Tag: inflation

CalPERS’ Refusal to Put Clearly Insolvent Long-Term Care Insurance Plan in Bankruptcy Increases Harm to Policyholders and Makes Board and Responsible Executives Liable

Mary Pat Campbell

Link: https://www.nakedcapitalism.com/2023/02/calpers-refusal-to-put-clearly-insolvent-long-term-care-insurance-plan-in-bankruptcy-increases-harm-to-policyholders-and-makes-board-and-responsible-executives-liable.html

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The CalPERS long-term care fiasco continues, with the board and staff taking a course of action that increases harm to policyholders by continuing to bleed them rather than put the program in bankruptcy.

For those new to this train wreck, the public comment at the February 14 CalPERS board meeting by policy-holder and certified financial planner Lawrence Grossman provides an introduction. A key bit of background is that state legislation allowed CalPERS to jump on the long-term care insurance bandwagon in the 1990s. Most of these insurance plans have gotten into a world of hurt by underestimating the degree to which proper elder care would extend lifepsans of policy-holders and overestimating the lapse rate (lapsed policies mean the premiums paid by dropouts benefit the remaining policyholders). But CalPERS’ recklessness and incompetence were in a league of its own.

CalPERS not only considerably underpriced its policies compared to commercial competitors, but it made matters worse via giving CalPERS policyholders the options of lifetime benefits (as opposed to fixed dollar benefits) and inflation protection. Inflation protection would seem like an incredible promise for any long-term insurance scheme. Yet the policies were advertised as CalPERS policies, not those of a free-standing “CalPERS Long-Term Care Fund,” as in not backed by CalPERS or the state of California.

….

Four years later and things are going according to CalPERS’ abusive plan. Even though Judge Highberger clearly rejected CalPERS’ position that it can violate policy terms and raise premiums, CalPERS has continued to increase premiums because the court so far has issued only preliminary decisions. Note these increases are vastly in excess of those implemented by commercial carriers.

Author(s): Yves Smith

Publication Date: 15 Feb 2023

Publication Site: naked capitalism

The Fed Goes Underwater

Mary Pat Campbell

Link: https://www.city-journal.org/fed-goes-underwater

Excerpt:

Before new trillion-dollar federal spending bonanzas became a regular occurrence, the Federal Reserve’s announcement that it lost over $700 billion might have garnered a few headlines. Yet the loss met with silence. Few Americans have noticed the huge increase in both the scale and the scope of the central bank or the dangers that it poses to the American economy. As Fed-driven inflation becomes the Number One political issue in America, that will change.

The Fed’s losses owe to a shift in the way it does business. Before the 2008 financial meltdown, the central bank tried to control interest rates by buying and selling U.S. bonds. A few billion in purchases or sales could move the whole economy, and this meant that the Fed, which operates much like a normal bank, could keep a relatively small balance sheet of under $1 trillion.

Since the financial crisis, the Federal Reserve, like other developed-world central banks, has used a different playbook. It provides enough funds to satiate the entire banking world, and it seeks to adjust the economy by paying banks more or less interest to hold those funds. These payments keep private-sector interest rates from dropping too low. When it first undertook this “floor” experiment, the Fed’s balance sheet exploded to more than $4 trillion. After the Covid pandemic, it approached $9 trillion.

A larger balance sheet means greater risks. And the Fed has added to that risk by purchasing longer-duration assets. Pre–financial crisis, the Fed bought mainly short-term federal debt. Only about 10 percent of all the U.S. bonds owned by the central bank lasted longer than ten years. Now, that figure has risen to 25 percent.

Author(s): Judge Glock

Publication Date: Winter 2023

Publication Site: City Journal

Argentina’s Inflation Crisis

Mary Pat Campbell

Link: https://reason.com/2023/01/29/argentinas-inflation-crisis/

Excerpt:

Argentina is no stranger to economic turmoil, having defaulted on its national debt three times since 2001. Now the country is facing another bout of brutal inflation, with an annual inflation rate of 88 percent reported in October, up from 50 percent in January 2022.

Argentine photographer Irina Werning captured the frustration working Argentines feel in a photo series. “Inflation destroys savings, impedes planning, and discourages investment,” she wrote in her introduction.

In August, when the reported inflation rate hit 78.5 percent, Argentine workers held a mock funeral procession, complete with casket, to mourn the “death of wages.”

Author(s): Mike Riggs

Publication Date: February 2023

Publication Site: Reason

The Biden Bucks Blowout

Mary Pat Campbell

Link: https://www.city-journal.org/the-biden-bucks-blowout

Excerpt:

Not to worry: the Biden administration is coming to the rescue. The town of Palm Beach Gardens is using $2 million in federal money from President Biden’s $1.9 trillion American Rescue Plan Act (ARPA) to build a $16 million public course, with a two-story clubhouse and driving range that should help at least partially slake the new thirst for golf. The city’s project, one of several golf-course investments that the Biden legislation is funding, is entirely within the spirit of the “rescue” act, which devotes only about 9 percent of its money to public-health causes that fight the virus but allocates hundreds of billions of dollars to local governments and schools for the vague task of providing “support for a recovery” and funding “investments in infrastructure.” As one wag at a South Florida newspaper observed, “If this keeps up much longer, Palm Beach Gardens may get an equestrian center from it.”

Showering local governments with unprecedented federal dollars, ARPA is the last of several emergency packages, totaling more than $5 trillion, to come from Washington in response to the pandemic. Though termed a “rescue bill” to enhance its appeal, the Biden legislation was more of a stimulus, designed to stoke spending by the country’s tens of thousands of local governments to boost economic activity. Signed by the president in March 2021, even as the economy was recovering and tax revenues were rebounding far faster than most analysts had predicted, ARPA allows for wide discretion in how to spend “Biden Bucks.”

The federal money has turned pols into the proverbial kids in the candy shop. They’re using it to restart parades, fund street performers, upgrade high school weight rooms and sports fields, and build bike paths, golf courses, pickleball courts, and other “essential” infrastructure. Billions of dollars are going to illegal aliens. Cities are testing efforts to give low-income residents guaranteed money that supporters say will end poverty. Municipalities are moving to construct their own broadband networks, in competition with the private sector. It’s all part of a program whipped up so quickly that it included billions of dollars for municipal governments that don’t even exist.

To many local officials, ARPA’s allocations seem like free money. But it comes at a cost to the United States. The act’s funds haven’t been generated by taxes or other federal revenues. Instead, they’re financed by “printing” new money (something done mostly via electronic keystrokes these days)—massively expanding the dollars in circulation and thus intensifying our current inflation, the highest in decades. Aside from the pain that the upward spiral of costs is causing ordinary Americans, inflation is also raising the price that governments pay for essential services like police and fire protection, even as politicians rush to spend their one-time Biden Bucks on ephemeral projects and untested programs. With a Federal Reserve–induced recession, sparked by high interest rates to curb inflation, now a distinct possibility, Biden Bucks may soon be remembered as the spending blowout that preceded a local government budget bust-up.

Author(s): Steve Malanga

Publication Date: Autumn 2022

Publication Site: City Journal

Inflation Cools to 7.1 Percent, but Still Has a Long Way To Fall

Mary Pat Campbell

Link: https://reason.com/2022/12/13/inflation-cools-to-7-1-percent-but-still-has-a-long-way-to-fall/

Excerpt:

Inflation finally slowed to a near halt in November, possibly signaling a winding down of the prices crisis that has gripped American households this year.

Prices rose just 0.1 percent on average during November, the Department of Labor reported on Tuesday morning. The year-over-year inflation rate fell as well, to 7.1 percent for the 12 months ending in November. That’s the lowest annualized rate since December 2021, and is significantly lower than the 7.8 percent annualized rate reported a month ago.

This also marks the fifth consecutive month in which the annualized inflation rate has held steady or fallen, after peaking in July at an astounding 9.0 percent.

That trend suggests that the Federal Reserve has finally gotten a collar on rising prices. The central bank’s board is expected to hike interest rates for the seventh time this year when it meets on Wednesday. That means it will continue getting more expensive to obtain a mortgage or a car loan, and credit card interest rates will continue to rise—but also that savings accounts and other interest-based investment vehicles are paying larger returns.

Author(s): Eric Boehm

Publication Date: 13 Dec 2022

Publication Site: Reason

Federal Reserve hikes rates again

Mary Pat Campbell

Link: https://www.thecentersquare.com/national/federal-reserve-hikes-rates-again/article_da8ec844-7be2-11ed-9977-17d7d24d73fb.html

Excerpt:

The U.S. Federal Reserve announced a new rate increase of half a percentage point Wednesday in its ongoing effort to curb inflation.

The Fed raised the rate by 50 basis points, as expected, the seventh rate hike this year. This increase is smaller than the four previous 75 basis point increases but is still a notable increase, putting the range at 4.25%-4.5%.

“Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low,” the Fed said. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

The Fed blamed the Russian war in Ukraine for the price hikes. That war delayed the supply chain and increased costs, but the price increases began long before that war, due in part to trillions of dollars in federal debt spending since the pandemic began.

Author(s): Casey Harper

Publication Date: 14 Dec 2022

Publication Site: The Center Square

CPI Report Shows U.S. Inflation Eased in November

Mary Pat Campbell

Link: https://www.wsj.com/articles/us-inflation-november-2022-consumer-price-index-11670883405

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The Labor Department on Tuesday said that its consumer-price index climbed 7.1% in November from a year ago, down sharply from 7.7% in October—building on a trend of moderating price increases since June’s 9.1% peak.

Core CPI, which excludes volatile energy and food prices, rose 6% in November from a year ago, easing from a 6.3% gain in October. September’s 6.6% increase was the biggest jump since August 1982.

Author(s): Gwynn Guilford

Publication Date: 13 Dec 2022

Publication Site: WSJ

Inflation Around the World: How Does the US Compare to Canada and the EU?

Mary Pat Campbell

Link: https://mishtalk.com/economics/inflation-around-the-world-how-does-the-us-compare-to-canada-and-the-eu

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  • Inflation in the US was the first to peak.
  • US inflation peaked in June at 9.06 percent and is currently (through September) at  8.20 percent.
  • Inflation in France peaked at the lowest rate, 6.08 percent.
  • France also has the lowest current rate of 5.55 percent.  
  • Inflation in Germany is 9.99 percent and still rising
  • Inflation in Italy is 8.87 percent and still rising
  • Inflation in Spain was the highest peak so far at 10.77 percent
  • Inflation in the UK is 8.80 percent matching the July high.
  • Inflation in Canada peaked at 8.13 percent and is now 6.86 percent

Author(s): Mike Shedlock

Publication Date: 3 Dec 2022

Publication Site: Mish Talk

2023 Tax Brackets

Mary Pat Campbell

Link: https://taxfoundation.org/2023-tax-brackets/

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On a yearly basis the Internal Revenue Service (IRS) adjusts more than 60 tax provisions for inflation to prevent what is called “bracket creep.” Bracket creep occurs when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation, instead of any increase in real income.

The IRS used to use the Consumer Price Index (CPI) as a measure of inflation prior to 2018. However, with the Tax Cuts and Jobs Act of 2017 (TCJA), the IRS now uses the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.

The new inflation adjustments are for tax year 2023, for which taxpayers will file tax returns in early 2024. Note that the Tax Foundation is a 501(c)(3) educational nonprofit and cannot answer specific questions about your tax situation or assist in the tax filing process.

Author(s): Alex Durante

Publication Date: 18 Oct 2022

Publication Site: Tax Foundation

Social Security Politics

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/social-security-politics#details

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2022 OASDI Trustees Report, plus spreadsheets, etc. https://www.ssa.gov/OACT/TR/2022/

I am graphing the net change in the OASI (that’s the old age benefit part) Trust Fund, year-over-year.

I think you can easily see all those glorious years the Boomer payroll taxes were being stuffed into the Trust Fund… but really flowing right out into current spending for other goodies.

And you can see when that reversed and is now negative, and will continue to be negative until the Trust Fund is exhausted, in the early 2030s.

Author(s): Mary Pat Campbell

Publication Date: 7 Nov 2022

Publication Site: STUMP at substack

Interest Rate Hikes Will Make Climate Change Worse

Mary Pat Campbell

Link: https://jacobin.com/2022/10/interest-rates-climate-change-liz-truss-tories

Excerpt:

Raising interest rates won’t just push Britain into a recession and make the cost-of-living crisis worse for working-class people — it will discourage badly needed investments in green energy, undermining the UK’s efforts to address climate change.

….

The theory goes that higher interest rates help bring inflation down by making credit more expensive across the economy and reducing the amount of money firms and families have to spend on goods and services, thereby slowing price increases. But our inflation is predominantly driven by external factors, most notably high gas prices resulting from COVID-19 supply issues and the war in Ukraine. Instead, the bank’s policy is likely to push the UK economy into a recession, without addressing the main underlying causes of rising prices. That also means higher costs of borrowing for the very investments we need to reduce our reliance on costly fossil gas, like wind farms and home insulation.

To compound the problem, higher interest rates discourage investment in clean projects more than dirty ones. Running renewables doesn’t cost much: they rely on free wind and solar energy instead of expensive fossil fuels. But building them in the first place does come with high initial costs, meaning they are particularly impacted by the higher costs of credit. Similarly, insulation and heat pumps need to be paid for up front, before they begin to lower energy bills for households. Demand for improvements like heat pumps is significantly influenced by the availability of cheap loans to cover the initial installation costs.

Author(s): LUKASZ KREBEL

Publication Date: 23 Oct 2022

Publication Site: Jacobin