Predictions, Hazardous and Profitable

Readers recall two speculative entries from early 2009.

Predictions are inherently hazardous, because they're usually wrong.Publishing forecasts is an excellent way to not only imply one is an idiot, but prove the case conclusively.

Ah yes, but it's awfully good fun, so fools rush in....

Weirdly, I called the 2009 stock market rally within days of the lows.

Ian W. refreshed my memory:

Charles, you have an excellent blog. In your blog post (link & excerpt below) from March 10, 2009, you suggested the Dow could reach 10,800 and turn back down. This week, the Dow reached 10,767 and has turned sharply lower. You called the bottom and the top! Incredible!

Trendlines in the Dow Jones Industrial Average (March 10, 2009)

"Were the DJIA to form such a right shoulder, we might expect it to reach all the way back up to about the 10,800 level--roughly the top reached by the left shoulder in January 2000."

Thank you, Ian. Now why didn't I follow my own forecast? Well, I did, but then I lost all my gains by going short too early, before the target was achieved.

Impatience is a terribly destructive trait in trading/investing. The market is not "the enemy:" the "enemy" resides within us.

You're probably thinking, "OK, Mr. Smarty-Pants, you got lucky last year. What's your forecast for 2010?"

Well, for starters: I seem to have called the top on Monday: Is The Stock Market Top In? (January 18, 2010) so that's a pretty good start.

So here is my forecast--which this year I am actually going to follow myself.As always, please read the HUGE GIANT BIG FAT DISCLAIMER below to refresh your awareness that these are the freely offered ramblings of an amateur observer, and are not investment advice.

The stock market has rolled over and will either get close to retesting its March 2009 lows (around 6,500 in the DJIA, 666 on the S&P 500) or perhaps punch through those lows to new lows (5,800 on the DJIA).

At a minimum, the DJIA will retrace to around 7,200. Since declines tend occur in shorter time-spans than rallies, I am guesing the correction will exhaust itself in March/early April.

Then a rally will begin which will run until September 2010. This prediction is based on two simple premises:

1. The party in power wants to keep that power, and will manipulate Heaven and Earth to create the illusion of prosperity because "Americans always vote their pocketbooks."

2. The majority of the stimulus money funded last year has yet to be spent. As those hundreds of billions flood the land, the illusion of prosperity will be created.

After the election in November 2010, then the wheels will fall off the games, tricks, frauds, propaganda, etc. and the U.S. economy and stock market will fall to depths few foresee.

Jeff V. recalled my speculative piece from last April, Obama's Secret Plan (April 22, 2009) and noted: Obama's Secret Plan--NOT DEAD YET!

Paul Volcker Prevails (Jan. 21, 2010) by Simon Johnson

President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country's biggest banks, marking the administration's latest assault on Wall Street in what could mark a return -- at least in spirit -- to some of the curbs on finance put in place during the Great Depression.

This is an important change of course that, while still far from complete, represents a major victory for Volcker - who has been pushing firmly for exactly this.

Steve R. also recalled the entry:

RE: Obama's Secret Plan (April 22, 2009):

"Is there even a shred of evidence that Obama might have thought this out one layer deeper than 99.999% of the bankers, critics, pundits and opponents? perhaps one: Paul Volcker."

In light of today's news, I am humbled by your prescience. Hopefully, this is a sign that, in your words, "there may be more intelligence afoot in our leadership than has yet been revealed".

Great insight, thanks for the heads up!

Here's the key excerpt from the April 22, 2009 entry:

I see two possibilities: either Obama really is just another standard-issue tool of the Financial Plutocracy, and Volcker resigns in disgust within a year to protect what's left of his once-sterling reputation, or Obama is giving the Banking Plutocracy all the rope it needs to hang itself. In that case Volcker is the "Trojan Horse" in the system, the one who will emerge after the extremes have finally goaded the public to an anger which cannot be diverted by propaganda and "entertainments."

So watch Volcker. If he resigns, then Obama truly believed the absurdity that bailing out the bankers and enabling their continued looting of the nation is "the fix we need." If Volcker stays, even in the shadows, there may be more intelligence afoot in our leadership than has yet been revealed.

What's for Dinner at Your House update: New recipe: 20-Minute Marinara Sauce

Important new article on cholesterol you really need to read:

The most important thing you probably don’t know about cholesterol

Reader C.K., who writes as "The Healthy Skeptic," penned the article, which is well-sourced and thought-provoking. It reminds us not to accept the standard "wisdom" without submitting it to a healthy skepticism.

Where else can you get all this eclectica in one site, and for free? Such a deal!

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Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

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Thank you, David H. ($20), for your much-appreciated generous contribution to this site. I am greatly honored by your support and readership.

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Low Interest Rates and Easy Credit Are Catastrophes for Any Economy

The Federal Reserve insists that super-low interest rates and loose lending are the keys to renewed growth. Their analysis is fatally flawed; those are catastrophically destructive policies in any economy.

One of the key analytic tools in the Survival+ critique is very simple to grasp: sort out the incentives and disincentives, and you are halfway to a systemic understanding.

For example, U.S. sickcare (a.k.a. "healthcare") is fundamentally doomed to insolvency and collapse because its incentives for all participants are entirely perverse. (Please see Perverse Incentives and a Government Doomed to Collapse January 14, 2010).

With this is mind, let's examine the incentives built into the Federal Reserve policy of super-low interest rates and loose lending ("easy credit"). The fundamental idea here is straightfoward: consumers have limitless desires, and all we need to do to reinvigorate consumer spending is make borrowing more money both cheap and convenient/easy.

But what about the hidden incentives and disincentives? This policy is incredibly perverse in several profound ways:

1. it provides a powerful disincentive to saving (accumulating capital)

2. it offers a powerful incentive to speculate with "free money" provided by lenders

3. it provides a powerful incentive to leverage a small amount of capital/cash into gigantic bets via "easy money" (3% down payment mortgages, etc.)

4. it rewards risk and destroys moral hazard because the losses incurred by the borrower deploying massive leverage are extremely modest (3% down isn't much to lose, so why not gamble that housing with rise 30% from here?)

5. it incentivizes a feedback loop of ever-expanding bets, leverage and borrowing (i.e. housing speculators buying a second, third and fourth home because they made a killing on their first house) which "rewards" the speculative mania with ever higher assets prices as this specious "demand" grows with expanding leverage and debt.

6. In a financial system which actively suppresses interest rates, then capital earns virtually nothing. Entrepreneurs have no incentive to be prudent in their borrowing, and holders of capital are left with no choice but speculation in risky assets lest their capital melt away in an engineered environment of "benign" (slow steady erosion of capital) inflation. Recall that "low" 2.5% inflation will rob you of a third of your capital every decade.

This is exactly the trap into which pension funds fell: required by actuary models to earn 6%, faced with a Fed-manipulated yield of 2%, they were forced to speculate in real estate, stocks and derivatives to reach the 6% yield they needed.

Is any of this remotely related to capitalism in the sense of encouraging capital formation, prudent risk/return, productivity and enterprise? No. An environment in which savers are punished is not capitalist, for capitalism is in essence a system which rewards the accumulation and productive investment of capital, not the leveraged borrowing and wild speculation engendered by the super-low rates and loose lending policy of the Fed and Japanese central bank.

Young people may be forgiven for not knowing that interest rates of 10-12% for capital and mortgages were the norm in the 1980s--a period of strong "real" growth in the U.S. Reasonably high rates of return did not suppress organic growth--they encouraged it by incentivizing productive use of capital.

Simply put, if your business makes no sense except if you can borrow money at 3% or less, then your business is not viable. If you can't put 20% down, and the house isn't affordable at a rate of 10% interest on the mortgage, then the house is too expensive and you shouldn't attempt to buy it.

If capital formation (savings) is actively punished by manipulated low rates, then a nation soon degrades to a state in which no one bothers saving capital; following the built-in incentives of low yields and easy credit, they borrow and consume beyond their means. (That is, the U.S. in the past decade.)

If leverage, easy credit and speculation are all heavily incentivized, then a nation disintegrates into an economy dominated by and obsessed with asset bubbles. (That is, the U.S. in the past decade.)

Your honor, my first exhibit is the nation of Japan. For cultural reasons, the Japanese stubbornly continued saving after their disastrous pursuit of easy-money, low-interest rate asset bubbles in the late 1980s. The Japanese now hold$16 trillion in cash savings but it earns essentially no return. Now that the populace is aging, they are starting to withdraw that dead capital from their moribund bond/banking capital markets, withdrawing the domestic source of capital which enabled their government's endless deficits and debt accumulation.

This withdrawal of domestic savings will force the Japanese government and other borrowers into the global market, and 0.1% yields will not attract capital flows in the stupendous quantities Japan needs just to float its existing debt. Recall that 45% of Japan's government budget already goes to pay interest on its debt--and that's at super-low rates of interest. Thus the Japanese economy is doomed to implosion once global rates rise.

Frequent contributor U. Doran submitted a story which provides background for this: "Japan is the most asymmetric opportunity I have ever seen".

Super-low rates and easy credit are not panaceas--they are in effect demolition machines which will destroy any economy which is seduced by their siren-song of "easy growth." There is no such thing as "easy growth" based on low rates and easy credit; "growth" based on artificial demand rises to the point that income no longer services the interest costs, and at that point then the collapse of asset prices and government revenues is guaranteed.

I rest my case. The U.S. economy is doomed to implode, just as the Japanese economy will implode, and so too will any economy anchored only by low interest rates and exponential expansion of "easy credit." (There's more on this inSurvival+ but you know that already.)

Lagniappe: U. Doran also sent in this link to Martin Armstrong's latest. If you are unfamiliar with Armstrong's idiosyncratic but deeply informed analysis, check it out:Deep Capture (PDF).

DailyJava.net is now open for aggregating our collective intelligence.


Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

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Thank you, Edna S. ($20), for your very encouraging, generous contribution to this site. I am greatly honored by your support and readership.

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China and the U.S.: Dysfunctional Real Estate Bubble Twins

China and the U.S. share two central traits: a financial-command-economy and an addiction to cheap, easy money to prop up bubbles that serve the status quo.

Despite the many obvious differences between the Chinese and American systems of governance and "capitalism," there are two key similarities. We might phrase this thusly: China's leadership has empowered specific strains of capitalism to serve the party's socialist goals, while the American leadership has socialized the mortgage/housing/banking sectors to serve its predatory-capitalist Masters (the financial-rentier Power Elite).

One of the key threads in the Survival+ analysis is the divergence/ convergence of the interests of the Elites and general public. When the interests of the Elites and the public are roughly parallel/convergent, then prosperity--as measured by increasing income equality--tends to rise. (Or put another way: income inequality falls.)

Conversely, when income inequality between the financial Elites and the public rises, as it has in the U.S. since 1973, then prosperity becomes concentrated in the top layer of the society to the detriment of the lower 95%.

This inequality inevitably breeds social disorder, and thus the Power Elite is driven to mask the rising inequality with various simulacra of prosperity (asset bubbles, etc.).

Another trait China and the U.S. share is rising income/asset inequality. A small Elite class of each nation's citizenry has reaped the majority of the last 30 years' financial rewards; recall that some 2/3 of the productive assets of the U.S. are owned by the top 1% of the citizenry. While I haven't been able to find the statistics for China, I am confident that 2/3 of China's newfound private wealth remains in relatively few hands--undoubtedly many of Hong Kong or Taiwanese origin.

One of the key mechanisms financial Elites use to create a simulacrum of widespread prosperity is a real estate bubble. Homeownership in the U.S. is now around 67% of the households, though it is probably heading down to around 60-62% as foreclosures continue climbing.

The homeownership rate in China is much higher--around 85%, for the reason explained here before: citizens were deeded their homes for very modest sums in the early 1980s. (All land is owned by the government; it is only leased to private owners.)

With real estate so widely dispersed among the populace, then any rise in real estate prices boosts assets and lends an air of prosperity to most of the public. This bubble triggers "the wealth effect," causing people to feel wealthier even when they haven't sold their homes and taken an actual profit. This encourages spending and borrowing, propping up the status quo without actually redistributing income, lowering taxes or effecting any actual change in the imbalance of power/wealth between the Elites and the public.

The easiest way to create a real estate bubble--lower interest rates and make borrowing easy easy easy--also encourages speculation (feeding the bubble frenzy), discourages saving and radically increases the general appetite for risk.

If real estate is leaping by 30% a year, and savings accounts draw 3% or less, then where are you going to put your cash? Low rates and easy money mean that cash can be leveraged via a mortgage.

But unfortunately for both the financial Elites and the public, all bubbles eventually pop--and the longer they are inflated, the bigger the implosion.This too is intrinsic to the Survival+ critique.

To provide some basic context on China, I wrote this essay back in 2005(updated 2006): China: An Interim Report: Its Economy, Ecology and Future. It remains a decent overview of various financial, ecological and cultural issues.

As for China's resurgent property bubble, here are some sources:

Mania on the Mainland Think the U.S. real estate bubble was bad? China's could be worse (BusinessWeek)

There Can Be No Bubble in China and the Madness of the Nobility (Jesse's Cafe Americain)

Urban-Property Prices Soar in China (WSJ.com)

Richard Duncan (Dollar Crisis) on China's coming bust (Marketwatch.com)

The U.S. political and financial leadership is desperately attempting to reinflate the U.S. housing bubble--and succeeding in a weak fashion at the cost of trillions of dollars. I have already addressed the mechanisms here many times: the Fed buying $1.2 trillion in toxic-dump mortgages to keep the mortgage securitization market artificially alive; the $8,000 giveaway "credit" to new home buyers--a giveaway widely abused by scammers; pumping up FHA so half the mortgages in the country are government-backed, and the super-low interest rates engineered by the command-economy-socialist project known as the Federal Reserve.

By dumping even larger sums (when measured as a percentage of GDP) than the U.S., China has successfully reinflated its real estate bubble. But neither of these quasi-capitalist, quasi-socialist "solutions" has actually reinvigorated the home economies; all that has been accomplished is the financial Elites in each nation were saved and let loose to pillage the populace one more time, while the general homeowning public is being set up yet again for a catastrophic decline in their assets and a shattering loss of equity and solvency.

The game seems to be losing steam, at least if we judge the FXI China stock market index as a rough proxy for the speculative easy-money, low-interest-rate frenzy:

The irony is that using socialist-financial-command-systems (China's central bank and the Federal Reserve/Treasury State organs) to arouse and then deflate capitalist "animal spirits" speculative manias is inherently doomed to failure. The FXI index suggests the Elites are exiting/distributing, leaving the bagholders as the last believers that there can be no bubbles in China.

As China leads, so the U.S. will follow. The U.S. stock market's bagholders are the last believers that an economy shedding jobs and losing tax revenues is "growing robustly." Heh. Look out below.

Discouraging note of apology: Inexplicably, my shipment of Survival+ books was returned to the publisher as "undeliverable" and hence I have no books to ship to contributors until next week. Thank you for your patience, and I regret the delay.

DailyJava.net is now open for aggregating our collective intelligence.


Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Sarah M. ($50), for your outrageously generous contribution to this site. I am greatly honored by your support and readership.

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The Simulacra of Change, the Propaganda of Hope

The Obama Administration's campaign of providing simulacra of change is failing; the propaganda of hope is no substitute for true reform.

The Obama Administration has about six weeks to completely renounce its simulacra of reform in the nation's finances, healthcare and military affairs, or it is doomed to repudiation and defeat in the November 2010 elections.

Last year I speculated that perhaps the Obama adminstration's revolting submission to the whims and wishes of the Wall Street/Banking cartel was a clever plan to give the thieves plenty of rope to hang themselves. (I was subsequently accused of "jumping the shark.")

Now that a full year has passed, it is clear that bit of speculation was merely a feeble flare of my own "audacity of hope." This administration's track record is entirely sordid: total obedience to the Wall Street/banking sector and a handful of other special interests (public employee unions, the sickcare cartels, the circling falcons of Empire who no longer hear the falconer, etc.)

Meanwhile, the propaganda machine is churning out claims that the administration "rescued the economy from the abyss" when in fact the only group rescued was the Elite who stood to lose billions when their sandcastle of overleveraged risk collapsed under its own weight of lies, chicanery, embezzlement and systemic fraud.

Now the administration's propaganda machine is declaring victory over spiraling healthcare costs-- by adding another trillion dollars to the nation's bloated, failed sickcare system's already out-of-control costs.

Take a look at this chart and tell me the ship has been righted:

Does any part of this 2,000-page "reform" address the nation's failing health, or that we spend twice as much per capita as other developed democracies (Australia, Japan, Sweden, Germany, et al.) on "healthcare" which fails miserably to improve our collective health?

No, it does not. The "reform" is entirely a simulacum of reform which leaves the sickcare cartels firmly in place. What makes it truly a travesty of a mockery of a sham is that this "reform" does not even raise the issues of fundamental reform: for instance, the fee-for-service model I address in Is Fee-for-Service What Ails America's Health Care System?.

Keep this is mind: Medicare/Medicaid and/or the Federal budget will start imploding by 2013. Just borrowing another few trillion isn't going to solve anything, and that will soon become abundantly apparent.

We cannot place the entire blame for the nation's self-hypnosis, hubris, denial and whiny sense of entitlement at the feet of the Obama Administration, but we can say that offering facsimiles of reform and trumpeting bailouts of the status quo with money borrowed from our grandchildren as "accomplishments" has deepened the nation's ethical and financial abyss.

Many observers take the President's character, detachment and other personal traits as the root cause of his administration's Grand Failure; from long observation of presidents, this strikes me as a superficial and inconclusive analysis. After all, Presidents Ford and Carter were both widely mocked as stumbling, incompetent, etc., yet each has come to be appreciated for characteristics which were either under-appreciated or unleveraged in their administrations. The President should not be measured as an individual, but as a leader of a team of his own choice: his administration.

Thus weak presidents can be strengthened by competent, experienced senior staff, and potentially strong presidents can be fatally weakened by an administration dominated by sycophants, toadies, cronies, factotums, financial contributors, Rasputin-like ideologues, etc.

What is abundantly clear is that the Obama Administration's central strategy is to offer facsimiles of reform as "the real thing:" the classic definition of simulacra as described in Survival+.

The goal is clear: don't step on any toes of entrenched special interests and powerful cartels. Placate every major player and every ideological camp. Manipulate public opinion via a stock market which melts ever higher, statistical legerdemain (the recession is over, GDP is growing at 2.2%--but sales and income taxes are still falling by 7% in December....hmm) and other "green shoots" propaganda in the hopes that a real, "organic" cycle of growth and hiring will actually take hold from the trillions squandered on "saving the status quo."

The game plan: To confuse the rising populist anger at your bailout of the Power Elites, impose a pathetic wrist-tap tax on the financial Elite: a tax which will supposedly raise $90 billion in a decade. (One wonders what will happen once the lobbyists finish licking the bones of this "tax" clean; it will probably emerge as a tax credit which costs the Treasury an additional $90 billion in lost revenue.)

And we're supposed to be soothed by what amounts to a $9 billion annual tax (assuming it won't be watered down--a faint and foolish hope) after handing the financial Elites $3 trillion in backstops, guarantees, no-interest loans, full redemptions of AIG credit-default swaps, and countless other giveaways?

President Obama (or perhaps the entire Administration) is either tone-deaf or calculating in an admirably Machiavellian way: by now, everyone in a position of power knows the public's memory spans a few weeks at best, and that its capacity for self-delusion, media distraction, self-pity, denial and permanent adolescence are essentially limitless. All the manipulator need do is wait the public out until it forgets.

Unfortunately for the Obama Administration and its Masters in the Power Elite, it's difficult to forget that your unemployment is running out, that you no longer have health insurance (or can't afford the insane COBRA payment), that costs for essentials keep rising despite the "news" that "there's no inflation," and that your child or family member is stationed in a no-win, dead-end war in Afghanistan.

So far, the Administration's strategy is still working because there are no visible consequences of borrowing $1.5 trillion a year to fund all the special interests and cartels. But if the wheels fall off any of the simulacra, or if rising interest rates or some other disruption in the global shell game triggers some real-world consequences to that stupendous borrowing, then the public's distraction and denial might dissipate, leaving a hard, cold anger at the deception and manipulation at the heart of their State--not just the Federal government, but state and local governments as well.

Were that awakening to occur prior to early November, 2010, the politicos and Power Elites who issue their marching orders might be surprised to find that their simulacra and con games failed.

Perhaps this too is a vain hope.

Do I care if the Republocrats or Demopublicans win? No. They are two sides of the same coin. (Survival+ 101) But some entrenched incumbents losing power would be a welcome signal that the public is not quite as distracted and manipulated as they appear to be.

DailyJava.net is now open for aggregating our collective intelligence.


Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Todd O. ($12), for your much-appreciated generous contribution to this site. I am greatly honored by your support and readership.

Thank you, Richard K. ($20), for your very welcome generous contribution to this site. I am greatly honored by your support and readership.

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Aggregating Intelligence (DailyJava Forum), and The Demise of Sickcare

The new forum for oftwominds.com readers, DailyJava.net is now open for aggregating our collective intelligence.

Reader Dan K. has invested time, money and energy to bring the new forum to life: DailyJava.net forum. The forum (hosted offsite, reader moderated) can be read by anyone, but you will need to register (a quick process) to leave comments or start a new thread.

Fellow author and blogger Chris Sullins and I have posted some starting threads, and we welcome your civil participation.

My hope is that the forum will become a mechanism for aggregating our collective intelligence.

My standards of conduct and civility are simple: write as if you were facing other readers in person, unarmed and up close. Anonymity is not an excuse for incivility. Incivility has degraded our culture and society enough; joining this forum means you accept a higher standard.

The forum is the ideal place to share substantive ideas, links, tips, experiences and commentaries. My 2,000+ commentaries, stories and meanderings are already here on oftwominds.com; what would benefit us all is an aggregation of intelligences.

For a start: when you write me an email, why not post it on the forum as well? A huge number of interesting emails never get shared because I am simply overwhelmed by the hundreds of emails I receive every month. The forum enables great commentary to bypass my overloaded inbox.

There are roughly 5,000 daily readers of this site. If 5% frequent the forum from time to time, I think we'll have a lively and informative "gathering place" of ideas, solutions, links and commentaries.

As you probably know, one of my favorite sayings is "A healthy homecooked family meal and a home garden are revolutionary acts." Why is this so? The entire Survival+ critique and principles of prosperity are based on radical self-reliance and reciprocity. Removing fast foods, unhealthy prepared foods and agribusiness "factory food" from your diet is a way of taking control of your own life and health. In a society gripped by a pandemic of "lifestyle"-caused chronic diseases and a sickcare system careening toward inevitable insolvency, then taking control of your own food, cooking and health is far more revolutionary than carrying a sign around in a street demonstration.

To that end, What's for dinner at your house? has been updated with new recipes. In the frantic year-long effort to complete the 140,000 word Survival+, I neglected WFDAYH. No more; here is a delicious array of reader-submitted recipes:

Cod with sautéed vegetables & wild rice (Eugenio Minoli)

Corned Beef and Cabbage (Freeacre)

Cornbread Meatloaf (Bob Waldrop)

Three Bean Casserole (Constance Basset)

Split Pea Soup (Alberto Farinas)

Turkey Soup (Dustin Brace)

Rhubarb Salsa (Pam & Pat)

In other news, my gifted friend Mike Dakota has finally released his first CD.Click on the link to listen to some of his songs and buy a copy of the CD (or download it if you prefer).

I have good news for readers in the U.K. and E.U. countries: Survival+ is now available from a private bookseller via amazon.co.uk for 10.76 pounds (and 2.75 shipping) which compares favorably with the cost here in the States (10.76 GBP = $17.58 in USD).

Please note that amazon.co.uk does not stock the book itself, though I have requested they do so.

I have been unable to find an Australian bookseller which lists Survival+. I have tried thenile.com.au and bookworm.com.au without success. If any reader from Oz ever locates a local source for Survival+, I would greatly appreciate that information, as I can list their link on this site.


My feature article on AOL's Daily Finance, Is Fee-for-Service What Ails America's Health Care System?, attracted dozens of comments. Those from doctors and nurses describe how the current "sickcare" system is truly broken beyond repair.

J.D.W., M.D.

I just read your editorial about FFS medicine which is, as you mention, the predominant way medical care is paid for in the US. I am a physician, a hospitalist for the past 10 years, and have been in practice for almost 30 years. I could not agree with you more. The FFS system, and the entitlement mentality that it engenders, are powerful forces which cannot be controlled by minor changes – bandaids – to the system.

The root problem is a cultural one and will require a major shift in how Americans view healthcare, the commodity. Many, if not most, Americans are of two minds when it comes to this topic. They have a decidedly entitlement approach when it comes to their own healthcare or that of their family. But they have a much more capitalist view of healthcare for others, especially the (growing population of) disenfranchised. Americans are easily frightened by the spectre of socialism, the ultimate bogeyman, and they’re often told that any kind of national healthcare program would be an irreversible step in that direction. (Apparently, many people still don’t realize that one of our biggest national entitlement programs, Social Security, has a bad word in its title!)

You are also correct in saying that despite hundreds of mandates, guidelines and even price caps on various services, the medical community (hospitals and providers) can and do find ways to increase revenues. A great example of this, and how it actually increased total costs, is the use of endoscopies, like gastroscopies and colonoscopies. Several years ago Medicare, soon followed by private insurers, significantly cut the amount of money they would pay doctors who perform these procedures. They did this to cut costs, right? In actual practice, what happened resulted in significant increase in costs. Rather quickly after the decrease in reimbursement went into effect, doctors began doing more and more of these procedures. There are other reasons brought forth to explain this, e.g., changing guidelines in recommending screening colonoscopies, but I’m sure that most doctors who do these highly reimbursed procedures simply figured they had to do more in order to make up the lost revenue. That should be budget neutral, but if you look a little further you realize that these additional procedures also obligate hospital and facility costs, pre-operative testing costs, not to mention the costs associated with complications that can occur from these procedures.

These “unanticipated costs” are much more than the professional fees doctors could charge even before the reductions went into effect.

You mention another excuse for the rapid rise in healthcare costs: technology. That argument does carry some weight, but I immediately think of advancing technology in other areas like personal computers and communications. We have seen tremendous advances in things like pc’s and cell phones, as well as their availability, yet costs have actually come down for many of these products and services.

You may be right that the pending healthcare legislation will do little more than be an “expansion of the status quo.” I am truly of two minds about this situation. I feel that this country should have a national healthcare system of some sort, and continuing on our present course will lead to disaster. But I don’t think we Americans – or our government representatives – have the will to make, and put up with, the necessary changes to have a decent national health care program. Maybe someday....

Darlene F., FNP-BC

I enjoyed your Fee For Service article. I am a family nurse practitioner and I agree totally. But the hardest part is that the end result is that there will be rationing of health care. And believe me it has already started. I believe that it will be worse for the baby boomers because we have had the luxury of having medical treatment at our beck and call. And if costs get too high then the young, the sick and the elderly will die first. There is not one person in Congress who understand what is about to come because they all living in this moment. What happens when everything is just too expensive in health care, who will be the first to go?

A couple months ago one of my co-workers friends died of a massive heart attack. He worked in construction. He did not have insurance. He got sick at work and said he could not go to the ER because he had no insurance. He went to the bathroom and died.

So many of the patients who come in cannot afford medications. I try to use the Walmart list of $4 medications. And believe you and me, I use the same list when I go to the doctor. I once had a discussion with a drug rep. I asked why medications were so high in the USA and you can go to Canada and get meds cheaper. He told me first all pharmaceutical companies must recoup monies used for testing and research of new drugs. That was understandable but he told me that USA paid more because the other countries did not pay their fair share so USA pays.

There is so much wrong with health care in the USA. What has to happen for us to learn? And please forget Congress because by the time they figure it out it will be too late. Thanks for listening. I was just glad to see that someone really cares.

Cathy K., R.N.

RE: Perverse Incentives and a Government Doomed to Collapse(January 14, 2010)

"Patients have no incentive to maintain their health."

I think it is far worse than that. I think the perverse incentives in the system actively discourage patients who are seeking health.

Here's another story, how Vioxx saved my life.

Vioxx is a pain killer that was pulled some years ago after causing a number of cardiac illnesses and sudden deaths. Just after viox came out, I was prescribed this drug for pain related to my back by a specialist my family doctor referred me to. After two weeks on it, I started feeling kind of funny. I woke up one night unable to breathe and feeling heavy. I was a little blue around the lips.

I went to the doctor the next day and reported this incident. He asssured me it was anxiety and had nothing to do with the Vioxx. I assured him it was not anxiety and the Vioxx was going in the trash. He became quite apoplectic on the importance of me taking the Vioxx. This was when Vioxx first came out so maybe he was getting a kickback or maybe he didn't like uppity patients.

Anyways, I threw out the Vioxx along with the doctor and started a quest.

I was on seven other medications at that time. I looked up all their side effects and realized that many of my symptoms, notably my rapid heart beat and daily indigestion problems could be from the medications. I went to my family doctor and explained my new plan to get off all my medications, eat right, use nutritional support, lose weight and regain my health. She was not on my team. That would make me a noncompliant patient and endanger my treatment. Two other local physicans concurred.

Not taking the medications was not an option. They were probably afraid of lawsuits and are not trained to cure disease but rather trained to manage the symptoms with medications.

So I threw all the drugs away with the doctors, lost a hundred pounds, ate a healthy diet, and no longer have tachycardia or high blood pressure or gerd or multiple herniated discs or fibromyalgia or or gyno problems or chronic fatigue or anything. This was a two year process that was painful and scary on my own with research from the internet. In retrospect, with more knowledge under my belt as a nurse, it may have been actually dangerous. Now I would still do it, just wean myself off the meds instead of tossing them all at once. But, all's well that ends well.

The point I am making here is that not only does a patient have no incentive to maintain their health, the medical profession discourages health seeking behavior. Doctors make more money from patients on prescription drugs who have to come back to get their refills. Doctors make more money on patients with chronic disease. Prescription drugs treat the symptoms of chronic disease, they do not cure. Prescription drugs can also carry substanial risks and can cause the symptoms of chronic disease.

This is apparently one of those perverse feedback loops you go on about. Life style changes, diet, and the amazing human body can work together in sync to cure chronic disease. There is no money to be made from patients who come to that understanding. You are pretty much on your own.

This is ironic to me being a nurse now. I routinely pass meds to patients who take between 10 to 20 meds a day. Plain old common sense tells me there is no way that ten to twenty pills a day can be good for you. I would never voice this observation at work of course as that would be totally politically incorrect. And prescription drugs can be necessary and life saving. Many nurses get really upset with patients who refuse to take their medications and label them noncompliant and act as if they are children and attempt to berate them into taking the medication, I, however, because of my experiences, respect each persons right to choose what goes in their body.

I have a word for this now--medicalized. I was medicalized. I was fairly young when I injured my back. No doctor ever explained the common sense options available to me. They just literally piled on the meds and I thought the doctor knew best. The medications caused side effects and so I got medications to treat the side effects of the original drug. I did not understand this at that time. Many people I know are medicalized. It seems if you go to a doctor, you will walk out with a prescription. More than half my nursing class seven years ago were on antidepressants. I am sure over fifty percent of the population is on some sort of medication. With no drugs passing my lips, I feel positively un-American sometimes.

The American population is becoming medicalized. It is feeding an industry with far too much power. I don't want to be part of the food chain.

Thank you, readers, for these excellent insights into the sickcare system.

In case you missed yesterday's commentary on the stock market: Is The Stock Market Top In?


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