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Health Care Proposal Scaled Back as Power Shift in Senate Takes Place
The balance of power has shifted just slightly in the Senate but this tiny move has already thrown the health
care bill into a measure of chaos. Not simply because Massachusetts elected its first Republican Senator in
decades and not just because the Democrats have lost their “super majority”. This election was interpreted as
something of a pocket referendum on health care and to some extent the entire Obama administration and this
has many of those up for election this year more worried than they were just a few days ago. Scott Brown ran
hard on the issue of the health care bill and exposed the fact that the vast majority of the population dislikes
what they see. If a Democratic candidate becomes connected to this unpopular bill in the upcoming contest,
they are likely to go down to defeat and that has meant that the Democrats have lost solidarity. In a matter of
hours the President suggested that he would be open to a scaled down version of the bill and many legislators
were already trying to determine what would be salvaged and what would be abandoned.
The other very clear message sent by the voters was that they had much different priorities than the
Democrats seem to have. The key issue in the Massachusetts election was that the economy was top of mind
for everyone. The sense was that people have become resentful of all the activity on issues like health care,
climate change and immigration while the economy is still limping along. The number one concerns are
uniform across the electorate – fix the economy and start getting unemployment down. As expected, the
economy will be the driver in this election and the current Congress remains vulnerable on the issue until there Details on page 4.
is a clear recovery with an impact on jobs.
Analysis: There have always been parts of the health care plan that have solid support but there are also
parts that have never been popular. The provisions that require insurance companies to stop discriminating
against pre-existing conditions will likely stay in place. There is generally support for instituting cost controls,
some expansion of coverage and some help for small business to provide health care. There is far less
support for the national mandate that forces everyone to buy coverage. It should be remembered that this is
a requirement in Massachusetts and it is not a very popular one. There is no support for a national health
care system and no support for a system that would introduce rationing of medical care to some degree.
Another issue that voters have expressed an opinion on is that of taxes. The notion that taxation would need
to rise to pay for this overhaul has been the most deeply opposed element. It is now very unlikely that such
provisions will stay in the bill.
It has been suggested that the Democrats move quickly and use arcane procedural moves to rush the bill
through before Scott Brown takes his seat. If the Democrats stayed unified, these procedural manipulations
would work but the electoral fallout could be severe if the voters decided that Democrats had pulled a fast
one. Those in vulnerable seats have already strongly opposed such a tactic and some have indicated they
would bolt from the party line so as not to be connected with it in the upcoming campaign.
World Bank Expects Economy to Recovery More Quickly than Originally Anticipated
The last survey of the global economy from the World Bank took place in June of last year and the conclusion was pretty depressing.
It was pointed out that the decline in global GDP was the steepest since the Great Depression even if most of the nations in the world
were not themselves experiencing something quite that bad. This was the first time that every nation was caught in the grips of a recession
and that cumulative impact was startling. The forecast for growth in 2010 was anemic – only around 2%. This was a major comedown
given that global growth has been in the 5% to 7% range for over a decade. It had been expected that the decline in growth in 2009 would
be almost 3% as there was little sense that conditions were going to improve at any time in the year.
That bleak outlook didn’t quite come to pass as 2009’s decline in GDP growth was “only” 2.2% as opposed to 2.9%. This is cold
comfort for the global community but small signs of improvement are better than the alternative. The World Bank now thinks that there
will be growth in 2010 that reaches 2.7% instead of the previously forecasted 2%. The world’s economies have responded better than had
been anticipated – especially in Asia. This does not mean the World Bank has released a worry-free assessment. Under Robert Zoellick
the World Bank has become one of the more sober analysts of the global economy. Under the last two directors the institution had taken
on some elements of a global economic cheerleader. That was especially the case under James Wolfensohn as it appeared that the mission
of the Bank was to promote development at all costs. Today the Bank has a more cautious reputation.
(Continued)
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Analysis: The report from Hans Timmer mixed some good news with some very serious concern and some policy suggestions. The last
forecast suggested that there was a very good chance that there would be a double dip recession in 2009-2010 based on the Bank’s
assessment of the credit markets, the health of the banks and the lack of demand in the system. The newest assessment holds that this
threat has eroded in the immediate future although it remains a possibility in another year or two if the policies pursued by
governments do not react to the ongoing threats.
There were three key points for concern in the report and they match the concerns that have been expressed in many other studies
over the past few months. The World Bank is less optimistic about growth than either the OECD or the IMF but all three share the same
fears over what would send the global economy back into reverse. The various national forecasts coming from the US, Europe and Asia
are far more varied but they also tend to look at the same fears.
The crux of the problem is that the global economy is not yet ready to stand on its own but the support that has been provided is
putting economies in a very dangerous position in the future. The recovery over the last several months has been fueled by demand
that is somewhat artificial and dependent on the massive efforts to stimulate the economies of the world. The Chinese have been
almost too successful with their effort and have now been forced to scale back that expansion while the Europeans have been
somewhat reticent about pumping more money into their economies. The US has been focused more on monetary liquidity through the
Fed’s actions than on fiscal boosting but the World Bank has acknowledged that the bulk of the $780 billion is likely to be spent this year
and will have a salutatory affect on the US recovery. The issue is what happens when the stimulus money is expended and private
sector demand still is insufficient for economic growth.
The sobering conclusion from the World Bank report is that the various economic systems will need to choose between two
problematic strategies. If they choose to keep the stimulus efforts in place so that the global economy can hope to accommodate the
needs of the already unemployed as well as those who are starting to enter the workforce, they will need to contend with the impact
that this level of deficit spending will bring. Some countries are already dangerously close to unsustainable deficit levels and will need to
engage in very unpopular measures to bring the debt under control. The US is on track to see its debt expand to 80% of GDP and that
provokes draconian measures to respond. There may well be much higher taxation or drastic budget cuts – most likely both will be
required.
If the decision is made to avoid this situation by reducing commitment to these stimulus efforts, there will be a price to pay as well.
The most immediate is that employment will continue being a huge issue. The pace of global growth forecast by the Bank is woefully
insufficient to address the jobs that have already been lost – much less the jobs that need to be developed in the future. There is
insufficient demand from the private sector at this point and that means that governments will be expected to keep taking up the slack.
The recovery of the economy globally will be halting at best but without continued support from the various governments and central
banks the pace could slow enough to invite that second recession that many have feared.
The Bank also references the threat of inflation but agrees with most analysts that it isn’t a big problem – yet. That is the overall tone
of the report. Things are actually pretty decent at the moment but that is not likely to last. The problems that are looming on the
horizon are serious and have the potential to push the economy back into crisis. The real choice seems to be what kind of crisis
governments want to face. The central banks are far more worried about the emergence of inflation than either the IMF or World Bank
appears to be at this point.
It did not appear in this report but the World Bank has been holding forth on the issue of Haiti as well and the conclusions are far
from optimistic. Zoellick has indicated that the world must be prepared to make a commitment unlike any that has been made since the
end of the Second World War. Rebuilding in Haiti implies that things were built previously and that is not the case. It is estimated that
the nation would need close to $2 trillion to simply reach a modest level of sustainability and there is no fund in sight that will come
close to that number.
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STRATEGIC GLOBAL INTELLIGENCE
January 21, 2010
Analysis: The massive attack on the merchant community is creating intense fear and opposition. The shortages are already severe and
many people have started to run out of basic items. The country is already contending with a population in which the majority is living
under the poverty line and this latest set of edicts is pushing even more of the population into crisis.
Business Intelligence Brief is an online information service, published electronically by Armada Corporate Intelligence. It is prepared by
Armada CI. The publisher has taken all reasonable steps to verify the accuracy of the content of this information. Armada Corporate
Intelligence shall not be responsible for any errors or omissions.
3
Research Controversy
What to believe and what not to. That is the question. The battle for the hearts and minds of the world community is often rooted in
research studies and statistical analysis. These always sound so authoritative with all their charts and graphs and numbers. The scientists
and analysts look serious and committed to their findings and most of the consuming population has little choice but to accept the
conclusions and make judgments based on them. Needless to say I am as dependent on research and studies as anyone – given the moving
target the economy can be. But skepticism is a healthy tool to employ on any set of conclusions. The challenge is that most of us are not
equipped to make these assessments, nor do we have the time to take studies apart to see where there may be fallacies and errors.
Analysis: There has been another problem with climate change data and it hasn’t been all that well reported. It was asserted by a UN
team that the glaciers in the Himalayan range would vanish by 2035 and that has been cited many times as a proof point for the severity
of the problem. Now it turns out that the assertion had been made in an article in an Indian journal some years ago and the author of
that article has asserted that this is not what he said and not what the evidence supports. There have been several of these gaffes in
recent months and that creates a major problem. People cease believing when the inaccuracies are exposed as they do not know what to
trust. There is solid evidence of climate change and warmer temperatures. But the devil is in the details. What will the impact really be?
What really caused the rise? What will actually make an impact in terms of reducing greenhouse gas? These are all still open questions
and there is no room for tolerating sloppy and distorting research.
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Armada CI. The publisher has taken all reasonable steps to verify the accuracy of the content of this information. Armada Corporate
Intelligence shall not be responsible for any errors or omissions.