Healthcare Stalemate Could Have Catastrophic Consequences

 | Jun 28, 2017 | 1:00 PM EDT
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The punting of the Senate vote on healthcare reform until after the July 4 recess portends a negative trajectory for the economy, stocks broadly, healthcare stocks most specifically, the Trump agenda, the Republican party and the future of conservativism. 

I do not offer this lightly. 

As much as there has been positive momentum on the restructuring of foreign policy and trading relationships, which I discussed in the column, "Truth Be Told (and It Seldom Is), Trump Is Getting It Right," the exact opposite is happening on the domestic front. 

The Trump and Republican leadership's plan of leading with healthcare reform, tying the achievement of it first, and inextricably, to tax reform -- and everything else to follow -- is bizarre and both a strategic and tactical error on par potentially, in my opinion, with the Battle of Little Bighorn.  

I say potentially only, because there is still a little bit of time for Trump and the Republicans to reverse course, shelve healthcare reform and devise a new plan for achieving the rest. 

On the current trajectory, though, the political outcome for Trump and the Republican party will be akin to the actual outcome suffered by Custer and his men. 

That's not because healthcare doesn't need to be reformed. It does. But that is a different issue than the issue of when it is politically viable to successfully pass that reform. 

That timing is referred to as the "Overton Window," which I first discussed in reference to the support for a federal infrastructure investment plan last September in the column, "Fiscal Stimulus Package Will Happen; It's Only a Matter of When."

Issues enter the "Overton Window" area of possible political response when there is broad public support for addressing the issue, meaning the public considers it a crisis -- or critical to deal with. 

Although the Affordable Care Act is on a trajectory for that point to be reached, as insurance companies and healthcare providers increasingly opt out of participating in it, it hasn't yet resulted in widespread support for a legislative response by the constituents of the elected representatives, whose support is required to pass the reform. 

And that's not going to happen until the Affordable Care Act has collapsed and a growing number of people are left without a financially viable healthcare plan. 

But, because everything on the Trump and Republican party domestic agenda, and much of the foreign policy agenda, is predicated on healthcare reform first, nothing can get done until that happens -- or Trump and the Republicans shelve healthcare temporarily and move on to deal with the rest of the things they want to do. 

Compounding this situation for the economy, financial markets -- and politically for Trump and the Republicans -- is that both tax reform and infrastructure spending are inside of the Overton Window. 

There are many wealthy individuals and companies urging tax reform, and many middle class and out of work folks urging infrastructure expansion; and both groups are being told by their elected representatives to wait until healthcare reform is completed. 

This is political suicide by those representatives, but they appear oblivious to that fact. 

It is akin to sitting in your car at a traffic light that has turned green and listening to all of the drivers behind you honking their horns -- and still not moving. 

People are mad that healthcare reform is being pursued and that taxes and jobs are not. 

The totality of this also reflects very poorly on Trump's ability to transfer his mastery of business negotiating into the world of politics -- the "art of the deal" into the "art of the possible."

Even further compounding this situation politically and economically is the fact that the Fed is raising rates to preemptively fight inflation, based on a faulty model of economic activity, which I've written voluminously about since the process of "rate normalization" began, and last discussed in the column, "Economic Divide Is Widening and Worsening."

I am ever watchful for signs that Trump, his team, and the Republican leadership is aware of the situation and the need to stop what they are doing, but I haven't found any yet. 

On the current course, unless healthcare reform is miraculously passed by mid-July, the risk of the political and legislative process seizing up because representatives are left trying to grapple with healthcare, tax reform, the debt ceiling and the 2018 fiscal budget all at once, will almost certainly settle in negatively with investors. And the Trump surge of the first half of this year will give way to the opposite in the second half.    

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