The U.S. government has been borrowing from Peter to pay Paul for decades. That should come as no surprise to most, but the speed by which we are piling up debt to support our spending has become alarming.

 

The federal budget deficit is the difference between how much Washington spends and how much it receives in taxes. That concept should be familiar to all of us who count on our income to support our family's spending. Imagine if the amount you owed (your deficit) doubled from last year.

 

That is what happened to the nation's budget deficit over the last year, to the tune of $1.7 trillion.

 

If you look at the big picture, the U.S. total federal debt topped $33 trillion this year. That amounts to 121 percent of 2022's GDP. Usually, the U.S. deficit expands during hard times for the economy since tax receipts fall. The opposite occurs when the economy grows. However, that relationship has come apart.

 

The U.S. economy has been growing since the pandemic and yet tax receipts continue to fall. Much of the blame for this situation can be laid at the doorstep of various administrations and Congress. Tax cuts by George W. Bush, Barack Obama, and more recently Donald Trump have reduced the amount of taxes coming into the government's coffers.

 

In typical political fashion, the present White House under President Biden has pinned the blame for lower tax revenues on the former president. Trump indeed left the country in far worse shape than his predecessors. His more than generous corporate tax cuts failed to jump-start the economy. Instead of investing in capital formation, corporations used those savings to increase dividends and stock buybacks.

 

Federal spending now accounts for 25 percent of GDP. In defense of government spending, you might say the last few years have been unusual and you would be right. The COVID-19 pandemic triggered a huge spending program to save the economy and voters. In addition, the need to do something about the country's deteriorating infrastructure was finally addressed after years of inaction. Since then, Russia's invasion of Ukraine and the terrorist attack in Israel have added even more pressure to increase spending.

 

But the really big programs that have consumed so much of the government's spending commitments are Social Security and Medicare, which account for almost half of U.S. spending. As more Americans retire, the costs of these programs will continue to escalate. As such, deficits without tax increases are expected to climb.

 

Back in 2011, the Congressional Budget Office (CBO) predicted the fiscal deficit would average 1.8 percent of the economy in the ensuing decade. This past May, in the CBO's latest projections, that number has increased to 6.1 percent of Gross Domestic Product. Altogether, federal spending will account for almost 25 percent of the U.S. GDP over the next decade while tax receipts will account for 18 percent of GDP. If we continue this trend, Penn Wharton School researchers predict that the U.S. could default on its debt as soon as 20 years.

 

Up until now, the financial markets have largely ignored the deficit, and the endless debates and false promises by legislatures who talk a good game but simply move the deck chairs around on a sinking ship once they are in power. The bond market, however, is beginning to take notice.

 

As the nation's borrowing grows larger to finance a growing deficit, bond vigilantes are taking matters into their own hands. They are selling U.S. government bonds, which is pushing yields higher and higher on government debt. It is the private sector's response to Washington's profligate spending and irresponsible deficits. The result is that the credit markets are shifting long-term interest rates higher making it more and more expensive for Washington to continue spending and borrowing.

 

The government is now facing the reality of spending much more in interest payments on our ballooning debt than ever before. In the current fiscal year interest spending should surpass $800 billion, which is more than double 2021's $325 billion number.

 

By 2026 net interest expense should reach 3.3 percent of GDP. That would be the highest on record. If interest rates remain where they are, and fiscal policy continues its spending path. If unchecked, the cost of servicing this debt could be larger than defense spending by 2025, and top Medicare spending by 2026. 

 

I believe the present push by Republicans in Congress to cut spending is both necessary and urgent. It will be painful. It should also be accompanied by tax increases across the board, but that may be too much to ask for given elections next year, but one can always hope.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Spending on candy, costumes, decorations, and parties is rising. The expected amount Americans plan to spend on Halloween is $12.2 billion in 2023, according to the National Retail Federation NRF). That beats last year's record of $10.6 billion.

 

More Americans than ever are celebrating with 79 percent of people participating, which is greater than last year and exceeds pre-pandemic levels as well. In addition, 76 percent of adult American pet owners plan to put their pets in costumes, according to a PetSmart national survey. The average amount consumers will pay to celebrate the holiday is $108.24 versus $102.74 last year.

 

Candy is still at the top of the agenda for households. They will spend $3.6 billion in rewarding trick-or-treaters at their doors. Those doors, as well as front steps, interiors, and yards, will be decorated with pumpkins, spider webs, skeletons, etc. Those decorations will total $3.9 billion, even more than consumers will spend on candy.

 

Halloween parties are also gaining increased popularity, especially among Gen Z and millennials. The three great elements of such parties are costumes, the food, and the decorations. While today's partygoers may believe they are forging a new trend in entertainment, Halloween parties are simply a blast from the past.

 

In the late 1800s, Halloween parties for both children and adults became the most common way to celebrate the holiday. Parties focused on games, foods of the season, and festive costumes. By the 1920s and 1930s, the holiday had become a community-centered event with parades and townwide Halloween parties as the featured event.

 

So, it's "back to the future" this year as more than 32 percent of American consumers plan to attend or throw a Halloween party. And like days of old, beyond your typical neighborhood get-together, there are long lists of Halloween parties (now listed on the internet) for just about every community in the nation.

 

However, it is costumes that have garnered the greatest spending — $4.1 billion, up from $3.6 billion last year. More consumers than ever (69 percent) are planning to buy costumes this year. Adult costumes saw an 18 percent increase, while children accounted for a 20 percent gain. Spider-Men, princesses, ghosts, witches, and other superheroes still account for the lion's share of children's preferences. This year aside from the traditional stable of vampires, witches and Batman, Barbie and Ken will be top picks for adults.

 

A growing new category for costume demand is pet costumes. The NRF believes consumers intend to spend as much as $700 million on costumes for their pets. Dogs seem to be the target of most owner's costume spending, according to another survey by Honest Paws.

 

The most popular costumes include a pumpkin, a hot dog, a bat, a bumblebee, a spider, and Chucky. Most owners planned to spend under $50 for Fido's disguise, but a third of dog owners admitted that they spent more money on their dog's costume than their own.

 

Another trend that seems to appeal to most costume buyers with pets is matching outfits for both owner and dog. Do not be surprised therefore to see a Batdog and Robin knocking on your door.  Almost 50 percent of owners plan to bring their dog along for trick-or-treating and more than one quarter will be competing in costume contests with their pet.

 

Just a side note on pet costumes. My canines, both past and present, would run for the hills at the drop of a costume hat. Most pets that show similar signs should never be forced to wear a costume. If you absolutely must dress your pet in something, make sure whatever costume you select allows your pet to be able to move and breathe easily. Clothing that resembles a traditional dog vest, or T-shirt that doesn't cover the entire body and head are the best. You may not win that neighborhood costume contest, but your pet will thank you for it, and Halloween for both of you will be far more memorable. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

They are called general practitioners or primary-care doctors. Overworked, suffocating under mountains of paperwork, they see more than 30 patients a day in one of the most underpaid areas of the medical field.

 

An estimated one-third of all physicians in the U.S. are primary-care doctors, according to the Robert Graham Center, which studies the primary-care market. They include medicine physicians, general internists, and pediatricians. Depending on the definition, other researchers, like the Peterson-KFF Health System Tracker, say that number is far lower, around 12 percent. That compares with a range of 23-45 percent of primary care doctors in Europe.

 

My doctor, whose office is a stone-throw away from my house, fits the profile of most doctors in her field. She is meticulous, saved me from serious health issues several times, and knows my family intimately. I trust her implicitly and don't know what I would do without her.

 

Through the COVID-19 pandemic, her doors were always open, and she did it alone since finding anyone willing to work for her was impossible. With no help, she spent her evenings entering patient data into the nation's cumbersome electronic health record systems, scheduling appointments, and checking on patients.

 

Today, a smaller and smaller percentage of medical students are even considering the field. Salaries are a big reason why other medical and surgical specialties are promising far more income. Retirement is further depleting the nation's stock of GPs. At the same time, the demand for primary care is growing, thanks to record enrollment in Affordable Care Act programs. 

 

This results in longer and longer waiting times between visits to see your primary-care doctor. The average wait time is now about 21 days and growing. If, God forbid, your doctor retires, most people are faced with a "not taking new patients" electronic message from most physicians.

 

In response, over the last five years, large primary care and urgent care groups have sprung up across the nation. They are flourishing. Patients can usually walk in to see a doctor (although not necessarily the same doctor) on each visit. Many times, they will not even see a doctor. They will instead see a nurse practitioner or a physician's assistant.

 

Retail clinics like CVS Minute Clinics, offer in-person and virtual care seven days a week. Changes in Medicare and state laws have loosened the requirements for physicians and billing. This has boosted the growth in these areas, making them one of the fastest-growing segments of the medical arena.

 

The trend has grown so fast that roughly 46 percent of all primary-care physicians are currently working in practices they do not own. And two-thirds of those doctors do not work for another doctor, but a different entity altogether — Corporate America.

 

Given the present state of the primary-care field, why would the country's largest health-care insurers, drug store chains, and other billion-dollar corporations want to get involved in this business? Names like CVS, Amazon, Aetna, and Amazon are all buying up primary-care centers, doctor groups, and even the practices of individual doctors.

 

The simple answer — to create one-stop shopping for all your health-care needs. Corporations want access to the nation's huge number of consumers who need all sorts of health care and medical insurance. Primary-care doctors hold the pulse of millions and millions of patients. These patients will continue to generate a steady flow of business and profits to hospital systems, health insurers, and pharmacies.

 

In addition, Medicare, the federal health insurance program, is gradually being privatized. As it stands now, more than 30 million beneficiaries have policies with private insurers under the Medicare Advantage program. That is worth $400 billion a year for insurers and is growing every year.

 

Corporations entering the field say they are bringing coordinated health care to patients. Health insurers and others want to institute "value-based care" where the insurer and doctor are paid a flat fee for individual patient care. They argue that fixed payments will act as an incentive to maintain the health of the patient and provide access to early care, which in turn will reduce hospital stays and visits to expensive specialists.

 

Critics, however, worry that the economies of scale invading patient care will destroy the personal doctor-patient relationship. It may also end up in situations where corporate owners begin to dictate and limit services from the patient's first visit to extended hospital stays.

 

Given the growing scarcity of primary-care physicians, many millennial patients, especially those who are younger and generally healthy, are unfazed by the changes in health care. A video call or a no-wait visit at their local drug store or big-box store beats waiting for weeks to see a doctor. As for me, I am both lucky and grateful for my primary-care doctor.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The American work culture has shifted radically since COVID-19. The idea that there is more in life than work is catching on among many workers. Working from home, quiet quitting, and "missing Mondays" are all symptoms of this change as is a four-day workweek.

 

Most full-time workers and job seekers, when asked, say a four-day workweek is at the top of their wish list. That is what a recent study by Bankrate, a consumer financial services company, discovered. Fully 81 percent of 2,367 adults polled, supported such a move, and 89 percent of workers were willing to make sacrifices to achieve that goal. Those surveyed said they would work longer hours, change jobs, take a pay cut, have fewer vacation days, switch industries, and even sacrifice advancement for the chance to reduce their days of toil.

 

At the same time, more than half of American employers offer, or plan to offer, a four-day workweek, according to a poll of 976 business leaders by ResumeBuilder.com. In that survey, 20  percent of those businesses already offer a four-day week and another 41 percent are planning to implement a similar week at least on a trial basis.

 

Several large trials are already occurring both here and abroad to explore the possibilities of a shortened work week. Studies have shown that for those who have implemented the change employees are happier, have less burnout, and it is also easier to attract new talent. In a Canadian trial, researchers found that revenue increased by 15 percent in many of the 41 companies that decided to continue with the approach after the trial ended.

 

Some large private-sector companies in the U.S. including Shopify, and even Amazon and Microsoft, are experimenting with a shorter workweek. California, Massachusetts, Missouri, Pennsylvania, Texas, and possibly Vermont have introduced legislation to reduce the standard workweek as well.

 

You would think that with this much support from both employee and employer, why hasn't it happened already?

 

The facts are that the lion's share of U.S. companies and organizations still operate under a five-day work schedule. It happens to also be a labor law and has been for more than 80 years. Changing that would require a large adjustment and require a great deal of planning. Just think for a moment about how downsizing the working week might impact you. Everything from taking the kids to school, to when you go grocery shopping might change.

 

From the perspective of your company, there is a lot that needs to be assessed. Staffing needs, concerns over productivity gains or losses, increased costs, and complex changes to operations are all legitimate concerns. None of those issues can be overcome quickly. Experts estimate a complete changeover could take five years or more.

 

Back in 1926, Henry Ford was credited for standardizing the five-day workweek (down from six) in response to pressure from the labor movement. Unions have long been instrumental in fighting for most of today's worker benefits like weekends off, overtime, and health benefits.

 

In 1940, an amendment to the Fair Labor Standards Act mandated pay for any time worked beyond 40 hours per week. Since then, not much has changed in labor laws.

 

While remote workers, office jockeys, and the salaried bunch are lobbying for a change in the workweek, the United Auto Workers are putting the four-day workweek on the map for hourly workers. Today's striking autoworkers union, in addition to wanting better pay and benefits, are asking for a four-day workweek. The deal they want is to put in a 32-hour week and get paid for 40 hours. In addition, anything clocked over the 32-hour limit would count as overtime.

 

Part of the union's effort is due to the auto industry's transition from building gas-powered vehicles to electric. It takes less time to assemble EVs on the line, so assembly workers wouldn't necessarily see their weekly take-home pay take a hit.

 

Most labor experts do not expect the UAW will win on that demand. And not all workers want a reduction in their hours worked anyway. Hourly workers across many industries are fighting for more, not less, hours to work. It is a sad fact in this country that many employers actively try to keep workers' hours under certain thresholds to avoid paying fringe benefits. It would take a concerted effort by labor unions, corporate executives, and politicians to pull off something like a four-day workweek. Nonetheless, the idea is gathering steam across the nation, and at some point, we should expect it to become a fact, possibly in my lifetime.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The ongoing partisan battles in Congress over a government shutdown are making daily headlines. However, whether a shutdown ultimately occurs or not may not be the most important outcome of this squabble.

 

Over the weekend, at the 11th hour, Congress and the White House passed a continuing resolution to postpone a government shutdown until Nov. 14, 2023. Axing funding for Ukraine was the price Republicans demanded to kick this spending can down the road. This was somehow hailed as a bipartisan victory, one of the few in this deeply divided Congress. It seems to me that the only victor in this mess was Russia. 

 

Since then, a handful of radical right Republicans in the House, led by Matt Gaetz, a Republican congressman from Florida and the subject of an ethics probe, forced a vote to push House Speaker Kevin McCarthy out of his post. Combined with most Democrats, the House voted to oust McCarthy.

 

Gaetz and the radical right had accused McCarthy of breaking his word to conservatives on spending bills and how he would run his house. They pointed to McCarthy's behind-the-scenes, side deal with the Biden administration to restore funding for Ukraine as just another reason not to trust the speaker. The straw that broke the radical's back, however, was when McCarthy reached out across the aisle to come up with a compromise that would keep the government's lights on at least temporarily.

 

Democrats were divided on their response to the turmoil within the Republican Party. But few Democrats trusted the speaker, given his partisan track record. In the end, partisan politics dictated they voted to oust the speaker, even though it meant that no work could be done in Congress until a new speaker was elected.

 

If one steps back from the hour-by-hour circus in Washington and looks at this debacle from the perspective of others, the U.S. government appears to be in a precarious state. Many developed countries plan their budgets, their spending levels, the level of debt, etc. in five-to-10-year increments. Our government can't even agree on whether they will be able to pay its employees next month.

 

It is also becoming increasingly apparent that the U.S. government is unable to control spending on both the short-term and long-term levels. This failure to manage continues to happen under both parties. This is not just my opinion. Two of the three largest credit agencies, Fitch and Standard and Poor's, have come to the same conclusion.

 

Back in 2011 Standard and Poor's reduced our long-held triple-A credit rating to AA, citing a weakening in the effectiveness, stability, and predictability of American policymaking and political institutions. 

 

This year, thanks to the debt ceiling debacle spawned by this same group of dysfunctional politicians, Fitch, another big credit rating agency, downgraded our debt as well. Fitch cited a "steady deterioration in standards of governance over the last twenty years." They went on to explain that "repeated debt limit political stand-offs and last-minute resolutions have eroded confidence in fiscal management."

 

And here we are again — more than two months later — repeating the same suicidal behavior. The actions among U.S. legislators befit a banana republic economy, not the U.S. Only one credit agency is left, Moody's, that still maintains a AAA rating for our sovereign debt. How long that status remains is my concern.

 

Politicians of both parties fail to realize (or don't care) that these rating changes have a real cost to the nation and taxpayers for decades to come. The cost of issuing U.S. debt and paying bondholders interest is climbing year after year. As it stands today, interest payments alone are costing the country 8 percent of GDP. That percentage is expected to increase exponentially. We are talking billions of dollars, readers, if not trillions, when we consider the cost that we will have to bear (as will our children and their children).

 

Moody's has already commented that a shutdown would have credit implications. A downgrade in their rating based on "the weakness of U.S. institutional and governance strength," as well as "the fractious bipartisan politics around a relatively disjointed and disruptive budget process" indicates to me that unless things change dramatically next week, we could see yet another downgrade.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.