Four years ago this month, Washington passed a law and named it, with a straight face, the Inflation Reduction Act.
Bizarrely, their plan to ‘reduce inflation’, which had been caused by excessive government spending, was for the government to spend even more money. It’s genius!
Among its various provisions, part of the legislation authorized the government to negotiate prescription drug prices. Seems like a nice idea in principle… but in practice it’s been a disaster.
The Congressional Budget Office released the results late last month: the Medicare drug provisions that were supposed to generate $129 billion in savings will now add $700 billion to the deficit.
Sometimes it seems like this is the whole idea; given the rampant Medicare fraud that gets uncovered on a daily basis, it’s clear that politicians have an incentive to steer MORE money into the program.
Healthcare is the easiest spending in Washington to justify. Every dollar comes with the same argument: if we don’t spend on healthcare, people will die!
It ends up being so much money— a giant, dark pool of corruption— and a lot of it gets funneled straight back into the political process as campaign contributions. And it’s been going on for ages.
Back in 2002, for example, America’s biggest health-care workers union spent about $800,000 electing Rod Blagojevich governor of Illinois. He later thanked them “for electing me governor.”
Weeks after he took office, Blagojevich signed multiple executive orders that fattened the union’s pockets, like forcing more healthcare workers to join… and automatically deducting union dues from their paychecks. Bad for the unionized workers, but great for the union bosses.
In New York, the Greater New York Hospital Association wrote two checks totaling more than $1 million to the state Democratic Party in August 2018, at then-Governor Andrew Cuomo’s campaign’s request.
Three months later the state ordered its first across-the-board Medicaid rate increase since 2008, worth about $140 million a year. Great news for the hospital association.
The cycle never ends— the unions and associations scratch the politicians’ backs, and in turn get their backs scratched. No one can rationally expect those parties to walk away from their mutual benefit.
And this is just the ‘honest’ graft and corruption… it doesn’t take into account the outright fraud.
During COVID, Medicare paid for eight test kits per month, per person, in America. Yet an inspector general later found it paid up to $454 million for nearly 39 million kits over that limit.
In June, the Justice Department found over $6.5 billion in fake health-care claims. Yet agents recovered only $182 million in cash and assets, less than three cents per dollar of fraud.
In one instance, a pair of adult day care operators fraudulently billed Medicare and Medicaid $120 million over a decade. One of their centers claimed 1,041 attendees in a single day while the building’s occupancy limit was 81.
Then Nick Shirley walked into the neighborhood’s facilities with a camera this summer and turned up $190 million more in suspicious billing.
And yet very little of the fraud gets stopped… in large part because a portion of what they steal from the government is funneled back to the politicians (mostly on the Left) who vote for more Medicare spending.
These same politicians install activist judges at the state and federal level, ensuring that anyone who tries to stop the fraud will be sued… and blocked by the courts.
As an example, last year Congress voted to cut off Planned Parenthood from Medicaid for one year.
Planned Parenthood sued. Judge Indira Talwani, an Obama appointee in Boston, dutifully blocked the cut within weeks, and the appeals court had to overrule her twice before the law could take effect.
Feeding Our Future, the Minnesota child-meal Somali fraud network, had the audacity to sue the state for racial discrimination when the fraudulent money train slowed down.
It’s extraordinary; there are so many checks-and-balances in place to keep the graft going.
The politicians vote to keep the money moving. The judges defend it to the last Somali. And the activists and the media scream that anyone asking questions is racist; Governor Tim Walz called the fraud talk “vile, racist lies.”
The teachers’ unions march the kids out of school for union causes and No Kings rallies, as if the kids had any idea what they were marching for. And the universities continue the socialist indoctrination.
Media, education, courts: the whole institutional layer exists to keep the money flowing.
So of course they want more of it.
Senator Bernie Sanders reintroduced Medicare for All last year, and the movement that just made Zohran Mamdani mayor of New York wants to make this slush fund the entire health-care system.
Even the most conservative estimate puts the price at $32.6 trillion over the first decade; that’s an astonishing amount of potential fraud.
The US could get its fiscal house in order if it shut this slush fund down. But the graft is deeply entrenched… so it’s likely that US deficit spending will continue in order to pay for it all.
Foreign governments have reached the same conclusion: The US has to go deeper into debt in order to finance hundreds of billions of dollars in fraud.
That’s a major reason why foreign governments and central banks are diversifying away from the dollar. And with no obvious global currency to park their financial reserves into, they buy gold.
We have been making this argument for the past few years, since gold was below $1800. This sort of news makes the case even more strongly: the story hasn’t changed… and gold remains a great hedge for the fiscal uncertainty to come.
PS: In this month’s Schiff Sovereign Premium, we made the case for a gold producer built for exactly this outlook: a debt-free, dividend-paying, highly successful gold company which just had the most profitable first-half in its company history. But it only trades at 2x cash flow.
If the fraud and deficits continue, gold should do very well… and successful producers can do even better.
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