USA Inc.

If the United States were a company, what financial shape would it be in? And what would it make sense to do to put the company on a sounder footing? These are the intriguing questions that a group of investment analysts from Kleiner Perkins, headed by Mary Meeker, set out to answer. The resulting report, which includes 460 Power Point slides, is here. It is titled “USA Inc.”
I asked a friend who is extremely knowledgeable about finance to evaluate the product and point out some highlights. Here is his response; click all charts to enlarge:

Kleiner Perkins, the well known Silicon Valley venture capital firm, just released a stunning analysis prepared by their new partner Mary Meeker, a very well-known financial analyst who worked for years at Morgan Stanley and was prescient about the impact of the Internet. Meeker spent about a year gathering publicly available data and refining an analysis of the dire debt and spending fiscal crisis facing the U.S. The result appears to be the definitive compendium of data documenting the incredibly precarious and dangerous situation facing the U.S. from generations of recklessness as welfare state policies and incentives triumphed. In over 400 pages of charts, graphs and analysis Meeker carefully lays out in an easy to grasp manner the incontrovertible facts about our federal government’s deficit and budget crisis using as a framework the conceit of treating the U.S. government as though it were a private company — USA Inc. — and conducting a financial analysis. The picture isn’t pretty….and the conceit is extended by imagining what a corporate turn-around expert might recommend to correct the situation. The result is delivered in a style that may be familiar to many who have seen Wall Street institutional investor analysis on this scale — an incredibly thorough and coherently presented narrative based almost entirely on unadulterated facts and analysis.
At least that is true of the presentation of the state we are in….unfortunately, the same cannot be said of the “what is to be done?” portion of the work. In part this is because the stated objective of this project was not to offer a programmatic set of recommendations —- although they do offer an outline of possible options — but rather to make the case as thoroughly, objectively and convincingly as possible as to the exact financial condition our government is in so that there can be no doubt or controversy as to what we are facing. I think she has succeeded admirably in making such a case and urge everyone at least to flip through the charts — it’s not that heavy going because her USA Inc. framework makes it an almost common sense story that can be easily understood.
The weakest portion of the project is, in fact, the recommendations section, attenuated as it is. It is mainly unconvincing bromides of the wise elder establishment statesman sort — trim here, compromise there, split the difference and have good faith and we’ll get out of this. It is an abject failure to recognize that this crisis is political in origins…involving choices of political values and is not merely a technical problem. While this is acknowledged it is left as the job for another day or an exercise for the reader to answer the question: “what is to be done?” Nonetheless this is a major contribution to political discussion just to set out clearly and convincingly the really dire situation we face with no suspicion, I think, of a specific or hidden agenda….and, after this project…no excuse either for obfuscation or denial.
There is a vast wealth of data and analysis here — too much to summarize in one post….but here are some highlights:
First, the “bottom line:”
Slide 27:
27_CF and NW.jpg
As USA Inc. we have a continuing and enormous negative cashflow and negative net worth…effectively “in the hole” by negative $45 TRILLION!! [Ed.: So much for the insistent liberal theme that we’re not broke.]
Historical perspective:
spend gdp history.jpg
What has caused this? It isn’t defense or the Global War On Terror:
Slides 65 – 66:
defense GWOT.jpg
It isn’t taxes….in the aggregate they’ve grown with GDP.
Slide 150:
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It isn’t Too Big To Fail Wall Street banks:
Slides 191, 192:
not TBTF banks.jpg
It’s entitlements. Slide 149:
149 spending gdp growth.jpg
Where did all this spending come from? In a nutshell….entitlements grew FOUR times more than GDP….and future entitlements are UNFUNDED.
Slide 247:
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Our REAL debt includes the huge unfunded liabilities — promises to pay without the means to do so — from entitlements.
Slide 174:
174_be rev entitlements.jpg
It’s later than we think….assuming that tax revenues recover to the long run average of about 20% of GDP….entitlements and interest on the debt eat up ALL taxes within 15 years….That’s the best case scenario.
There is much more here….but this is as concise a summary of our predicament as I have seen, and it’s sobering.

I would add just two other slides from the USA Inc. presentation. This one shows that we can’t balance the budget by taxing the “rich.” In order to get the deficit down to 3 percent of GDP, not to balance the budget, you would have to confiscate around 80 percent of all income over $209,000–recall that the large majority of these taxpayers pay state income taxes too–which would destroy the economy:
TaxesBracketsUSA041.jpg
And, finally, this one, which compares the U.S. to selected other countries. Currently, we are in better shape financially than the U.K., Spain, Ireland and Greece–that’s a relief, I guess–but in worse shape than Italy, Germany, Belgium, France and Portugal:
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Our country is in deep trouble.

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