James Pethokoukis

Politics and policy from inside Washington

PelosiCare could be bad news for the dollar

November 9, 2009

If the Reserve Bank of India’s directors had any doubts about the wisdom of buying 200 tonnes of IMF gold — and likely dumping some U.S. Treasuries in the process — they had only to watch last weekend’s legislative activities on Capitol Hill. The proceedings provided plenty of reassurance that the move was a smart play.

Nothing in the healthcare reform bill that passed the House of Representatives should give investors in dollar-denominated assets any confidence that U.S. policymakers are serious about tackling the government’s structural budget deficit.

And if the dollar’s gradual decline hastens dangerously, deficit fears might well be the catalyst.

Yes, the healthcare plan does slightly trim the 10-year budget deficit from where it would be otherwise. But America’s long-term entitlement problems are such that healthcare reform needs to cut long-term health costs substantially rather than just being “deficit neutral”.

Even worse, to believe in even the modest claims of deficit neutrality, one has to also possess faith that some $500 billion in 10-year Medicare cuts will really happen. That is a monstrously tall order when Congress is working feverishly to restore those cuts in legislative side deals.

Another way the House proposes to pay for reform is through a 5.4 percent income surtax on wealthier Americans and small businesses.

Like America’s alternative minimum tax, this surtax is not indexed for inflation. So every year, the levy will affect more and more taxpayers. Unless, of course, Congress passes a temporary fix every year, as it does with the AMT. Such a move would protect the middle class, but it would also make expanded healthcare coverage a fiscal fiasco.

The House plan will surely be altered by whatever the Senate passes, assuming the Senate is able to pass anything. But the House bill is still a disturbing sign that fiscal rectitude is a low priority for at least half of the legislative branch.

Higher gold prices seem to go hand in hand with bad U.S. economic policy, be it the higher inflation of the Carter years or the budget busting of the Bush II years. And surging gold prices may be giving a thumbs down to Washington economic policy this time as well

Comments

Men like Jame Pethokoukis and Robert Samuelson are doing The Lord’s work explaining complex financial and economic matters to the public.

We should lock all congressmen and senators in a theater, Clockwork Orange-like, and make them listen to these men.

http://westernhero.blogspot.com/

 

The entire situation reminds me oif the Argentine national bankruptcy a decade ago. When the process was finished, people got about 23 cents on the dollar for their pensions and health care.
Our government is poromising more than can issibly be delivered.

Posted by John D. Froelich | Report as abusive
 

Can you think of anything that PelosiCare would be good news for, besides more Democrats sapping away our freedoms?

She’s promising higher taxes — which is never good for our economy. She’s promising to throw people in jail who refuse to participate. She’s promising to force small businesses to provide insurance — which I can guarantee will get at least a few of my employees fired, because there’s no room in the budget for that. Pounding the economy into the ground with oppressive policies is sure to reduce the dollar to Monopoly money.

Posted by HypnoToad | Report as abusive
 

Doesn’t anyone think that the Dems and Obama WANT the government to fail? With all their Marxist polices I can’t see any other reason to do all that they are doing.

Posted by Robert | Report as abusive
 

They claim it is deficit neutral, but that is only if demand remains constant. With people able to say sure run the test the goverment will pay for it, we will see a massive increase in unessassary medical procedures, thus massivly increasing the cost of health care.

There is no way this will not add to the deficit, Dems know this they just dont care as they see this as an amazing way to massivly increase the size scope and power of the goverment. We must stop this, call your senators today and tell them that if they vote for this you will vote against them.

Posted by Joe | Report as abusive
 

Ah yes……Pelosi Peso here we come.

Posted by Army of Davids | Report as abusive
 

what happens to Medicare, and I can not afford health Insurance for my wife

Posted by Chad | Report as abusive
 

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