Greatest Government Giveaway In History

 

The Greeatest Government Giveaway In History
 

History will view the Inflation Reduction Act as one of the most consequential pieces of legislation of the century. 

It is 725 pages of broad expansion of government powers that touches every major aspect of Americans' lives from personal finances to healthcare to energy. 

Included within it what could be one of the greatest giveaways in government history. 

Literally hundreds of billions of dollars. 

Easily totalling in the trillions of dollars over time.

It’s not a direct “we allocate $100 billion per year” type of legislation though. 

You’ve got to piece it together to see it. 

And then the stocks that are going to be getting a big part of the giveaway. 

 

Seeing The Unseen

Here’s the three critical elements. 

It all starts with a basic principle of microeconomics. 

This principle was best summed up by Milton Friedman’s “Four Ways To Spend Money” chart. 

Here is a the chart posted by the Financial Samurai to show you:
 

The chart explains everything about spending. 

It’s simple, but it’s critical. 

Every type of spending is identified. 

Like when you focus on economising when spending your money on others. Think of Christmas presents. 

Or like when spending someone else’s money on yourself. If you’ve ever had an expense account, you know that you tend to upgrade things you normally wouldn’t with your own money.

Well, it's spending someone else’s money on yourself that’s the type of spending that the Inflation Reduction Act.

Here’s why. 

The Inflation Reduction Act made a trade off. 

It allowed Medicare to negotiate drug prices. 

The actual law says the negotiations will begin initially with 10 drugs and there are many limitations from there. 

That was likely the cover “win” they extracted from Big Pharma. 

Of course, Big Pharma isn’t walking away empty handed. 

The law also put into place a max “out of pocket” expense for prescription drugs for Medicare users at $2,000. 

After that, the government covers the rest. 

There will be no incentive to economize. 

There will be every incentive to spend as much on the best, most potentially useful drugs even if the benefits are marginal. 

We’re not debating the morals of this. There are good arguments on all sides. Just the finances. 

And if you do just the numbers, the inevitable result is hundreds of billions of dollars in additional prescription drug spending between this kicking in 2025 and 2030. 

And it only goes up from there because of the third part of this equation. 

The third part is the U.S. population is ageing. 

This decade will see the greatest surge in total Medicare patients in history.
 

The Big Winners
 

The combination will lead to steady growth for Big Pharma. 

This is a big deal. 

And all the Big Pharma companies will likely benefit as they dominate the market. 

But there may be even bigger gains for companies like Royalty Pharma (RPRX).

It just buys royalties on prescription drugs, collects the checks, and doesn’t spend on research and development.