USA, Inc.

July/21/2011 16:21PM
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Want some fascinating reading, go to the USA, Inc. website. Some business executives have analyzed the United States as if it were a business. They do income statements, balance sheets, and analysis of the finances of the country as it it were a business and this was a shareholders’ report. Then they postulate what a turnaround expert would look for to reverse the negative trends. It isn’t pretty. On paper USA, Inc looks a lot like Borders Bookstores. And, the time frames are not that long for us to become Borders. Fifteen years at most.

Here is a brief summary from one of the hundreds of pages of their work.

If entitlement programs are not reformed, USA Inc.’s balance sheet will go from bad to worse? Public debt has doubled over the last 30 years, to 62% of GDP. This ratio is expected to surpass the 90% threshold* – above which real GDP growth could slow considerably – in 10 years and could near 150% of GDP in 20 years if entitlement expenses continue to soar, per CBO.?

As government healthcare spending expands, USA Inc.’s red ink will get much worse if healthcare costs continue growing 2 percentage points faster than per capita income (as they have for 40 years).?The turning point: Within 15 years (by 2025), entitlements plus net interest expense will absorb all – yes, all – of USA Inc.’s annual revenue, per CBO? That would require USA Inc. to borrow funds for defense, education, infrastructure, and R&D spending,which today account for 32% of USA Inc. spending (excluding one-time items), down dramatically from69% forty years ago.?It’s notable that CBO’s projection from 10 years ago (in 1999) showed Federal revenue sufficient to support entitlement spending + interest payments until 2060E – 35 years later than current projection.

The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP.Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more.

IntroductionHow Might One Think About Turning Around USA Inc.?…?Key focus areas would likely be reducing USA Inc.’s budget deficit and improving /restructuring the ‘business model’…?One would likely drill down on USA Inc.’s key revenue and expense drivers, then develop a basic analytical framework for ‘normal’ revenue / expenses, then compare options.Looking at history…?Annual growth in revenue of 3% has been roughly in line with GDP for 40 years* while corporate income taxes grew at 2%. Social insurance taxes (for Social Security / Medicare)grew 5% annually and now represent 37% of USA Inc. revenue, compared with 19% in 1965.?Annual growth in expenses of 3% has been roughly in line with revenue, but entitlements are up 5% per annum – and now absorb 51% of all USA Inc.’s expense – more than twice their share in 1965; defense and other discretionary spending growth has been just 1-2%.One might ask…?Should expense and revenue levels be re-thought and re-set so USA Inc. operates near break-even and expense growth (with needed puts and takes) matches GDP growth, thus adopting a ‘don’t spend more than you earn’ approach to managing USA Inc.’s financials?Note: *We chose a 40-year period from 1965 to 2005 to examine ‘normal’ levels of revenue and expenses. We did not choose the most recent 40-year period (1969 to 2009) as USA was in deep recession in 2008 / 2009 and underwent significant tax policy fluctuations in 1968 /1969, so many metrics (like individual income and corporate profit) varied significantly from ‘normal’ levels.18

While politicians in Washington posture and preen for the TV cameras and our president watches and critiques, Rome is burning and Nero(Obama) fiddles with his teleprompter, unwilling to provide his plan of action and merely watching the fires ignite. This is serious stuff and we the shareholders of USA, Inc have a very incompetent CEO and corporate executives. If it were a true corporations and functioned like one, we would be demanding drastic action.

However, our executives are not looking to fix the serious problems, they just want to get to the next election hoping we will be ignorant enough to let them keep their jobs despite their performance.

The so-called third rails of politics, Medicare, Medicaid, Social Security and the other entitlement programs will destroy the company if not addressed as the USA, Inc financial reports show. This has been addressed by the President’s own Financial Committee and Paul Ryan.

Our CEO decided to add to this with ObamaCare when we can’t pay for what we have.

It’s time to ignore the media spin and really look at this country as a business, a failing business like the good people at USA, Inc. have done. Their cold hard reports show we can’t kick the can down the road any longer. It’s not fair to my kids and grand kids nor yours.

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