Investing Curiouscatblog

Tag: USA

  • The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse

    Printing money (and the newer fancier ways to introduce liquidity/capital) work until people realize the money is worthless. Then you have massive stagflation that is nearly impossible to get out from under. The decision by the European and USA government to bail out the too big to fail institutions and do nothing substantial to address the problem leaves an enormous risk to the global economy unaddressed and hanging directly over our heads ready to fall at any time.

    The massively too big to fail financial institutions that exist on massive leverage and massive government assistance are a new (last 15? years) danger make it more likely the currency losses value rapidly as the government uses its treasury to bail out their financial friends (this isn’t like normal payback of a few million or billion dollars these could easily cost countries like the USA trillions). How to evaluate this risk and create a portfolio to cope with the risks existing today is extremely challenging – I am not sure what the answer is.

    Of the big currencies, when I evaluate the USA $ on its own I think it is a piece of junk and wouldn’t wan’t my financial future resting on it. When I look at the other large currencies (Yen, Yuan, Euro) I am not sure but I think the USD (and USA economy) may be the least bad.

    In many ways I think some smaller countries are sounder but smaller countries can very quickly change – go from sitting pretty to very ugly financial situations. How they will wether a financial crisis where one of the big currencies losses trust (much much more than we have seen yet) I don’t know. Still I would ideally place a bit of my financial future scattered among various of these countries (Singapore, Australia, Malaysia, Thailand, Brazil [maybe]…).

    Basically I don’t know where to find safety. I think large multinational companies that have extremely strong balance sheets and businesses that seem like they could survive financial chaos (a difficult judgement to make) may well make sense (Apple, Google, Amazon, Toyota, Intel{a bit of a stretch}, Berkshire Hathaway… companies with lots of cash, little debt, low fixed costs, good profit margins that should continue [even if sales go down and they make less they should make money – which many others won’t]). Some utilities would also probably work – even though they have large fixed costs normally. Basically companies that can survive very bad economic times – they might not get rich during them but shouldn’t really have any trouble surviving (they have much better balance sheets and prospects than many governments balance sheets it seems to me).

    In many ways real estate in prime areas is good for this “type” of risk (currency devaluation and financial chaos) but the end game might be so chaotic it messes that up. Still I think prime real estate assets are a decent bet to whether the crisis better than other things. And if there isn’t any crisis should do well (so that is a nice bonus).

    Basically I think the risks are real and potential damage is serious. Where to hide from the storm is a much tricker question to answer. When in that situation diversification is often wise. So diversification with a focus on investments that can survive very bad economic times for years is what I believe is wise.

    Related: Investing in Stocks That Have Raised Dividends Consistently – Adding More Banker and Politician Bailouts in Not the Answer –
    Failures in Regulating Financial Markets Leads to Predictable Consequences – Charlie Munger’s Thoughts on the Credit Crisis and Risk – The Misuse of Statistics and Mania in Financial Markets

  • USA Spent a Record $2.7 Trillion, $8,680 per person, 17.9% of GDP on Health Care in 2011

    USA health care spending continues to grow, consuming an ever increasing share of the economic production of the USA. USA health care spending is twice that of other rich countries for worse health care results.

    • USA health care expenditures grew 3.9% to $2.7 trillion in 2011, or $8,680 per person, and accounted for 17.9% of Gross Domestic Product (GDP).
    • Medicare spending grew 6.2% to $554.3 billion in 2011, to 21% of total health care spending.
    • Medicaid spending grew 2.5% to $407.7 billion in 2011, or 15% of total health care spending.
    • Private health insurance spending grew 3.8% to $896.3 billion in 2011, or 33 percent of total health care expenditures.
    • Out of pocket spending grew 2.8% to $307.7 billion in 2011, or 11 percent of total health care spending.
    • Hospital expenditures grew 4.3% to $850.6 billion in 2011.
    • Physician and clinical services expenditures grew 4.3% to $541.4 billion in 2011.
    • Prescription drug spending increased 2.9% to $263.0 billion in 2011.
    • Per person personal health care spending for the 65 and older population was $14,797 in 2004, 5.6 times higher than spending per child ($2,650) and 3.3 times spending per working-age person ($4,511).

    Individuals (28%) and the federal government (28%) accounted for the largest share of those paying for health care in the USA. Businesses pay 21% of the costs of health care while state and local governments pay 17%.

    The United States Centers for Medicare & Medicaid Services (CMS) project that health care spending will rise to 19.6% of GDP by 2021. Since the long term failure of the USA health care system has resulted in costs increasing faster than inflation every year for decades, it seems reasonable to expect that trend to continue. The burden on the USA grows more and more harmful to the USA each year these rising costs continue.

    In 2004, the elderly (65 years old and older) accounted for 12% of the population, and accounted for 34% of spending.

    Data from US CMS (sadly the way they provide the data online my guess is this url will fail to work in a year, as they post the updated data – I don’t see a way to provide a link to a url with persistent data).

    Half of the population spends little or nothing on health care, while 5% of the population spends almost half of the total amount (The High Concentration of U.S. Health Care Expenditures: Research in Action).

    Related: USA Spends Record $2.5 Trillion, $8,086 per person 17.6% of GDP on Health Care in 2009 – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007 – USA Health Care Costs reach 15.3% of GDP – the highest percentage ever (2005) – Systemic Health Care Failure: Small Business Coverage

  • Top Nations for Retirement Security of Their Citizens

    Across the globe, saving for retirement is a challenge. Longer lives and expensive health care create challenge to our natures (saving for far away needs is not easy for most of us to do – we are like the grasshopper not the ants, we play in the summer instead of saving). This varies across the globe, in Japan and China they save far more than in the USA for example.

    The United States of America ranks 19th worldwide in the retirement security of its citizens, according to a new Natixis Global Retirement Index. The findings suggest that Americans will need to pick up a bigger share of their retirement costs – especially as the number of retirees grows and the government’s ability to
    support them fades. The gauges how well retired citizens live in 150 nations, based on measures of health, material well-being, finances and other factors.

    Top Countries for Retirees

    • 1 – Norway
    • 2 – Switzerland
    • 3 – Luxembourg
    • 6 – Finland
    • 9 – Germany
    • 10 – France
    • 11 – Australia
    • 13 – Canada
    • 15 – Japan
    • 19 – USA
    • 20 – United Kingdom

    Western European nations – backed by robust health care and retiree social programs – dominate the top of the rankings, taking the first 10 spots, including Sweden, Austria, Netherlands and Denmark. The USA finished ahead of the United Kingdom, but trailed the Czech Republic and Slovakia.

    Globally, the number of people aged 65 or older is on track to triple by 2050. By that time, the ratio of the working-age population to those over 65 in the USA is expected to drop from 5-to-1 to 2.8-to-1. The USA actually does much better demographically (not aging as quickly) as other rich countries mainly due to immigration. Slowing immigration going forward would make this problem worse (and does now for countries like Japan that have very restrictive immigration policies).

    The economic downturn has taken a major toll on retirement savings. According to a recent report by the U.S. Senate Committee on Health, Education, Labor and Pensions, the country is facing a retirement savings deficit of $6.6 trillion, or nearly $57,000 per household. As a result, 53% of American workers 30 and older are on a path that will leave them unprepared for retirement, up significantly from 38% in 2011.

    On another blog I recently wrote about another study looking at the Best Countries to Retirement Too: Ecuador, Panama, Malaysia. The study in the case was looking not at the overall state of retirees that worked in the country (as the study discussed in this post did) but instead where expat retirees find good options (which stretch limited retirement savings along with other benefits to retirees).

    See the full press release.

    Related: Top Stock Market Capitalization by Country from 1990 to 2010 – Easiest Countries in Which to Operate a Businesses: Singapore, Hong Kong, New Zealand, USA – Largest Nuclear Power Generation Countries from 1985-2010 – Leading countries for Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland – Countries with the Top Manufacturing Production

  • Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany

    Chart of manufacturing output from 1999 to 2011 for China, USA, Japan and Germany
    Chart of manufacturing production by China, USA, Japan and Germany from 1999 to 2011. The chart was created by the Curious Cat Economics Blog using UN data. You may use the chart with attribution. All data is shown in current USD (United States Dollar).

    The story of global manufacturing production continues to be China’s growth, which is the conventional wisdom. The conventional wisdom however is not correct in the belief that the USA has failed. China shot past the USA, which dropped into 2nd place, but the USA still manufactures a great deal and has continually increased output (though very slowly in the last few years).

    The story is pretty much the same as I have been writing for 8 years now. The biggest difference in that story is just that China actually finally moved into 1st place in 2010 and, maybe, the slowing of the USA growth in output (if that continues, I think the USA growth will improve). I said last year, that I expected China to build on the lead it finally took, and they did so. I expect that to continue, but I also wouldn’t be surprised to see China’s momentum slow (especially a few more years out – it may not slow for 3 or 4 more years).

    As before, the four leading nations for manufacturing production remain solidly ahead of all the rest. Korea and Italy had manufacturing output of $313 billion in 2011 and Brazil moved up to $308 are in 4-6 place. Those 3 countries together could be in 4th place (ahead of just Germany). Even adding Korea and Italy together the total is short of Germany by $103 in 2011). I would expect Korea and Brazil to grow manufacturing output substantially more than Italy in the next 5 years.

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  • Health Care Costs Continue to Grow Including Costs Missed in Economic Data

    A recent report by Deloitte, The Hidden Costs of U.S. Health Care: Consumer Discretionary Health Care Spending provides some interesting data.

    Between 2006 and 2010 USA health care expenditures increased by 19%. Government spending accounted for 40% of costs (remember that figure is lowered due to Deloitte’s including inputed value for care of relatives). Those 65 and older account for 61% of the inputed cost care that is provided.

    chart of USA health care spending by age group
    Seniors and baby boomers account for 64% of health care costs, but comprise only 40% of the USA population. The imputed cost of supervisory care and hospital care are far higher proportions of health care expenditures of seniors (65 and older).
    An additional $621 billion in direct and indirect costs was estimated for goods and services above what is captured in NHEA accounting. Of this additional amount, $492 billion (79 percent) is the imputed value of unpaid supervisory care given to individuals by family or friends.

    I find this imputed value largely not worth considering. There are problems with the way we count GDP and economic activity (that affect health care and lots of other things). It is fine to be aware that they think $492 billion of extra care is given by family members but using that figure in any sensible way (other than saying hey there is a huge cost in people’s time to dealing with our health care system and sick people that isn’t counted in economic data) is questionable.

    It is useful in looking at the increasingly old population we will see in the future and judging their is a large need for supervisory care that is not captured in just looking at the costs included in economic data currently. Not only will our grandkids have to pay for our living beyond our means today they will have to do so while providing unpaid care to their parents and grandparents.

    The burden of long term supervisor care (that which can be provided by a non-health care professional) is one reason a resurgence in multi-generation housing options make sense to me. There are other good reasons also (child care, socialization, financial support to the young…). There are some real advantages and real disadvantages to such options. But I think economic advantages are going to encourage more of this going forward.

    Related: Personal Finance Basics: Long-term Care Insurance – Health Care in the USA Cost 17.9% of GDP, $2.6 Trillion, $8,402 per person in 2010 – Resources for Improving Health Care System Performance

  • Long Term View of Manufacturing Employment in the USA

    Manufacturing employment is on a long term decline, in the USA and the world. The massive increases in productivity allow fewer and fewer people to produce more and more good. This is a good thing as it allows us to afford more good with less cost. But it does mean fewer manufacturing jobs, which are very good jobs, exist. This is a shame but something we shouldn’t anticipate changing. Believing we will globally, or in the USA, return to the huge number of manufacturing that were available previously jobs is not a wise conclusion to reach. Certainly there can be short term fluctuations that lead to increased jobs – that has happened in the last year for example.

    graph of Manufacturing_employment jobs in the USA (1940 - 2012)

    The most surprising thing to me about this graph is how stable employment was through 2000. From 1980 to 2000 the most common idea was the USA no longer manufactured anything. This idea was wrong, as I have written about previously: Chart of top 15 countries manufacturing output over time (2009) – Top 10 manufacturing countries in 2006. But I did think employment declined more from 1970 to 2000.

    One factor in this perception is that the number of employed people in the USA has continued to grow. So even remaining somewhat stable from 1970 to 2000, as a percentage of the labor force the jobs kept shrinking. The more important factor that played on people emotionally is factories being shut down got much more attention in the news than new jobs being added. So the perception was tons of jobs were being lost and none were being gained.

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  • Manufacturing Output as Percent of GDP from 1980 to 2010 by Country

    The largest manufacturing countries are China, USA, Japan and then Germany. These 4 are far in the lead, and very firmly in their positions. Only the USA and China are close, and the momentum of China is likely moving it quickly ahead – even with their current struggles.

    The chart below shows manufacturing production by country as a percent of GDP of the 10 countries that manufacture the most. China has over 30% of the GDP from manufacturing, though the GDP share fell dramatically from 2005 and is solidly in the lead.

    Nearly every country is decreasing the percentage of their economic output from manufacturing. Korea is the only exception, in this group. I would expect Korea to start following the general trend. Also China has reduced less than others, I expect China will also move toward the trend shown by the others (from 2005 to 2010 they certainly did).

    For the 10 largest manufacturing countries in 2010, the overall manufacturing GDP percentage was 24.9% of GDP in 1980 and dropped to 17.7% in 2010. The point often missed by those looking at their country is most of these countries are growing manufacturing, they are just growing the rest of their economy more rapidly. It isn’t accurate to see this as a decline of manufacturing. It is manufacturing growing more slowly than (information technology, health care, etc.).

    chart of manufacturing output as percent of GDP by country from 1980 to 2010
    This chart shows manufacturing output, as percent of GDP, by country and was created by the Curious Cat Economics Blog based on UN data. You may use the chart with attribution.

    The manufacturing share of the USA economy dropped from 21% in 1980 to 18% in 1990, 15% in 2000 and 13% in 2010. Still, as previous posts show, the USA manufacturing output has grown substantially: over 300% since 1980, and 175% since 1990. The proportion of manufacturing output by the USA (for the top 10 manufacturers) has declined from 33% in 1980, 32% in 1990, 35% in 2000 to 26% in 2010. If you exclude China, the USA was 36% of the manufacturing output of these 10 countries in 1980 and 36% in 2010. China’s share grew from 7.5% to 27% during that period.

    The United Kingdom has seen manufacturing fall all the way to 10% of GDP, manufacturing little more than they did 15 years ago. Japan is the only other country growing manufacturing so slowly (but Japan has one of the highest proportion of GDP from manufacturing – at 20%). Japan manufactures very well actually, the costs are very high and so they have challenges but they have continued to manufacture quite a bit, even if they are not growing output much.

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  • Leading Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland

    Hong Kong again topped the rankings, followed by Singapore, New Zealand, and Switzerland. Australia and Canada tied for fifth, of the 144 countries and territories in the Fraiser Institute’s 2012 Economic Freedom of the World Report.

    “The United States, like many nations, embraced heavy-handed regulation and extensive over-spending in response to the global recession and debt crises. Consequently, its level of economic freedom has dropped,” said Fred McMahon, Fraser Institute vice-president of international policy research.

    The annual Economic Freedom of the World report uses 42 distinct variables to create an index ranking countries around the world based on policies that encourage economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of private property. Economic freedom is measured in five different areas: (1) size of government, (2) legal structure and security of property rights, (3) access to sound money, (4) freedom to trade internationally, and (5) regulation of credit, labor, and business.

    Hong Kong offers the highest level of economic freedom worldwide, with a score of 8.90 out of 10, followed by Singapore (8.69), New Zealand (8.36), Switzerland (8.24), Australia and Canada (each 7.97), Bahrain (7.94), Mauritius (7.90), Finland (7.88), Chile (7.84).

    The rankings and scores of other large economies include: United States (18th), Japan (20th), Germany (31st), South Korea (37th), France (47th), Italy (83rd), Mexico (91st), Russia (95th), Brazil (105th), China (107th), and India (111th).

    When looking at the changes over the past decade, some African and formerly Communist nations have shown the largest increases in economic freedom worldwide: Rwanda (44th this year, compared to 106th in 2000), Ghana (53rd, up from 101st), Romania (42nd, up from 110th), Bulgaria (47th, up from 108th), and Albania (32nd, up from 77th). During that same period the USA has dropped from 2nd to 19th.

    The rankings are similar to the World Bank Rankings of easiest countries in which to do business. But they are not identical, the USA is still hanging in the top 5 in that ranking. The BRICs (Brazil, Russia, India and China) do just as poorly in both. The ranking due show the real situation of economies that are far from working well in those countries. China and Brazil, especially, have made some great strides when you look at increasing GDP and growing the economy. But there are substantial structural changes needed. India is suffering greatly from serious failures to improve basic economic fundamentals (infrastructure, universal education, eliminating petty corruption [China has serious problems with this also]…).

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  • Easiest Countries in Which to Operate a Businesses (2011)

    Singapore is again ranked first for Ease of Doing Business by the World Bank.

    Country 2011 2008 2005
    Singapore 1 1 2
    Hong Kong 2 4 6
    New Zealand 3 2 1
    United States 4 3 3
    Denmark 5 5 7
    other countries of interest
    United Kingdom 7 6 5
    Korea 8 23 23
    Canada 13 8 4
    Malaysia 18
    Germany 19 25 21
    Japan 20 12 12
    France 29 31 47
    Mexico 53 56 62
    Ghana 63
    China 91 83 108
    India 132 122 138
    Brazil 126 122 122

    The rankings include ranking of various aspects of running a business. Some rankings for 2011: starting a business (New Zealand 1st, Singapore 4th, USA 13th, Japan 107th), Dealing with Construction Permits (Hong Kong 1st, New Zealand 2nd, Singapore 3rd, USA 17th, China 179th), protecting investors (New Zealand 1st, Singapore 2nd, Hong Kong 3rd, Malaysia 4th, USA 5th), enforcing contracts (Luxemburg 1, Korea 2, Iceland 3, Hong Kong 5, USA 7, Singapore 12, China 16, India 182), paying taxes (Maldives 1, Hong Kong 3, Singapore 4, USA 72, Japan 120, China 122, India 147).

    These rankings are not the final word on exactly where each country truly ranks but they do provide a valuable source of information. With this type of data there is plenty of room for judgment and issues with the data.

    Related: Easiest Countries from Which to Operate Businesses 2008 – Stock Market Capitalization by Country from 1990 to 2010 – Looking at GDP Growth Per Capita for Selected Countries from 1970 to 2010 – Top Manufacturing Countries (2000 to 2010) – Country Rank for Scientific Publications – International Health Care System Performance – Best Research University Rankings (2008)

  • Household Income Data in the USA Since the Credit Crisis Recession Began

    Big Income Losses for Those Near Retirement takes a look at some interesting data, including data on median income drops due to the too-big-too-fail credit crisis recession.

    Households led by people between the ages of 55 and 64 have taken the biggest hit; their household incomes have fallen to $55,748 from $61,716 over the last three years, a decline of 9.7 percent.

    The post also includes data showing the only groups with income increases as those 65-74 years old and, 75 and over which is surprising. 25-34 took the 2nd largest drop decreasing 8.9%.

    Another interesting tidbit is the percent of people over 65 with jobs. In 1960 20% of those over 65 had jobs. Which pretty much decreased steadily to 10% in 1986 and then has increased steadily to 17% in 2011.

    Related: USA Individual Earnings Levels: Top 1% $343,000, 5% $154,000, 10% $112,000, 25% $66,000 –
    Looking at Data on the Value of Different College Degrees – 60% of Workers in the USA Have Less Than $25,000 in Retirement Savings – Credit Card Regulation Has Reduced Abuse By Banks