It’s a simple question. If America were a company, would you buy stock in that company? In a fascinating study, one organization decided to look at America, not through political blinders, but rather as a corporation. The study examined America’s balance sheet, income statement, and other common measures of a company’s financial health. The results are staggering.
Credit goes to Mary Meeker, a former financial analyst at Morgan Stanley, for creating and compiling the report known as USA Inc.. As noted on the web site:
USA Inc. examines the country’s income statement and balance sheet, aiming to interpret the underlying data and facts, and illustrate patterns and trends in easy-to-understand ways. The report also analyzes the drivers of federal revenue and the history of expense growth, and discusses basic scenarios for how revenue and expense growth might change to help America move toward positive cash flow.
The full report can be downloaded here.
In a nutshell, the following chart pretty much says it all:
Meeker puts it nicely in her report by stating, “By the standards of any public corporation, USA Inc.’s financials are discouraging.” Wow! Talk about the understatement of the century!
As you can see from the income statement for 2010, entitlement programs are sucking up a huge portion of the federal budget. We continue to spend money that we don’t have, thus the interest payment on the debt will continue to rise as well.
As we look deeper into the entitlement problem, the numbers are just flat out scary. We have been talking lately about debt and deficit. It’s all over the news, and it’s one of the reasons Democrats were defeated so soundly in November. The chart from 2010 shows a budget deficit of $1.3 trillion. Our national debt current stands at about $14 trillion. Those numbers right there should be enough to get politicians to act, but there’s more….
Just like a corporation, there are items that a company is paying for now — which show up on financial statements — and there are obligations for future expenditures — which don’t show up. You think the $14 trillion debt is bad? Check out what the report says about the “off-balance sheet liabilities:”
Off-balance sheet liabilities of at least $31 trillion (primarily unfunded Medicare and Social Security obligations) amount to nearly $3 for every $1 of debt on the books. Just as unfunded corporate pensions and other post-employment benefits (OPEB) weigh on public corporations, unfunded entitlements, over time, may increase USA Inc.’s cost of capital. And today’s off-balance sheet liabilities will be tomorrow’s on-balance sheet debt.
It’s just outrageous. Nearly one-third of the country’s entire population participates in some form of government entitlement program. “Total government health care spending consumes 8.2% of GDP compared with just 1.3% fifty years ago.”
Is true financial crisis years away? Some would argue (as I would), that we are deeply in trouble now. But for a bottom line assessment, Meeker’s report notes that “within 15years (by 2025), entitlements plus net interest expenses will absorb all – yes, all – of USA Inc.’s annual revenue, per CBO.”
So what do we do? The liberals would say raise taxes. But, of course, they’ve never raised taxes while actually cutting spending. They just spend more. And we all know that raising taxes is not the answer. Lower taxes mean more growth, more investment, and more jobs. (Notice I didn’t mention the government at all. If taxes are low, the American people can get out of this mess on their own.) The only way to secure America’s financial stability is to cut spending, and the only meaningful places to cut are the entitlement programs. That’s a plain and simple fact. Can any politician step forward and do it?