Is the Health-Care Bill Dead on Arrival?

healthcare negotiations so closely that it's affecting his health. Max Neeson is here in the Bloomberg eleven three oh studio with us. Max Neison is a Bloomberg Gadfly columnist covering healthcare, and he really has been following not only what we can expect from this healthcare bill, but some of the

political machinations that went into arriving at this. So first, uh, Max, I want to start with a line that you wrote in in your column yesterday, where you are talking about how the entire medical establishment opposes the bill on moral and financial grounds. As a result, is this completely dead on arrival? And it does? Is it even a waste of time for us to focus on it? I think in its current form it's definitely dead on arrival in

the Senate, and they've basically said as much. Rather than taking up the House version of the bill, um, you know, which would be something of an endorsement or at least a sign that they they think it's something they can pass or could potentially come law, they're gonna go ahead and start from scratching and write their own version of the legislation. And it's likely to be substantially different on a number of points than that what we saw past

in the House. Max, can you just uh, just just backtracked just for a second, because I want to understand this idea that the a c A, the Affordable Care Act. We've heard a lot of criticism about it. What would save that or what would improve it? I'm just curious to see if what we've got is not great, what would we need to make it slightly better? Um. I mean,

some of it would would require a time machine. But but as for what can be done now, a good start would be to keep funding and for the administration to commit to keep funding some cost sharing payments to insures and to low income people that help both insurers deal with unexpected losses and help lower income people actually

afford um what are now some rising premiums. These were things that we're built into the law and help make it sustainable, but the fact that they've been kind of yanked around has made it very difficult for insures to stick around, and that kind of creates a bad cycle

within individual markets like in Iowa right now. So, Max, one thing that you said earlier, you were talking about how the Senates not just sort of taking on the House bill in its own form and starting a fresh is kind of a pretty pretty big slam down, frankly of the House plan by say, and we're not even gonna endorse it by taking it at all? Um, what changes do you expect the Senate to make? How will the bill differ in the form that the Senate puts

it out versus the House? So, Um, I think the first thing that they're gonna want to wait to see is the Congressional Budget Office score of this bill, which will give them a sense of where we are. The fact that the House didn't wait for that was pretty unusual. When does that come out, We we don't know, probably

probably and probably next week. So we we don't know how much the House version of the bill will cost um, how much, how many people we left uninsured, how much it will affect Medicaid, how it will affect the overall insurance market. Those are all still unknown. So that's the place they're going to start with what needs to be fixed.

But in terms of the kind of specific points that I think a new Senate bill will adjust or or kind of differ from the House bill, and it's going to be the degree of cuts to Medicaid and the degree of protection for those with pre existing conditions, both of which were cut substantially by the h c A. Well, you know, as Lisa introduced this idea that no one in the medical or healthcare community was consulted or participated in the creation of what passed the House yesterday. Is

that accurate? Um, I imagined that, you know, people made calls. But considering the speed at which this bill was put together in a matter of weeks, as opposed to the more than a year than the Affordable Care up with hearings, consultations, multiple scoring, this kind of you know, got put together quickly then modified quickly. I don't think there was all that much input. And you can see that from the fact that, um, you know, several organizations of doctors hospitals, Um,

you know, disease focused organizations. I'll kind of object to this bill. Well, that's why I wanted to go next, which is, uh, what do you think is going to happen to hospitals if this bill were to prevail, it would be uh, something of a blood bath, particularly for hospitals in more rural areas and in areas that have

a lot of Medicaid beneficiaries. What would be likely to happen is that they would have a lot of people that would lose insurance coverage and it would be back to kind of the bad old days of having to provide a lot more financial assistance and uncompensated care. Well then why then, why not? Do you know what would take a page out of President Donald Trump's playbook, which at one point I believe he threatened to let Obamacare the A c A continue and fail. At least that's

what he I believe said. Well, why not let the Democrats say, Okay, you want this bill, let it go, and then you'll end up with these hospitals that are closing and people that realize that the bill is not so great. Um, you know, I think it's just a question of what you're viewpoint of what is appropriate or in a policy or kind of moral standpoint, you need a lot of Democrats, you know, a lot of a

lot of democrats, you understand my point. In other words, if this is the bill at the House Republicans want, then give it to them. And then okay, then you say, all right, these are the result. You know they already though, this is a different kind of story. So you can't, in good conscience if you think it's truly bad, can you, in good conscience let this kind of thing go? Yeah?

And and it kind of and they already have. You know, these House members voted for the bill, so they get to run ads and go back to their constituents with the fact that they voted to take away potentially your health care um that of your family. Do you have a pre existing condition? You know, look at look at what just happened. So they already have that benefit. And we'll still, I think we want to fight against this

actually becoming a law. Well, of course, this is going to be a conversation and a topic that is going to continue to keep on giving because, of course, as you just said, max Um, the Senate is pledging to write its own version of the bill. Thank you very much, Max and Neeson Bloomberg gad Fly columns when it comes to healthcare, pharmaceuticals, and just about everything that's important, much appreciated.

As we were talking about earlier unemployment, the unemployment rate in the US felt the lowest levels since May two thousand and seven, according to numbers that came out this morning. Uh. This just shows that the job market continues to recover after the worst financial crisis, UH, since the Great Recession. I want to bring in John Cochrane, Senior Fellow at

the Hoover Institution at Stanford University in California. John, you're going to be attending a monetary policy conference, the Structural Foundations of Monetary Policy. UH, that is ongoing right now, and I want to sort of get your take on whether this good Jobs report validates the feds unconventional methods of stimulating the economy after the two thousand and eight crisis. Ah. Well,

there's a good question of because they're despite um. Certainly, I think pretty much everyone agrees that said a great job in two thousand eight of not screwing up in the way that they really did in the Great depression, and ben Burneki said we learned that lesson, we won't do it again, and they did. Now is is the resulting period of quiet due to it's it's big actions or or do we just naturally recover from the recession? That's the open question. That's why we have conferences to

debate things like this. Well, all right, so which side are you going to come down on and what do you expect your your opponent or the contrary opinion to be. Oh, we don't, we don't have opponents, We have polite discussion. My own view is that the Kiwi operation didn't do a whole lot um. It perhaps signaled to markets that the interest rates are gonna be low for a long

time and that was useful. But then contrarywise, that means that QUI isn't doing a whole lot of harm and that you don't need to be in a big rush to wind down the balance sheet. That's one of the big items on discussion at our conference is the big balance sheet, lots of reserves. Is it causing too much stimulus? Is it a problem to the said need to unwin ended quickly or is it just kind of sitting out there and not causing any particular problems and kind of

nice to keep the economy very liquid. John, in your conversations, how important is wage growth? Well, wage growth is what we're here for. Um, all right. Then you're here for our raises, all right, So so tell us about why we're not seeing more of them. We're here for real wage growth. Um, we we want Uh, you know, just inflationary wage growth doesn't do anybody any good. But higher productivity, higher real wages, greater prosperity, and a job market that

isn't just unemployment. Unemployment is people are looking for jobs, but there's still a big problem of people out there who aren't even looking anymore. The labor force participation rate is still low, the economy is growing much slower than it should be by at least my view, and and uh uh just about everyone else. The question is whether

that has to do with money or not. In the long run, money can money can boost you a little bit for an afternoon, but there's no substitute it for a diet and exercise if you want long run growth. So is diet an exercise in this case some kind of fiscal stimulus or is it something else? And you talk about you know, we're here for you know, wage growth. That's that's the reason we're here. By that view, this

Job's report wasn't that great. Um, well, we're here for a solid, long run real wage growth which in the end, uh and and more people working at those higher wages. In the end, that has to come from productivity growth. Um. You can fiscal stimulus, monetary stimulus, these things can help

to get you out of a recession. But the foundations of long run growth they have to come from greater productivity, which in the end is tax reform, regulatory reform, more innovation, more businesses, more competition, all that great stuff that the Fed um, bless their hearts. Um, that's not their job. I'm gonna give you a softball, John, Why are so many people either not working, not studying for work, or even bothering to look for work? Maybe you can reference

Nicholas ever stats column and commentary. Uh sorry, I didn't happen to read that one of this has to do with that he describes it. Well, you're on your blog you say that one of the answers to why people are not looking for work, not studying for work is the opioid epidemic. And that according to Alan Krueger, about seven million working age men are taking opioids pain killers. Yeah. Is Unfortunately, it's not a softball. It's not something that

there's one big stimulus that will solve the problem. There's a lot of Middle America that is right taking open pain killers. Um, stuck in some ways in communities that aren't working. They might have bought a house that now is underwater. They can't move to where the better jobs are. They might be stuck in some government programs, which though those help them when they're in trouble, now uh, they if they get a job, they lose all the benefits,

so um, they don't want to. That makes it much harder for them to move, get some training, get a job, move out. America is not as dynamic as it used to be. It used to be when things are in trouble, you get up, you move, you do something else. And that's just much harder these days for a lot of structural reasons, some of them having to do with government programs and some of them having to do with lots

of big messages. Yeah, well, not monetary policy, but but so John, a lot of the issues that you're talking about that really are the next frontier for any recovery in the US are not things, as you said, bless the FEDS hards, not things that they can solve. So at a conference like the one that you're currently at, which you're talking about the structural foundations of monetary policy, I mean people basically just saying at this point, there's

nothing left for them to do well. I think that's important. Um, you know, the FED would like to help, and there's a big temptation for an institution uh this large, to take on jobs that it's ill suited for, So repeating that message is important. I think a lot of what the discussion for monetary policy is is, Look, it's it's late summer, and late summer, winter comes. There will be another recession sometime soon or sometime later, who knows when

it will come. There will be another crisis, something will blow up, And I think a lot of what's what the important thinking is is for the Fed's job, which is demand not supply, which is stimulus, which is fighting recessions, fighting crises. Uh, get get your powder dry, get ready to think about how were you gonna where the next one is coming from, and how you're going to solve that one. Speak if you can about corporate tax cuts that have been proposed by the administration and whether that

will lead to an increase in wages for workers. Oh um, well, we'll see what comes out of there. Um, it should in the end, or better prices for consumers. We got to remember, every cent of corporate taxes does not paid by corporations. It's paid from higher prices to the you and I pay, or lower wages from workers. Um, some argument for lower profits, but in the end, profits go overseas if they don't got what they want. So all that money will eventually mean are either wages for workers

or or lower prices for consumers. That's that's great stuff. I would hope they would also attack the complexity of the tax code and a lot of tax accountants and lawyers and lobbyists can go drive for uber and do something productive. How confident are you that the current administration can come up with a plan that will end up helping productivity to increase. Oh gosh, that don't ask me

political questions. I'm economist, all right, Fine, I know it's much more fun and I have my opinions like anyone else. But let's let's stick the things I know something about. All right, I want to thank you very much for joining us. He's are you still the Grumpy Economist? Uh? That's my official title. As you may have noticed, that is not my personality. Yea, exactly, well unless we ask about politics, in which case, there there you show your

your grumpy colors, no humility. All right, I encourage everyone to check out your blog, The Grumpy Economist. Thanks very much. John Cochrane is a senior fellow at the Hoover Institution, giving us his take on jobs and the economy. We want to take a moment to let you know about

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It's pretty amazing. Download our io s app or search for the Bloomberg extension on the Chrome Store to try it out. Learn more at Bloomberg dot com. Slash lens I am so excited to bring in the next guest because he now works at Boberg Intelligence. I were Jersey interest rate strategist and long time contact of mine. I'm so excited to have you. Uh he uh is coming to us on the phone from Princeton. You know. I want to touch base with you on a somewhat contrarian

take that you unfailed today. Uh in some Bloomberg Intelligence where you were saying, look, everyone's expecting the Fed to start unwinding the balance sheet, but it might not have the effect on yields that people think. Can you explain that? Yeah? So so I think the conventionalism would tell you that when there's more supply of treasuries that um and and effectively with the Fed Reserve running off its balance sheet, Uh, that's what you're going to get UM is additional supply

of treasuries. Normally, when that happens, people would say, oh, well, that means that treasury yields have to go higher, the price of bonds has to move lower, just because there's there's more supply into the market. But it's not obvious to me that that's what will happen, because it really all depends not on what the Fed does, but what

the Treasury Department does. So how do they actually put those extra bonds back in the market, because they'll have to issue more bonds as these old bonds at the Federal Reserve holds matures and um. And the Federal Reserve has quite a lot of room in the front end in order to increase issues, so they can issue very short term tea bills. They can issue two year notes and three year notes and and those things don't have

a lot of interest rate risks. So therefore the yields don't have to necessarily move higher just because the Fed lets its balance sheets start to run off. Well, I just want to get you to continue that thought ire about running off the balance sheet, because you also write that the Federal Reserve could run off its treasury holdings pretty quickly. In what do you mean by that? Well, well,

that's something interesting. So when the Federal Reserve was doing all of its buying five five to ten years ago, um or you know, now it's hard to believe that it's been almost ten years since they started a quantitative easing, but you know, we're all getting older. Um. The fact is that two thousand eighteen is actually the most bonds that mature on their balance sheet next year, UM and

that starts to tape slow down in UM. So the four hundred about four dred billion dollars runs off its portfolio. And if you recall, the Federal Reserve was was buying bonds on the order of fifteen billion dollars a month. So actually next year you could have more bonds run off its balance sheet than when they actually started to

buy the bonds in their large scale asset purchases. So this would be the large scale asset run off I guess, and that would have well and just sort of walk us through with the effect of that is if they're not going to reinvest those proceeds, I mean, I'm just thinking, um allowed, I mean, as you said, it depends on whether the Treasury is going to replenish them. Although the baseline scenario that everyone seems to have is that the Treasury is going to be forced to increase longer term

issuance in short order. Well, they're going to definitely need to increase um longer term issuance over time, primarily because the deficits are going to be moving higher. UM. So, imagine in a world today where the Federal Reserve hadn't done quantitative using now grant that the economic environment might be significantly different. But if if the Federal Reserve didn't own these and other investors would where would yields be?

Um if they didn't believe it or not, you know, my opinion is that it probably wouldn't be significantly higher than than where yields are right now. Um So, So the thing is the fact that the Fed owns these instead of other people certainly has an impact. But um but what they own are very short term securities right now. Right these are all maturities that mature within the next eighteen eighteen months to two years, right so five almost five billion of them mature in the next couple of years.

If the Federals, if if the Treasury Department then decides to issue these in in T bills and in two year notes, it's not going to change the amount of interest rate risk that's in the world today. It will be the exact same amount of interest rate risk that's in the world today now. If they do go out, and the Treasury Department has been talking about this and in fact, and Wednesday's um refunding statement they mentioned this um, and and they seem keen on wanting to do this.

They might issue a fifty year bond and potentially increase other maturities, but not necessarily because of the said more because of the fact that you have a lot of baby boomers retiring and deficits are going to be higher over the next several years. Just um on any kind of base case scenario for for for the federal deficit. I'm glad you mentioned the deficit. How come that is not a dominant theme when it comes to appropriations in

Washington or even thoughts about interest rates. Yeah, well, that's a good question. I think, you know, folks in Washington now maybe you're trying to think of, you know, house ways to stimulate the economy. I mean, the economy is not growing at a at a terrible pace, is just not growing at this fast space that we got used to in the eighties and nineties. So I think at this point, um, you know, they want some stimulative activities, and in order to do that, you kind of need

to run some deficits. It just from a pure deficit standpoint, it's probably not the greatest time to be thinking about stimulative ativities when you're going to get UM. You know, like I mentioned, you're gonna have much higher UM costs for things like Social Security and medicare just because of UM, because of demographics, and that's going to swell the deficits anyway. Now, now these low interest rates, the Treasury Department can issue

a lot of bonds. There's still a lot of demand for treasuries because there's a lot of risks going on around the world. Um, but there probably is some tipping points somewhere. I don't think it's going to be in the next couple of years, but um, but there probably is a tipping point where you know, those bond vigilantees that have been you know, hanging out in caves somewhere are going to start coming out and selling bonds and droves. Yeah, those caves they really have. I think they've all retired

at this point. They're pretty hot real estate, you know. I'm I'm wondering. I've seen this one idea floated. Why is the Treasury considering selling fifty year or one year treasuries when they could just sell a whole bunch more

of thirty years. Well, Well they can, and I think that's that's the argument because one of the things and I put out a note on this on Wednesday that you can find on the Bloomer terminal is the um is the fact that there's not a lot more risk in the thirty year than there is in the fifty year.

I think that the idea of the fifty year would be to to basically um to issue bonds that are longer than most retirees will will live, quite frankly, and basically get over the social security humps that's really coming over the next over the next several years. But in terms of interest rate exposure and in terms of pricing of these of these bonds, it creates a different point on the curve. But but you're absolutely right least it

doesn't have a lot more risk. And in fact, the amount of interest rate risk from ten years to thirty years more than doubles. But from thirty to fifty years, and this is again a little counterintuitive and very this has to do with bond math, but the risk only goes up by about twenty instead of like I said, for the prior twenty years, So so you're not adding a lot of risk. So that's one reason why the Treasury Borrowing Advisory Committee these are dealers and investors and

both by side sell side hedge funds um. This is one of the reasons why they're skeptical if there will be consistent demands for the fifty year bond um. But at the same time, it seems like the Trosury Department seems pretty keen on on, you know, testing it out and trying to issue some of these. Thank you very much. I read Jersey is interest rate strategist for Bloomberg talking

about the outlook of course for interest rates. Thanks very much. Well, let's find out what the feeling is in Puerto Rico. Right now. We have Joe my Sack. He is our expert our editor for Bloomberg breefs Municipal Market. Joe, maybe just give us an update what has happened so far this week in Puerto Rico. Title three him. Title three sort of a version of bankruptcy that was set up just for the Commonwealth and now the creditors are going

to have to slug it out. Right now, this is UH using Title three to restructure geos, but they are all general obligations general obligation bonds and they're also going to file a Title three to restructure the Cofina bonds,

which are the sales tax backed bonds. You know, there's a there's a lot of emotion tied to this issue, both on the side of people living in Puerto Rico, but also some of the creditors and UH particular, I'm looking at the bond insures who are on the hook to compensate investors for any losses on the bonds should Puerto Rico write down the principle, UH substantially and sure

enough assured guarantee. One of those insurs today had earnings. UH. They actually reported better than expected earnings since their shares are up more than five percent. But the CEO said on a call with investors that they wanted an adult in the room to resolve Puerto Rico debt issues, which it didn't get with either the oversight Board or the governor. That the fiscal plan that the oversight board came up with is a quote insult. Title three is quote in

no one's best interest. It will only mean long and costly litigation. So you know, Joe, given this backdrop, can you give a sense that observe the mood of the people who you speak with our bond investors girding for much steeper losses than are already baked in. I think a lot of bond investors who are who are still creditors at this point because you know, let's face it, in the broader community market that I really care, um, but in the but the creditors, sure, they're very Uh,

they're sort of stunned at this point. A lot of them are still in denial. I mean at assure. Dominic Is uh has always been a blunt speaker, Joe. One of the things that's coming up in June, June eleven is a plebiscite. It's a vote, and the people in Puerto Rica are going to be able to vote on their political status. Not the last time back in two thousand and twelve, they rejected continuing as a territory. And I believe it was something like six would vote or

had voted in that plebiscite for statehood. The fact that Puerto Rico really is controlled by the federal government. Is it likely that this vote will change anything? Uh? Well, certainly not with the debt. And uh, you know, if I had to bet, I'd say they're probably gonna vote

for the status quo. Really, even though you have this decline in the economic fortunes of the territory, because I mean, commonwealth doesn't really mean anything in the I mean it doesn't have any legal status, right, I mean, this is a territory and as a result, it's really run overseen by the Congress. I think they they you know, it strikes the balance between independence and UH and the requirements of statehood. So I just you know, that's my bet

that they'll just go for the status quo. You know, there's been a lot of discussion about who's next. Does it said a bad precedent for say, the Virgin Isla, which is another territory of the US and has been building dead and has been facing some of the similar issues that have ravaged Puerto Rico. So we were talking offline, Joe that the Virgin Islands has about two billion dollars of debt compared to seventy four billion dollars at Puerto Rico.

So this is not exactly an apple to apples comparison. But could the Virgin Islands end up taking a similar route to Puerto Rico? Oh? Sure? And again because it's you know, sort of how do you put it, an impoverished Caribbean. Many nation, I guess or state. Uh, and you know, the things that are in operation in Puerto Rico are sort of an operation in the Virgin Islands,

but in a very very smaller way. Well, do you think that there is a precedent that's set for say, bondholders, uh, for Illinois or New Jersey or other ravage states that might not fall into the same title three provision? Contagion that's what you're talking. Yes, I'm talking contagion. Are we going to see contagion? I don't see contagion just because uh, these uh states that you mentioned really have to have regular access to the bond market, and there's still a

lot of things they could do. On the other hand, just doesn't excuse the fact that they have a lot of difficulties. You know, when you say New Jersey and Illinois, Chicago public schools, these are places with very uh you know, they have a lot of distress there. But certainly I don't see any contagion spreading to states. The states have a lot of power, and they have have a lot

of taxing power in particular. Well, then, having said that, I'm wondering, why wouldn't Puerto Rico become a state I mean, right now, it doesn't seem to be working in its present situation of being a territory. Why not change the status and fix this? Um? I think right now you're you're sort of at the end of the line, and that right now, this is probably how it's gonna work going forward. Attaining statehood wouldn't change anything for them right now.

Just when you were talking earlier, real quick, can you give us a sense of who the creditors really are at this point? I mean, have the mutual funds and the mom and pop investors pretty much all gone away? Well? Yeah, because, uh, you know, Puerto Rico was downgraded several years ago, so the mom and the typical mom and pop investor that is off island. On the island, there are still small investors who owned Puerto Rico paper, but uh, you know, right now you have big hedge funds, you still have

you know, some big mutual funds. Um. So it's really it's it's an institutional thing right now. There's still some individuals who are in Puerto Rico paper, sure, but for the most part it is institution versus Puerto Rico. Joe Meazac, editor for Bloomberg Brief focusing on the municipal market. Thank you so much for joining us. Truly a pleasure to speak with you. Thanks for listening to the Bloomberg P

and L podcast. You can subscue. I've been listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one Before the podcast. You can always catch us worldwide on Bloomberg Radio.