High Costs of Health Care & Affordable Care Act --GK

High Costs of Health Care & Affordable Care Act

Kanakavelan Gothandaraman
DeSales University
Professor: Dr. Tahereh Alavi Hojjat
FD505 – Microeconomics (Fall-2013)

High Costs of Health Care & Affordable Care Act
Table of Contents

Abstract 3
Literature Review 4
Conclusion 7
References 9

Abstract

In last two decades the world has seen almost all extreme scenarios of economic growth and collapse. The growth started with the communication boom in early 1990’s and followed by internet technologies; after a decade of world economy growth, it was the Lehman Brother collapse which brought down the world financial system to its knee. Until then people did not realize that the economy of a country is not only dependent on its own indicator, it’s also dependent on its trade partners and other countries around the world. Given that the interdependencies of the countries have changed dramatically in the recent years; to predict an economy we need analyze what is going on in the world as whole. Due to the fact that there are wars, domestic conflicts, political problem and international pressure the world’s economic situation is very fragile. As a part of this paper we will be taking the current US economy and analyze its performance and discuss what we need to do to make sure it grows at a healthy rate. http://www.aetna.com/health-reform-connection/aetnas-vision/facts-about-costs.html http://kff.org/health-costs/issue-brief/assessing-the-effects-of-the-economy-on-the-recent-slowdown-in-health-spending-2/ http://kff.org/health-reform/perspective/how-obamacare-may-be-holding-down-costs High Costs of Health Care & Affordable Care Act
Literature Review

The dog days of August and September have often spelled trouble for the world’s economy. In 2008 it was no different, at 1:45AM on September 15, 2008, the US fourth largest financial firm filed for Chapter 11 bankruptcy protection following the massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by credit rating agencies. Lehman Brothers ' bankruptcy filing is the largest bankruptcy in U.S. history, and is thought to have played a major role in the unfolding of the late-2000s global financial crisis. The financial collapse was started because of irresponsible mortgage lending practice in US. The loans were distributed out to “subprime” borrowers with very poor credit history. Big bank’s financial engineers found ingenious way to pool those subprime risky mortgages and it was used to back securities know as collateralized dept obligations (CDO). Not only that, but they also created a synthetic CDO as a variation of a CDO. It bet on the performance of other mortgage products, rather than a real mortgage security. Institutional and individual investors bought these securities thinking that they’re safer because of AAA rating given by credit rating agencies like Standard & Poor’s (S&P) and Moody. The past economic crises were primarily because of the financial institution failure, but bankers were not the only people to blame. Regulatory institution such as SEC and others admit responsibility for failing to exercise proper oversight of financial institutions.
To curtain the free falling and prevent a long-term depression, Fed injected massive monetary and fiscal stimulus, but recovery remains feeble compared with previous post-war upturn GDP is still below its pre-crisis peak in many countries. In US, Fed began its latest round of bond-buying, also known as quantitative easing, a year ago when the unemployment rate was 8.1%. The Fed has been purchasing $45 billion in Treasury securities and $40 billion in mortgage-backed securities each month. The goal was to push down mortgage and other long-term interest rates to stimulate the housing market and encourage more spending by businesses. The stimulus helped fuel a housing market recovery as the unemployment rate gradually fell to 7.3% in August.
US economic indicators:
. (Economy at a Glance, 2013) Even though we see that the global economy is gaining momentum, only in the US, the acceleration will be likely to last. But there are reasons for optimism because macroeconomic policy in developed countries has become more growth-friendly. At the same time we have to be cautious because neither Europe nor Japan has microeconomic conditions that point to a recovery that is both rapid and lasting. Similarly, although China avoided hard landing, it will not be much of a spur to a global growth. The result will be a fragile recovery that relies heavily on America. Better macroeconomics is a step forward, but its effect will be muted unless the finical plumbing is working, households are spending are firm and ready to invest. In the US after a painful adjustment, the housing market has recovered and it’s reached a stable condition. Consumer dept has plunged, and banks are keen to lend. Add in the supply-side boost from shale gas, and you have the making of a strong recovery.

But the last few days the country went into a political grid lock and the government partially shut down as of midnight Sunday 09/30/2013. The government shutdown could cost the still-struggling U.S. economy roughly $1 billion a week in pay, lost by furloughed federal workers. If the shutdown drags on, expect another few months of bond-buying, at the very least. “And that 's only the tip of the iceberg” (Isidore, 2013). Also, the debt ceiling is approaching, and everywhere you turn the headlines are screaming, “Default!” not only is that misleading, it’s also incorrect. The government 's $16.7 trillion borrowing cap must be raised by October 17, if not the treasury will be running out of wiggle room. It does not mean the government has an increased risk of defaulting on the U.S. debt. Default is a technical term. It refers to a debtor that misses a principal or interest payment. That will not happen. To claim it will be nothing but fear mongering. In case if U.S. default on debt or other payments could trigger a massive drop in global stock markets, it could push up borrowing costs sharply and cause businesses to stop hiring and consumers to stop spending, grinding the economy to a halt.

Conclusion

In order to fix and keep the US economy growing we need to take some stringent measures. The origin of the U.S. financial crisis is that commercial banks and investment banks lent vast sums (trillions of dollars) for housing purchases and consumer loans to borrowers ill-equipped to repay. The easy lending pushed up housing prices around the U.S., which then ratcheted still higher when speculators bought houses on the expectation of yet further price increases. When the easy lending slowed and then stopped during 2006-07, the housing prices peaked and began to fall. The housing boom began to unravel and now economy busted. Even though fed fiscal and monitory polices helped the policies that shift downward the bargained real wage curve (BRW) or upward the price-determined real wage (PRW) will achieve a sustainable reduction in unemployment, as in both cases compatibility between real wage claims of workers and real profit claims of firms will occur at a higher level of employment. In fact, shifts in BRW or PRW result in a shift of the long-run Philips curve to a new equilibrium rate of unemployment. Supply side fiscal measures, can lead to lower unemployment without the consequences of increasing inflation. Since I am a follower of Keynesian economics; to achieve stable economy and the Non-Accelerating Inflation Rate of Unemployment (NAIRU), I would suggest the following:
1. Continue fiscal, monitory and supply side policies until we achieve NAIRU 2. SEC should intervene and add more regulations on all financial intuitions
3. There should be frequent audit on financial institutions and a member from the government should be seated in the Bank’s board of director
4. Too-big-too-fail financial institutions are the equivalent of the nationalized monopolies of the 1970s. They need to be broken up before they can do any more damage.
5. Impose a rule on all big companies such that they should spend portion of the revenue in research and development.
6. Encourage schools and young people concentrate in STEM (Science, Technology, Engineering and Mathematics)

References

A rickety rebound. (2013). Economist
Economy at a Glance. (2013, 09 27). Retrieved from http://www.bls.gov/eag/eag.us.htm
Isidore, C. (2013, 09 30). money.cnn.com. Retrieved from http://money.cnn.com/2013/09/30/news/economy/shutdown-economic-impact/
Charette, R. (2013, 9). The STEM crisis. IEEE Spectrum
Giant reality-check. (2013, 08). Economist
Tracy, C and Crittenden. (2013, 9 24). Small banks clutch lifeline. The Wall Street Journal

References: A rickety rebound. (2013). Economist Economy at a Glance. (2013, 09 27). Retrieved from http://www.bls.gov/eag/eag.us.htm Isidore, C. (2013, 09 30). money.cnn.com. Retrieved from http://money.cnn.com/2013/09/30/news/economy/shutdown-economic-impact/ Charette, R. (2013, 9). The STEM crisis. IEEE Spectrum Giant reality-check. (2013, 08). Economist Tracy, C and Crittenden. (2013, 9 24). Small banks clutch lifeline. The Wall Street Journal