Martin Feldstein says bond markets disagree with him, so they must be wrong:
The global impact of America’s healthcare debate, Commentary, Project Syndicate: Since assuming the presidency earlier this year, Barack Obama’s ... proposals are meeting strong opposition from fiscally-conservative Democrats as well as from Republicans, owing to their potential impact on future fiscal deficits. ...
[A]n overwhelming majority of Americans are insured, with government a major financier of healthcare. But there remain about 54 million individuals who are not formally insured, and some insured individuals still face the risk of financially ruinous medical costs if they have very expensive medical treatment.
Obama campaigned on the goals that everyone should have health insurance, that high medical costs should not bankrupt anyone... But, rather than producing a specific proposal, he left it to Congress to design the legislation. ...
In fact, there is a strong risk that this legislation would ultimately add to the fiscal deficit. Increasing the number of insured by 35 million and broadening protection for some who are now insured implies increased demand for healthcare, which could raise the cost of care paid for by the government as well as by private healthcare buyers. In addition, both sources of financing are also uncertain. ...
In considering the fiscal implications of Obama’s health proposals, it is important that the current legislation would still leave 25 million individuals without insurance.
How much would it cost to insure them if the gross cost is now projected at US$800bil for the easier-to-insure 35 million? And how could that cost be financed...? Closing that gap could add more than $1 trillion to the government’s cost over the next 10 years.
It is clear that there is a significant danger that the current legislation would add substantially to future US deficits – and establish a precedent for even more expensive expansions of healthcare in the future.
This would come on top of the currently projected fiscal deficits in both the near term and over the coming decade – and before America’s demographic shift substantially raises the cost of Social Security and Medicare.
Surprisingly, the bond market still seems almost oblivious to this risk. But holders of US debt worldwide have every reason to be concerned.
The bond markets are right.