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Highlights USA Inc.a Report by Mary Meeker

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Highlights of USA Inc. A Report by Mary Meeker [Full Report 481 pg at www.kpcb.com/usainc] Foreword: George P. Shultz, Paul Volcker, Michael Bloomberg, Richard Ravitch and John Doerr About USA Inc. This report looks at the federal government as if it were a business, with the goal of informing the debate about our nation’s financial situation and outlook. In it, we examine USA Inc.’s income statement and balance sheet. We aim to interpret the underlying data and facts and illustrate patterns and
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  Highlights of USA Inc. A Report by Mary Meeker  [Full Report 481 pg atwww.kpcb.com/usainc] Foreword: George P. Shultz, Paul Volcker, Michael Bloomberg, Richard Ravitch and John Doerr   About USA Inc. This report looks at the federal government as if it were a business, with thegoal of informing the debate about our nation’s financial situation and outlook. In it, we examineUSA Inc.’s income statement and balance sheet. We aim to interpret the underlying data andfacts and illustrate patterns and trends in easy-to-understand ways. We analyze the drivers of federal revenue and the history of expense growth, and we examine basic scenarios for howAmerica might move toward positive cash flow.  Summary: By the standards of any public corporation, USA Inc.’s financials are discouraging. Underfunded entitlements are among the most severe financial burdens USA Inc. faces.And because some of the most underfunded programs are intended to help the nation’spoorest, the electorate must understand the full dimensions of the challenges.     Millions of Americans have come to rely on Medicare and Medicaid and spending has skyrocketed, to21% of USA Inc.’s total expenses (or $724B) in F2010, up from 5% forty years ago. Amid the rancor about government’s role in healthcare spending, one fact is undeniable:  government spending on healthcare now consumes 8.2% of GDP, compared with just 1.3% fiftyyears ago. Unemployment Insurance and Social Security are adequately funded...for now. Their future,unfortunately, isn’t so clear. Regardless of the emotional debate about entitlements, fiscal reality can’t be ignored – if these programs aren’t reformed, one way or another, USA Inc.’s balance sheet will gofrom bad to worse. Federal Government Spending Had Risen to 24% of GDP in 2010, Up From an Average of 3%From 1790 to 1930 Entitlement Spending Increased 11x While Real GDP Grew 3x Over Past 45 YearsThe problem gets worse. Even as USA Inc.’s debt has been rising for decades, plunging interestrates have kept the cost of supporting it relatively steady. Last year’s interest bill would havebeen 155% (or $290 billion) higher if rates had been at their 30-year average of 6% (vs. 2% in2010). As debt levels rise and interest rates normalize, net interest payments could grow 20% or more annually. Below-average debt maturities in recent years have also kept the Treasury’s  borrowing costs down, but this trend, too, will drive up interest payments once interest ratesrise. Can we afford to wait until the turning point comes? By 2025, entitlements plus net interestpayments will absorb all – yes, all – of USA Inc.'s revenue, per CBO. At the same time, however, these numbers don’t lie. With our demographics and our debts,we’re on a collision course with the future. The good news: Although time is growing short, westill have the capacity to create positive outcomes. Even though USA Inc. can print money and raise taxes, USA Inc. cannot sustain its financialimbalance indefinitely – especially as the Baby Boomer generation nears retirement age. Netdebt levels are approaching warning levels, and some polls suggest that Americans consider reducing debt a national priority. Change is legally possible. Unlike underfunded pensionliabilities that can bankrupt companies, USA Inc.’s underfunded liabilities are not legal contracts.Congress has the authority to change the level and conditions for Social Security and Medicarebenefits; the federal government, together with the states, can also alter eligibility and benefitlevels for Medicaid.
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