of national health spending in 2013, grew 3.4% to $585.7 billion, a slowdown from growth of 4.0% in 2012. This slowdown was attributed largely to slower enrollment growth and impacts of the Affordable Care Act (ACA) and sequestration.
• Medicaid: Total Medicaid spending (15% of national health spending) grew 6.1% in 2013 to $449.4 billion, an acceleration from 4.0 percent growth in 2012. Federal Medicaid expenditures increased 6.2% in 2013, while state and local Medicaid expenditures grew 5.9%.
• Private Health Insurance: Overall, premiums reached $961.7 billion in 2013 (representing a 33% share of national health spending), and increased 2.8%, compared to 4.0% in 2012. The net cost ratio for private health insurance—the difference between premiums and benefits as a share of premiums—was 12.0% in 2013, the same as in 2012. Private health insurance enrollment increased 0.7% to 189.3 million in 2013, but was still 8.2 million lower than in 2007.
• Out-of-Pocket spending, which accounted for 12% of national health spending, grew 3.2% in 2013 to $339.4 billion, a deceleration from growth of 3.6% in 2012.

I am not sure what the other 20% is. I believe non-profit foundations are a portion, maybe the whole 20% (though I doubt it). Maybe government health care, VA, active duty military health care spending?

Health Spending by Type of Sponsor*

• In 2013, households accounted for the largest share of spending (28%), followed by the federal government (26%), private businesses (21%), and state and local governments (17%). My guess is charities and foundations make up the remaining 8% (though I may be wrong).
• Household health spending grew 2.8% in 2013—a slower rate of growth than the 4.8% rate in 2012—due in part to the low rate of increase in employee contributions to private health insurance premiums. Despite the slower growth in 2013, the household share of health spending has remained steady at 28% since 2010.
• Federal government spending for health care increased 3.5% in 2013 after declining 0.2% in 2012. Faster growth was influenced in part by an increase in Medicaid payments to primary care physicians mandated by the ACA. The Federal government share of health spending has decreased in recent years, from 27% in 2011 to 26% in both 2012 and 2013, primarily due to the expiration in June 2011 of enhanced federal matching rates for Medicaid mandated by the American Recovery and Reinvestment Act of 2009.
• State and local government spending increased 3.2% in 2013. This increase followed strong growth of 6.3% in 2012 and 9.3% in 2011 that was also due largely to the expiration of enhanced federal Medicaid matching rates for states. During the period 2010 – 2013, the share of health spending financed by state and local governments increased from 16% to 17%.
• Health care spending financed by private businesses increased 4.0% in 2013, much higher than the average increase of 0.7% during 2008–10 caused by recession-related job losses and declines in private health insurance enrollment during and just after the recession. The private business share of overall health spending has remained fairly steady since 2009, at about 21%.

The data in this post is provided by the US Department of Health and Human Services. I provide a direct link to the data, in my experience USA government sites break direct links fairly quickly unfortunately, in the last few years they have often just made the links to the current data, which is better than it used to be, but still is lame. They should provide permanent urls …/[year]/[report]/[specific_details] for example… if, as in this case they have maybe 10 separate document on this one report.

* Type of sponsor is defined as the entity that is ultimately responsible for financing the health care bill, such as private businesses, households, and governments. These sponsors pay health insurance premiums and out-of-pocket costs, or finance health care through dedicated taxes and/or general revenues.

The USA health care system was deemed a deadly disease by W. Edwards Deming decades ago and it has only been doing increasing damage the USA economy and society. We need to take much more effective steps to improve the system. The problems are very challenging especially because the system problems are largely created by bought and paid for political parties who have for decades allowed the health care system to damage the economy and society.

We have been making improvements in many areas within the system, but huge systemic problems have existed for decades and are being supported by those we continue to allow to serve as our elected officials. We can likely improve to being somewhat less than mediocre without fixing that problem.

We are unlikely to even be able to reach mediocre without the political parties changing their support for the entrenched interests that have retained such a poor system for so long (or us getting new political parties which doesn’t seem so likely and even if we did they would then have to also take a better approach on health care, which seems like, but isn’t necessarily certain). Since it is impossible to find a rich country with a health care system that has noticeably worse results and it isn’t possible to find any rich country that spends more than 35% less than we do, it is hard to imagine anyone supporting a worse health care system than the current one in the USA, but I suppose it is possible.

The direct accounting costs of the USA system are horrible, and those are just the direct accounting costs – it ignores the costs of millions without preventative health care, sleepness nights worrying about caring for sick children without health coverage, millions of hours spent on completing forms to try and comply with the requirements of the health care system’s endless demand for paperwork, lives crippled by health care bankruptcies…

To some extent the “Affordable Care Act” addresses some of the issues with tying health care to the employer (as the USA has done) and issues with pre-existing conditions. Those are both tremendous improvements. But the ACA leaves completely (essentially) unaddressed the systemic failure that result in the USA paying twice what other rich countries do for no better results. The ACA has some minor tweaks to try and reduce how costly the USA health care system is, but those are incredibly minor and don’t amount to even 5% of the change needed in that area just to get the USA to extremely costly compared to other rich countries (say lowering our expenses so we are only 50% more expensive than all the other rich countries instead of 100%).

And even just the relatively minor improvements the ACA made have, and continue to, drawn huge response from those who have successfully blocked improvement of the USA health care system for the last few decades. I don’t object at all, in fact I encourage, debate to improve how we implement improvement to the broken USA health care system. Continuing the last few decades of obstructionism however is not something I support, in fact it is something I find incredibly objectionable.

There are very challenging issues address to have a great health care system. Given how poorly we have done in the USA for decades there are some not that challenging improvements to make. We have given those supporting the current system decades to just do a poor job compared to every other rich country and they have failed. They don’t even have very stiff competition. Singapore is doing some good stuff, but people can object that they are small (Japan also does some good things, so do a few countries in Europe). Still it seems like we could learn a great deal from them. But overall rich countries don’t do very well, and yet compared to these poor performances the USA stands out as extremely poor in comparison to them (how you spend twice as much and still do no better is amazing). And that this goes on for decades and the special interests have prevent reform is incredible.

Sure investment bankers have done well turning the government into serving their interests at the expense of the country but it is hard to say they have done nearly as much as the health care system. Given that we are pretty easily spending $1 trillion a year (maybe $1.5 trillion) due to how bad our health care system is (compared to other rich countries) means we are willing to continue to support a system costing us in excess of $1 trillion a year. I don’t think investment banks are able to siphon that much out of the economy through their directing Fed, SEC and Treasury department policy.

The cost to continue to support such a costly and poorly run USA health care system is becoming an increasingly dire issue as we have the population in the USA age. Health care spending for those over 50 increases drastically. And the economic benefit people provide decreases drastically after retirement (for most people 60 to 70 years of age). We face a huge problem if we don’t at least improve for spending 100% more than other rich countries to spending say 60% more. Even that will be a huge drain on our economy but the USA has so much wealth we likely could support that much waste (likely that cost will be over $1 trillion a year, if we don’t make those modest improvement costs will likely be over $2 trillion a year). Those costs just mean we have $1 or $2 trillion less to spend on other areas (education, new cars, police, smart watches, coffee, air travel, military…). As you can imagine it takes quite a lot of reduction in those areas to get to $1 trillion, getting to $2 trillion is very hard to imagine.

Related: USA Health Expenditures Reached $2.8 trillion in 2012: $8,915 per person and 17.2% of GDP – USA Spent a Record $2.7 Trillion, $8,680 per person, 17.9% of GDP on Health Care in 2011 – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007 – USA Spent $7,960 Compared to $3,800 for Other Rich Countries on Health Care in 2009 with No Better Health Results – USA Health Care Costs reach 15.3% of GDP – the highest percentage ever (2003)

Debt borrowed in other currencies is extremely risky, for substantial amounts. When things go bad they snowball. So if your economy suffers, your currency often suffers and then the repayment terms drastically become more difficult (you have to pay back the debt with your lower valued currency). And the economy was already suffering which is why the currency decreased and this makes it worse and they feed on each other and defaults have resulted in small economies over and over from this pattern.

If a government borrows in their currency they can always pay it back as the government can just print money. They may pay back money not worth very much but they can pay it back. Of course investors see this risk and depending on your economy and history demand high interest to compensate for this risk (of being paid back worthless currency). And so countries are tempted to borrow in another currency where rates are often much lower.

If you owe debts to other countries you have to pay that money outside the system. So it takes a certain percentage of production (GDP) and pays the benefit of that production to people in other countries. This is what has been going on in the USA for a long time (paying benefits to those holding our debt). Ironically the economic mess created by central banks and too-big-to-fail banks has resulted in a super low interest rate environment which is lousy for lenders and great for debtors (of which the USA and Japanese government are likely the 2 largest in the world).

The benefits to the USA and Japan government of super low interest rates is huge. It makes tolerating huge debt loads much easier. When interest rates rise it is going to create great problems for their economies if they haven’t grown their economies enough to reduce the debt to GDP levels (the USA is doing much better in this regard than Japan).

Japan has a much bigger debt problem than the USA in percentage terms. Nearly all their debt is owed to those in Japan so when it is paid it merely redistributes wealth (rather than losing it to those overseas). It is much better to redistribute wealth within your country than lose it to others (you can always change the laws to redistribute it again, if needed, as long as it is within your economy).

While inflation can allow you to payoff debt with less valuable dollars (or yen or whatever) and thus reduce the value of what is given to other countries (also to retirees and other holders of government debt but for the matter of losing wealth to other countries that isn’t a factor). But markets adjust and unless you have now paid off all your debt and owe nothing you have to borrow again, and lenders will demand larger interest payments to make up for the risk of your debasing the currency to pay them back worthless dollars. So while this can maybe work in the short term if you fool the markets it most likely doesn’t work in the long term for the USA.

It seems to me (it is up for debate) that debt to GDP levels above 70% are starting to be risky and above 100% are very risky. The USA and Japan can (at this time) get away with much higher levels than other countries for a number of reasons (Japan needing little foreign capital, the USA bing a huge economy that is still perceived as the safest store of money, other countries wanting to drive down their currency in relation to the $ to aid their businesses competitiveness with the USA…). While driving down their currency value does aid business competitiveness it is also a tax on consumers so I think the USA benefits more from these policies than others do, but for the time being they continue to pursue lower currency values.

Europe has added issues due to the complication of the Euro (it isn’t a currency the individual countries can just print). And government debt levels in Europe are bad (and economic growth is poor). China is also becoming a large debtor (though in very opaque and confusing ways to analyze). China’s debt is largely local (not federal) and locally owned (which is better than foreign owned – in as much as paying off production to service the debt, though it will be a problem when that debt is defaulted, which seems likely to happen to large amounts, say hundreds of billions of US$). But China is also very difficult to read it is requires having to makes guesses without clear visibility.

The government debt problem is even greater for other countries. Small and medium sized economies can quickly become unstable and debt levels can quickly go from acceptable to a huge economic problem as economic problems in the country compound upon themselves. This is especially true with large amounts of foreign held debt (when the foreigners decide they don’t like how things look they sell and likely prices collapse and more people panic… and even if the panic is held back if foreigners don’t keep adding to their holdings that creates economic problems). For these countries I think debt above 50% of GDP is risky. And if the debt is not in the country’s currency things can much more quickly get very bad.

2-year chart of Malaysian Ringgit (MYR) to US dollar (USD) from Yahoo Finance. See current 2 year chart.

Malaysia provides a recent example. The budget is based on government profits from natural resources and even with that has been running up large debts. With risks of USA raising interest rates the Malaysian Ringgit took a beating in the summer (as did several currencies). In many ways Malaysia has a strong economy but it is built with too much debt, both government and consumer debt. The amount of foreign borrowing was also high and when things started to become precarious for currencies in the summer Malaysia was one that investors ran from.

Now, with the collapse of oil prices in appears the economic risks became to great and the Ringgit was hit very hard. It has fallen from 32 to 33 US cents per Ringgit over the last few years to 30 to 31 cents in the fall, and about a week ago dropped another 7% to 28.5 cents.

The numbers seem a bit less dramatic because of the small values but $100,000 in Ringgit has lost $13,600 in about a year. This increases the prices of foreign goods you want to import (say Apple iPhones) and when your citizens travel internationally their costs have gone up 14% even in the prices didn’t increase in the local currency. This drastic drop is what happens as economic issues quickly compound and currencies amazingly quickly. It decreases the value of assets people hold though it does aid businesses competing internationally (though it is a bit tricky as when they need to buy good, they have increased costs due to their devalued currency).

Very likely interest rates in Malaysia will have to increase to tempt the foreign investors given the debt level (government and consumer) Malaysia finds itself with. And that means that debt will take an increasing share of economic productivity overseas (because of the higher interest levels on the debt). Higher interest rates will harm consumers with heavy debt loads, driving down consumption and creating more economic problems. Luckily the oil crisis probably won’t last years (in my opinion) and Malaysia has other strengths in the economy that may allow things to stop from deteriorating. But high debt levels put the country at risk and spending above even what the high profits from natural resources could provide may prove to have been too big a risk to take.

Related: Which Currency is the Least Bad? – Who Will Buy All the USA’s Debt? – USA Federal Debt Now $516,348 Per Household (2007) – Looking at the Malaysian Economy

But it also misleads in saying “real US unemployment rate.”

As Dr. Deming said: “there is no true value” of any measured process. The results depend on the process which includes the operation definitions used.

Over time the value of a measure (as a proxy measure for some condition you care to monitor) can change.

It is important to update measures to avoid using proxies that lose value.

The unemployment rate certainly has proxy issues. But there is no “true unemployment rate.” There are ways to change the process to focus on different things (make the proxy better matched to certain issues). But also it seems to me, unemployment rate needs to have other related measures that are considered in concert with the unemployment rate (such as the labor force participation rate, perhaps some measure of under-employment etc.).

Those paying much attention do use other measures in concert but the last few years I read lots of different people complaining that the unemployment rate doesn’t capture various aspects of how the job market is poor (and often claiming the unemployment rate was “inaccurate” as though there was a platonic form of the actual rate divorced from the measure process.

Related: What Do Unemployment Stats Mean? – Economic Measurement Issues Arising from Globalization – Why China’s Economic Data is Questionable

In fact, while the Fed has pumped about $2.8 trillion into the financial system through nearly five years of asset buying.

Bank excess reserves deposited with the New York Fed have mushroomed from less than $2 billion before the financial crisis to $2.17 trillion today. In essence, roughly two-thirds of the money the Fed pumped into the banking system never left the building.

The Fed now pays banks for their deposits. These payment reduce the Fed’s profits (the Fed send profits to the treasury) by paying those profits to banks so they can lavish funds on extremely overpaid executives that when things go wrong explain that they really have no clue what their organization does. It seems very lame to transfer money from taxpayers to too-big-to-fail executives but that is what we are doing.

Quantitative easing is an extraordinary measure, made necessary to bailout the too-big-to-fail institutions and the economies they threatened to destroy if they were not bailed out. It is a huge transfer payment from society to banks. It also end up benefiting anyone taking out huge amounts of new loads at massively reduced rates. And it massively penalizes those with savings that are making loans (so retirees etc. planing on living on the income from their savings). It encourages massively speculation (with super cheap money) and is creating big speculative bubbles globally.

This massive intervention is a very bad policy. The bought and paid for executive and legislative branches that created, supported and continue to nurture the too-big-to-fail eco-system may have made the choice – ruin the economy for a decade (or who knows how long) or bail out those that caused the too-big-to-fail situation (though only massively bought and paid for executive branch could decline to prosecute those that committed such criminally economically catastrophic acts).

The government is saving tens of billions a year (maybe even hundred of billions) due to artificially low interest rates. To the extent the government is paying artificially low rates to foreign holders of debt the USA makes out very well. To the extent they are robbing retirees of market returns it is just a transfer from savers to debtors, the too-big-to-fail banks and the federal government. It is a very bad policy that should have been eliminated as soon as the too-big-to-fail caused threat to the economy was over. Or if it was obvious the bought and paid for leadership was just going to continue to nurture the too-big-to-fail structure in order to get more cash from the too-big-to-fail donors it should have been stopped as enabling critically damaging behavior.

It has created a wild west investing climate where those that create economic calamity type risks are likely to continue to be rewarded. And average investors have very challenging investing options to consider. I really think the best option for someone that has knowledge, risk tolerance and capital is to jump into the bubble created markets and try to build up cash reserves for the likely very bad future economic conditions. This is tricky, risky and not an option for most everyone. But those that can do it can get huge Fed created bubble returns that if there are smart and lucky enough to pull off the table at the right time can be used to survive the popping of the bubble.

Maybe I will be proved wrong but it seems they are leaning so far into bubble inflation policies that the only way to get competitive returns is to accept the bubble nature of the economic structure and attempt to ride that wave. It is risky but the supposedly “safe” options have been turned dangerous by too-big-to-fail accommodations.

Berkshire’s Munger Says ‘Venal’ Banks May Evade Needed Reform (2009)

Related: The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse – Is Adding More Banker and Politician Bailouts the Answer? – Anti-Market Policies from Our Talking Head and Political Class

Wahid Says Ringgit Too Weak as Growth Improves: Southeast Asia

India and Indonesia have experienced large stock market declines and currency devaluations recently. The Malaysian Ringgit has declines 10% against the US $ in the last 3 months. Malaysia is holding up ok, but is venerable as these international loses of confidence often sweep over countries (and move from country to country).

The main foreign exchange earner recently seems to be selling property, that isn’t a good way to be earning foreign currency (selling assets). It is ok to do this to some extent, but relying on large inflows this way is very risky (and self defeating over the long term if it is too large). Even though palm oil and rubber exports are declining a bit, I believe they are still strong sources of foreign currency so that is good.

I agree completely with his last statement. The issue is fixing the fundamentals. The statement can also be made that if you don’t fix the fundamentals short term market declines are the indication of the beginning of long term market declines. The critical point is fixing the fundamental problems and in Malaysia the most likely top of those fundamental issues is reducing debt levels (for the government and consumers). Fix that, at the other strengths of Malaysia’s economy will likely create a very positive future.

Large foreign ownership of debt is also risky, as those foreigners can pull out investments quickly. Investment sentiments change quickly and it is easy for fearful investors to overreact (especially with funds they have invested in other countries).

Related: Malaysian Economy Continues to Expand, Budget Deficits Remain High – Pursuing a Growing Economy While Avoiding the Pitfalls That Befall to Many Middle Income Countries – GDP Growth Per Capita for Selected Countries from 1970 to 2010 (Malaysia, Singapore, Korea, Indonesia…)

Medical tourism is on of the most attractive economic growth areas. However the competition is fairly high as the attractiveness of building such an industry is well known. Countries that have very good potential are: Thailand, Mexico, Malaysia, Singapore (for high end solutions), Costa Rica, India, Philippines and Panama. India has some great advantages but they have a deeply ingrained and extremely unhelpful bureaucracy. It seems to me that that creates a burden that likely means India can’t complete with the others effectively.

Even for the simplest aspect – visas for those seeking to bring income into the country as medical tourists I don’t have confidence India can do well.

Cayman to Singapore Gain as Rules Stump Clinics: Corporate India

India continues to be held back economically (across the entire economy not just in health care) by ineffective and burdensome regulation and government inefficiency.

The USA actually has a portion of the medical tourism market – those that have no concern about price (royalty, trust fund babies, movie stars etc.). Those with any concern about price can find the same level of care in Singapore, Japan, France, etc. at a fraction of the price.

I believe 2 or 3 countries in South East Asia will do very well with international medical care. The extent to which Thailand, Philippines, Singapore and Malaysia (and potentially others) do in this field could greatly impact their economic success. There is a great potential for Singapore and Malaysia to cooperate in this area (in Malaysia’s Iskandar region, which borders Singapore).

Related: Traveling To Avoid USA Health Care Costs –
Traveling for Health Care (2007) – Leading Countries for Economic Freedom: Hong Kong, Singapore, New Zealand…