% of GDP
Long-Term
Drivers
Short-Term
Triggers
Key
Stakeholders
Greece 2010 $374B 113%
Rising Underfunded
Entitlement Spending
Financial Crisis
International Bond
Investors
Dubai 2009 26B 32
Leveraged Construction /
Real Estate Bubble
Financial Crisis
International Bond
Investors
Argentina 2001 132B 130
Rising Underfunded
Entitlement Spending +
Currency Peg
Financial Crisis
International Bond
Investors
Russia 1998 73B 27
Declining Productivity +
Currency Peg
Financial Crisis
International Bond
Investors
New York
City
1975 14B 1 --
Rising Underfunded
Entitlement Spending
Recession
Bond Investors +
Federal
Government
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Note: 1) NYC government and subsidiaries had $14B debt outstanding in 1975. Adjusting for inflation, $14B of 1975
dollars would have been ~$50B in today’s dollars. Source: sovereign data points per IMF and World Bank. NYC data
point per California Research Bureau “Overview of New York City’s Fiscal Crisis,” 3/1/1995.
USA Inc. | Consequences of Inaction 423
Lessons Learned: Historical Debt Crisis
� Rising Unfunded Entitlement Spending = Often a Long-Term Driver of Debt
Crisis
� Countries such as Greece / Argentina and cities such as New York all nearly
brought down by unfunded entitlement spending.
� Financial Crisis / Economic Downturn = Often the Short-Term Trigger of
Debt Crisis
� All cases had similar short-term triggers.
� External Forces = Often Key Stakeholders in Crisis & Driving Ensuing
Changes
� Most sovereign credit crises + ensuing reforms were driven by loss of
confidence of international bond investors.
� New York City’s near default was driven by demands from bond holders +
refusal of bailout from federal government.
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USA Inc. | Consequences of Inaction 424
While High Government Debt Levels Could Hasten Economic Recovery
Post Recession, There Are Many Long-Term Negative Consequences
� Crowding Out Investment � Lower Output & Income
� A growing portion of people’s savings would be diverted to purchase
government debt rather than toward investment in productive capital goods.
� Higher Interest Payments � Higher Tax Rates & Lower Output & Income
� Government may be forced to raise marginal tax rates and / or reduce
spending on other programs to meet interest payments.
� Reduced Ability to Borrow � Less Policy Flexibility
� In case of economic downturns or international crises, government may not be
able to raise substantially more debt.
� Increased Chance of Sudden Fiscal Crisis � Social / Economic Disruption
� Investors may lose confidence in government’s ability to repay debt & interest
without causing inflation.
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Source: Congressional Budget Office, “Federal Debt and the Risk of a Fiscal Crisis.” 7/10.
USA Inc. | Consequences of Inaction
425
Lessons Learned: For Countries Burdened by High Debt Levels,
Austerity Measures are Necessary
Greece
Ireland
Spain
Portugal
2009
Deficit as
% of GDP
Gross Debt
as % of GDP
14% 113%
11% 66%
11% 54%
9% 78%
2009-2010 Austerity Measures New Revenue Streams
� Wage freeze & bonus cut of 14% on
all public sector employees
� Reduction in government contract
workers
� 11% reduction in pensions &
Increase in retirement age to 65 from
58
� 5-15% pay cut & 4% benefit
reduction for all public sector
employees
� $1.5B+ broad spending cuts in
healthcare & infrastructure
� Hiring freeze for public sectors
� Increase of retirement age to 67
from 60
� Total budget cut of $70B 10-13E
� Wage freeze on all public sector
employees
� Reduce state payroll via attrition
� Joint IMF–EU bailout of $146B
� Tax increases for VAT (+2%) /
fuel / alcohol / cigarette (+10%)
� Clamp down on tax evasion
� Carbon tax on fuel
� 1% tax rise on personal income
about 120K euros
� Sold $7B in new bonds
� 50% bonus tax on top bank
executives
� Privatize state-owned industries
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Source: Eurostat, European Commission, IMF, New York Times, Financial Times, BBC, Wall Street Journal.
USA Inc. | Consequences of Inaction 426
European Countries (including Greece, Portugal, Ireland and Spain) Have
Committed A Rising Share of GDP to ‘Social Benefits’ Over Past Decade
25%
Social Benefits Paid by Government as % of GDP, 1999 vs. 2009
Social Benefits Paid by Government as % of GDP
20%
15%
10%
5%
Greece
Austria
Italy
France
2009 1999
European Union 2009 Average = 17.1%
Germany
Finland
Belgium
Portugal
Denmark
Hungary
Luxembourg
Ireland
UK
Spain
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Source: Eurostat. ‘Social Benefits’ include both social insurance (comparable to Social Security and Medicare) and social
assistance benefits (comparable to Medicaid) provided by government units as well as all social insurance benefits provided
under private funded and unfunded social insurance schemes, whether in cash or in kind.
USA Inc. | Consequences of Inaction 427
Austerity Measures to Take Away Entitlement Benefits
Could Spark a Vicious Cycle
Less Revenue for
Corporations &
Small Businesses
Higher
Unemployment
Lower Consumption
Lower
Government Tax
Receipts
Less Investor
Confidence
Lower Productivity
Higher Tax Rates
Social Unrest
More Austerity
Measures
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USA Inc. | Consequences of Inaction 428
Social Unrest Can Shake Investor Confidence
And Contagion Can Spread
10%
10-Year Sovereign Yield Spread (over German Bonds) for Greece / Portugal /
Spain / Ireland, April 1 – May 10, 2010
10-Year Treasury Yield Spread (Over German Bond) (%)
8%
6%
4%
2%
0%
4/22 – Greek civil servants
stage a 24-hour strike
5/6 – Greek parliament
formally approves austerity
package agreed w/ EU & IMF
5/5 – Violent protests in
Athens against proposed
austerity measures
4/1 4/4 4/7 4/10 4/13 4/16 4/19 4/22 4/25 4/28 5/1 5/4 5/7
Greece
Portugal
Spain
Ireland
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Source: FactSet.
USA Inc. | Consequences of Inaction
429
Government Deficits and Changes in Sovereign Credit Default Swap Rates
= Positively Correlated
Change in CDS Premia Between 26 Oct 2009 and 27
May 2010, bps
Cumulative Government Deficits as % of GDP vs. Change in Sovereign CDS
between 2007 and 2011E
600
Greece
500
400
300
Portugal
R 2 = 0.1996
200
Italy
Spain
Ireland
100
0
0%
Germany
Japan
Netherlands
Austria
10% 20%
France
USA
30% 40%
UK
50% 60%
-100
Cumulative Government Deficits as % of GDP for 2007-2011 (10-11 Projections)
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Sources: OECD; Markit; National Data
USA Inc. | Consequences of Inaction 430
When Corporations Like General Motors Run Out of Cash,
Eventually They File for Bankruptcy
$200
$150
General Motors Balance Sheet, 2000 – CQ1:09
$27B
Cash*
6/09 – 3 rd Largest
Bankruptcy
Filing in USA
History
Assets / Liabilities / Net Worth ($B)
$100
$50
$
-$50
-$100
-$150
$12B
Cash*
Cash & Marketable
Securities
Assets (ex. Cash)
Accrued Pension +
OPEB Liabilities
Liabilities (ex. Pension
& OPEB)
Net Worth
(Shareholders' Equity)
-$200
2000
2001
2002
2003
2004
2005
2006
2007
$23B
Short-term Debt**
2008
CQ1:09
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Note: *Includes cash & equivalents, as well as marketable securities; **short-term debt also includes current portion of longterm
debt. Source: General Motors.
USA Inc. | Consequences of Inaction
431
General Motors –
Entitlement Spending Became Too Onerous for this Great American Company
1908 – Founded in Flint, Michigan to manufacture automobiles
1954 – Shipped 50 millionth automobile
1988 – Free cash flow peaked at $6.3B
1999 – Reached a peak market capitalization of $61B
2006 – Revenue peaked at $207B
2009 – Filed for bankruptcy
� Why did GM file for bankruptcy?
Products became increasingly uncompetitive. In addition, pension plans to
support 650,000 retirees and their dependents (compared with 80,000 active
employees in N. America as of 2010) rose to 4.8% of GM’s annual expenses and
$4,679 in annual pension payments per worker to former workers.
Source: General Motors, FactSet, DataStream, History News Network.
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USA Inc. | Consequences of Inaction 432
Comparing GM & USA, Inc…
USA
2010
General
Motors
2008
Gross Debt as % of GDP 93% 82% Gross Debt as % of Revenue 1
Federal Spending as % of GDP 24 114 Total Cost as % of Revenue
Federal Budget Surplus as % of GDP -9 -21 Net Income as % of Revenue
Interest Payments as % of GDP 1 2 Interest Payments as % of Revenue
% of Citizens Receiving Government
Subsidy or on Government Payroll
36 75
% of Total GM Population 2
Dependent on the company
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Note: 1) Gross debt of GM calculated as total liabilities – future OPEB & pension liabilities, as these liabilities are not
reflected in USA gross debt. 2) % of total GM population dependent on the company = all living retirees / (living retirees +
current workers). Source: White House Office of Management and Budget, OECD, Heritage Foundation, General Motors.
USA Inc. | Consequences of Inaction
433
…Good News for GM Is It Has ‘Taken Its Medicine’ and Has
Begun to Implement a Successful Turnaround
Basic Framework of GM Turnaround:
� Focus on Expenses
� Eliminated some of the legacy entitlements - swapped employee
healthcare for equity ownership.
� Significantly changed operating efficiency - took out costs so that GM
was able to operate at breakeven at bottom of the cycle and turn cash
flow positive during other parts of its business cycle.
� Focus on Revenue
� Changed business model to move away from lowering cost to
improving vehicle quality, engineering and styling.
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USA Inc. | Consequences of Inaction 434
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435
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USA Inc. | Consequences of Inaction 436
Summary
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USA Inc. | Summary
437
Highlights from F2010 USA Inc. Financials
� Summary – USA Inc. has challenges.
� Cash Flow – While recession depressed F2008-F2010 results, cash flow has been negative
for 9 consecutive years ($4.8 trillion, cumulative), with no end to losses in sight. Negative
cash flow implies that USA Inc. can't afford the services it is providing to 'customers,' many
of whom are people with few alternatives.
� Balance Sheet – Net worth is negative and deteriorating.
� 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.
� Conclusion – Publicly traded companies with similar financial trends would be pressed by
shareholders to pursue a turnaround. The good news: USA Inc.’s underlying asset base and
entrepreneurial culture are strong. The financial trends can shift toward a positive direction,
but both ‘management’ and ‘shareholders’ will need collective focus, willpower, commitment,
and sacrifice.
Note: USA federal fiscal year ends in September; Cash flow = total revenue – total spending on a cash basis; net worth includes
unfunded future liabilities from Social Security and Medicare on an accrual basis over the next 75 years. Source: cash flow per
White House Office of Management and Budget; net worth per Dept. of Treasury, “2010 Financial Report of the U.S.
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Government,” adjusted to include unfunded liabilities of Social Security and Medicare.
USA Inc. | Summary 438
Drilldown on USA Inc. Financials…
� To analysts looking at USA Inc. as a public corporation, the financials are challenged
�
Excluding Medicare / Medicaid spending and one-time charges, USA Inc. has supported a 4% average net
margin 1 over 15 years, but cash flow is deep in the red by negative $1.3 trillion last year (or
-$11,000 per household), and net worth 2 is negative $44 trillion (or -$371,000 per household).
� The main culprits: entitlement programs, mounting debt, and one-time charges
�
�
�
Since the Great Depression, USA Inc. has steadily added “business lines” and, with the best of intentions,
created various entitlement programs. Some of these serve the nation’s poorest, whose struggles have
been made worse by the financial crisis. Apart from Social Security and unemployment insurance,
however, funding for these programs has been woefully inadequate – and getting worse.
Entitlement expenses (adjusted for inflation) rose 70% over the last 15 years, and USA Inc. entitlement
spending now equals $16,600 per household per year; annual spending exceeds dedicated funding by
more than $1 trillion (and rising). Net debt levels are approaching warning levels, and one-time charges
only compound the problem.
Some consider defense spending a major cause of USA Inc.’s financial dilemma. Re-setting priorities and
streamlining could yield savings – $788 billion by 2018, according to one recent study 3 – perhaps without
damaging security. But entitlement spending has a bigger impact on USA Inc. financials. Although
defense nearly doubled in the last decade, to 5% of GDP, it is still below its 7% share of GDP from 1948 to
2000. It accounted for 20% of the budget in 2010, but 41% of all government spending between 1789 and
1930.
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Note: 1) Net margin defined as net income divided by total revenue; 2) net worth defined as assets (ex. stewardship assets like national
parks and heritage assets like the Washington Monument) minus liabilities minus the net present value of unfunded entitlements (such as
Social Security and Medicare), data per Treasury Dept.'s “2010 Annual Report on the U.S. Government”; 3) Gordon Adams and Matthew
Leatherman, “A Leaner and Meaner National Defense,” Foreign Affairs, Jan/Feb 2011)
USA Inc. | Summary 439
…Drilldown on USA Inc. Financials…
� Medicare and Medicaid, largely underfunded (based on ‘dedicated’ revenue) and
growing rapidly, accounted for 21% (or $724B) of USA Inc.’s total expenses in F2010,
up from 5% forty years ago
� Together, these two programs represent 35% of all (annual) US healthcare spending; Federal Medicaid
spending has doubled in real terms over the last decade, to $273 billion annually.
� Total government healthcare spending consumes 8.2% of GDP compared with just
1.3% fifty years ago; the new health reform law could increase USA Inc.’s budget
deficit
� 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).
� Unemployment Insurance and Social Security are adequately funded...for now. The
future, not so bright
� Demographic trends have exacerbated the funding problems for Medicare and Social Security – of the
102 million increased enrollment between 1965 and 2009, 42 million (or 41%) is due to an aging
population. With a 26% longer life expectancy but a 3% increase in retirement age (since Social
Security was created in 1935), deficits from Social Security could add $11.6 trillion (or 140%) to the
public debt by 2037E, per Congressional Budget Office (CBO).
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USA Inc. | Summary 440
…Drilldown on USA Inc. Financials
� 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 expenses
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 from
69% 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.
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Note: *Carmen Reinhart and Kenneth Rogoff observed from 3,700 historical annual data points from 44 countries that 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. We note that while
Reinhart and Rogoff’s observations are based on ‘gross debt’ data, in the U.S., debt held by the public is closer to the European
countries’ definition of government gross debt. For more information, see Reinhart and Rogoff, “Growth in a Time of Debt,” 1/10.
USA Inc. | Summary
441
How 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
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many metrics (like individual income and corporate profit) varied significantly from ‘normal’ levels.
USA Inc. | Summary 442
…How Might One Think About Turning Around USA Inc.?
One might consider…
�
�
�
Options for reducing expenses by focusing on entitlement reform and operating efficiency
�
�
Formula changes could help Social Security’s underfunding, but look too draconian for Medicare/Medicaid;
the underlying healthcare cost dilemma requires business process restructuring and realigned incentives.
Resuming the 20-year trend line for lower Federal civilian employment, plus more flexible compensation
systems and selective local outsourcing, could help streamline USA Inc.’s operations.
Options for increasing revenue by focusing on driving long-term GDP growth and changing tax
policies
� USA Inc. should examine ways to invest in growth that provides a high return (ROI) via new investment in
technology, education, and infrastructure and could stimulate productivity gains and employment growth.
�
Reducing tax subsidies (like exemptions on mortgage interest payments or healthcare benefits) and
changing the tax system in other ways could increase USA Inc.’s revenue without raising income taxes to
punitive – and self-defeating – levels. Such tax policy changes could help re-balance USA’s economy
between consumption and savings and re-orient business lines towards investment-led growth, though
there are potential risks and drawbacks.
History suggests the long-term consequences of inaction could be severe
�
USA Inc. has many assets, but it must start addressing its spending/debt challenges now.
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USA Inc. | Summary
443
Sizing Costs Related to USA Inc.’s Key Financial Challenges
& Potential AND / OR Solutions
� To create frameworks for discussion, the next slide summarizes USA Inc.’s various
financial challenges and the projected future cost of each main expense driver.
� The estimated future cost is calculated as the net present value of expected
‘dedicated’ future income (such as payroll taxes) minus expected future expenses
(such as benefits paid) over the next 75 years.
� Then we ask the question: ‘What can we do to solve these financial challenges?’
�
The potential solutions include a range of simple mathematical illustrations (such as
changing program characteristics or increasing tax rates) and/or program-specific
policy solutions proposed or considered by lawmakers and agencies like the CBO
(such as indexing Social Security initial benefits to growth in cost of living).
� These mathematical illustrations are only a mechanical answer to key financial
challenges and not realistic solutions. In reality, a combination of detailed policy
changes will likely be required to bridge the future funding gap.
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USA Inc. | Summary 444
Overview of USA Inc.’s Key Financial Challenges
& Potential and/or Solutions
Rank
Financial
Challenge
Net Present Cost 1
($T / % of 2010 GDP)
1 Medicaid $35 Trillion 3 / 239%
2 Medicare $23 Trillion / 156%
3
4
Social
Security
Slow GDP /
USA
Revenue
Growth
$8 Trillion / 54%
--
Mathematical Illustrations
and/or Potential Policy Solutions 2
• Isolate and address the drivers of medical cost inflation
• Improve efficiency / productivity of healthcare system
• Reduce coverage for optional benefits & optional enrollees
• Reduce benefits
• Increase Medicare tax rate
• Isolate and address the drivers of medical cost inflation
• Improve efficiency / productivity of healthcare system
• Raise retirement age
• Reduce benefits
• Increase Social Security tax rate
• Reduce future initial benefits by indexing to cost of living growth rather
than wage growth
• Subject benefits to means test to determine eligibility
• Invest in technology / infrastructure / education
• Remove tax & regulatory uncertainties to stimulate employment growth
• Reduce subsidies and tax expenditures & broaden tax base
5
Government
Inefficiencies
--
• Resume the 20-year trend line for lower Federal civilian employment
• Implement more flexible compensation systems
• Consolidate / selectively local outsource certain functions
Note: 1) Net Present Cost is calculated as the present value of expected future net liabilities (expected revenue minus expected costs) for each program / issue over the
next 75 years, Medicare estimate per Dept. of Treasury, “2010 Financial Report of the U.S. Government,” Social Security estimate per Social Security Trustees’ Report
(8/10). 2) For more details on potential solutions, see slides 252-410 or full USA Inc. presentation. 3) Medicaid does not have dedicated revenue source and its $35T net
present cost excludes funding from general tax revenue, NPV analysis based on 3% discount rate applied to CBO’s projection for annual inflation-adjusted expenses.
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USA Inc. | Summary 445
The Essence of America’s Financial Conundrum
& Math Problem?
While a hefty 80% of Americans indicate balancing the budget should
be one of the country’s top priorities, per a Peter G. Peterson
Foundation survey in 11/09…
…only 12% of Americans support cutting spending on Medicare or
Social Security, per a Pew Research Center survey, 2/11.
Some might call this ‘having your cake and eating it too…’
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USA Inc. | Summary 446
The Challenge Before Us
Policymakers, businesses and citizens need to share responsibility for
past failures and develop a plan for future successes.
Past generations of Americans have responded to major challenges
with collective sacrifice and hard work.
Will ours also rise to the occasion?
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USA Inc. | Summary
447
Current Observations About America…
• On many fronts, USA Inc. is in great shape, but it has one big problem –
USA Inc. spends too much and, in effect, is maxing out its credit card. USA
Inc. must address the problem.
• In 2009, 64% of America’s revenue went to Social Security, Medicare &
Medicaid, compared with 31% in 1980 and 20% in 1970.
• Using current projections, 100% of America’s revenue in 2025 will go to Social
Security, Medicare, Medicaid and Net Interest Expense.
• This raises the question, ‘How will America pay for the likes of education,
national defense, homeland security, infrastructure improvement, R&D, law
enforcement, postal service, etc.?’
• USA Inc.’s fundamental tradeoff is that it must balance its FUTURE
(education) with its PRESENT (national defense & homeland security) and
its PAST (Social Security & Medicare & Medicaid).
Source: 2009 data per White House OMB, 2025 forecast per CBO’s Alternative Fiscal Scenario.
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USA Inc. | Summary 448
…Current Observations About America
• It’s Time to Rise to the Occasion, It’s America’s
Tradition…
• The essence of the ‘American dream’ is about the
underdog succeeding / the turnaround story…every
generation or so has an opportunity to rise to an occasion
(and sacrifice) and show why America (and its democratic
form of government) are great. For this generation, the
biggest challenge may be staving off financial hardship.
• Collective Sacrifice and Hard Work are the Two Inter-
Related Ways out of USA Inc.’s Problems…
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USA Inc. | Summary
449
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USA Inc. | Summary 450
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451
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USA Inc. | Summary 452
Appendix
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USA Inc. | Appendix
453
Appendix
Additional Datapoints on Federal Debt
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USA Inc. | Appendix 454
Federal Debt Held by the Public vs. Gross Debt
� Federal Debt Held by the Public ($9 Trillion Outstanding, 62% of GDP in 2010)
�
�
�
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Value of all federal securities sold to the public that are still outstanding.
Represents the cumulative effect of past federal borrowing on today’s economy and on the
current federal budget.
Net interest payments represent a burden on current taxpayers.
� Gross Debt ($14 Trillion Outstanding, 94% of GDP in 2010)
�
�
Public debt + intragovernmental debt (related to entities including the Social Security Trust
Fund and federal employee / veterans’ pension fund) + net liability of GSEs (related to likes
of Fannie Mae and Freddie Mac).
Represents a claim on both current and future resources.
� We Focus on Public Debt Levels
�
�
�
Public debt is the base for calculating net interest payments.
Gross debt level could be misleading (to take an extreme example, simply eliminating all
trust funds without changing promised benefits for the associated programs would
dramatically reduce gross debt from 94% of GDP to 62% of GDP without improving longterm
fiscal outlook at all*).
In the future, when intragovernmental debt + net liability of GSEs begin demanding
repayments, it is likely financed via material increases in public debt levels.
Note: *for more details, see James R. Horney, “Recommendation That President’s Fiscal Commission Focus on Gross Debt is
Misguided,” 5/27/10. Data source: White House OMB, CBO.
USA Inc. | Appendix 455
Public Debt = Gross Debt – Intra-Governmental Holdings –
Net Liabilities of Government-Sponsored Enterprises (GSEs)
Other
Intragovernmental
Holdings
Social Security
Trust Fund
1960
Real Gross Debt
Outstanding =
$2.0 Trillion
6%
9%
Public Debt
$1.7T
Debt Held By
the Public
85%
Other
Intragovernmental
Holdings
Social Security
Trust Fund
Net Liabilities
of GSEs*
20%
2010
Real Gross Debt
Outstanding =
$13.5 Trillion
16%
2%
Debt Held By
the Public
62%
Public Debt
$9.0T
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Note: Data are inflation adjusted.* Net liabilities of GSEs assumes 50% loss ratio on $250B delinquent loans held by Fannie
Mae / Freddie Mac. Data source: Dept. of Treasury, White House Office of Management and Budget.
USA Inc. | Appendix 456
Gross Debt Level =
Approaching 100% of GDP
120%
USA Gross Federal Debt as % of GDP, 1940 – 2010
100%
Gross Debt As % of GDP
80%
60%
40%
Debt Held By
the Public
2010 Gross Federal Debt = 94% of GDP
20%
Intragovernment
Debt
0%
Net GSE Liabilities
1940 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006
Source: White House OMB.
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USA Inc. | Appendix
457
Gross Debt Level =
Would Exceed Current Statutory Limit of $1.43T* Within One Year
16,000
USA Gross Federal Debt vs. Statutory Debt Ceiling, 1990 – 2011E
14,000
USA Inc. Gross Debt
Statutory Debt Limit
12,000
Gross Debt ($B)
10,000
8,000
6,000
4,000
2,000
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010E
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Note: * As of 1/11. Source: White House OMB.
USA Inc. | Appendix 458
‘Top 75’ Countries Ranked by Net Debt as % of GDP…
Rank
Country
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2009 Net Debt
Outstanding ($B)
Y/Y
As % of Net Debt as % of GDP As % of 2009 Budget As % of 2009
World
05-09 2009 GDP World Surplus / World Gross Unemployment
Total 2009 2005 Change ($B) Y/Y Total Deficit ($B) Deficit
Rate
1 Zimbabwe $7 13% 0% 190% -- -- $4 4% 0% -$1 0% -- --
2 Japan 9,149 12 26 181 162 19 5,049 -5 9 -960 33 5% +1
3 Italy 2,434 0 7 116 106 11 2,090 -5 4 -0 -- 8 +1
4 Singapore 186 3 1 114 99 15 163 -2 0 -5 0 3 +1
5 Greece 374 8 1 111 99 12 338 -2 1 -27 1 9 +2
6 Egypt 198 16 1 105 -- -- 188 5 0 -27 1 -- --
7 Belgium 454 0 1 98 92 6 461 -3 1 -1 0 8 +1
8 Sudan 53 -6 0 97 -- -- 54 5 0 4 -- -- --
9 Hungary 104 -8 0 84 62 22 124 -6 0 9 -- -- --
10 Cote d'Ivoire 19 -3 0 81 -- -- 23 -- 0 0 -- -- --
11 France 2,028 5 6 77 66 11 2,635 -2 5 -105 4 9 +2
12 Portugal 167 3 0 76 63 13 220 -3 0 -6 0 9 +2
13 Germany 2,423 1 7 75 68 7 3,235 -5 6 -16 1 7 0
14 Austria 263 2 1 70 64 6 374 -4 1 -5 0 5 +1
15 India 854 -3 2 69 80 -12 1,243 6 2 31 -- -- --
16 Uruguay 21 -2 0 67 67 0 32 3 0 0 -- -- --
17 UK 1,444 3 4 66 42 24 2,198 -5 4 -49 2 7 +2
18 Canada 870 -5 3 66 70 -4 1,319 -3 2 44 -- 8 +2
19 Netherlands 503 -1 1 64 52 12 790 -4 1 4 -- 4 +1
20 Morocco 58 2 0 64 -- -- 91 5 0 -1 0 -- --
21 Ireland 140 19 0 62 27 34 227 -7 0 -23 1 12 +6
22 Albania 7 -3 0 60 57 3 12 3 0 0 -- -- --
23 Argentina 178 -7 1 59 59 0 301 1 1 14 -- -- --
24 Philippines 93 -2 0 59 71 -13 159 1 0 2 -- -- --
25 USA 7,811 23 23 55 37 17 14,266 -2 25 -1,438 50 9 +3
Top 1-25 $29,836 1% 86% 75% 67% 8% $35,595 -2% 61% $2,662 92% 8% 1
Global 34,632 8 100 68 66 2 57,937 -2 100 2,886 100 7 2
Source: IMF, Business Intelligence Monitor .
USA Inc. | Appendix
Y/Y
(pps)
459
…‘Top 75’ Countries Ranked by Net Debt as % of GDP…
Rank
Country
2009 Net Debt
Outstanding ($B)
Y/Y
As % of Net Debt as % of GDP As % of 2009 Budget As % of 2009
World
05-09 2009 GDP World Surplus / World Gross Unemployment
Total 2009 2005 Change ($B) Y/Y Total Deficit ($B) Deficit
Rate
26 Tunisia $22 -3% 0% 55% 55 0 $40 3% 0% 1 0 -- --
27 Ethiopia 18 29 0 55 -- -- 34 10 0 -4 0 -- --
28 Colombia 123 -5 0 54 54 0 229 0 0 7 -- -- --
29 Cyprus 12 2 0 54 68 -14 23 -2 0 -0 -- 5 +2
30 Poland 223 -11 1 53 47 6 423 2 1 26 -- -- --
31 Spain 757 20 2 53 43 10 1,438 -4 2 -125 4 18 +7
32 Kenya 15 2 0 51 -- -- 30 2 0 -0 0 -- --
33 Norway 187 -17 1 51 45 6 369 -2 1 38 -- 3 +1
34 Ghana 7 -11 0 48 -- -- 15 4 0 1 -- -- --
35 Bolivia 8 6 0 46 46 0 18 3 0 -0 -- -- --
36 Sweden 175 -5 1 44 51 -7 398 -4 1 9 -- 8 +2
37 Brazil 650 -6 2 44 44 0 1,482 0 3 40 -- -- --
38 Switzerland 212 5 1 44 53 -9 484 -1 1 -10 0 4 +1
39 Latvia 10 56 0 43 12 30 24 -18 0 -4 0 -- --
40 Malawi 2 15 0 42 -- -- 5 8 0 -0 0 -- --
41 Malaysia 84 0 0 41 44 -3 207 -2 0 0 -- -- --
42 Denmark 125 7 0 40 38 3 308 -5 1 -8 0 3 +2
43 Gabon 4 -25 0 38 -- -- 11 -1 0 1 -- -- --
44 Finland 91 -2 0 37 42 -4 242 -8 0 2 -- 8 +2
45 Turkey 219 -14 1 37 52 -15 594 -5 1 36 -- -- --
46 Czech Republic 68 6 0 36 30 6 190 -4 0 -4 0 7 +2
47 Slovenia 17 43 0 35 27 8 50 -7 0 -5 0 6 +2
48 Slovakia 30 10 0 34 44 -10 88 -5 0 -3 0 -- --
49 Croatia 21 -5 0 34 38 -5 62 -6 0 1 -- -- --
50 Australia 309 -3 1 34 36 -3 920 1 2 8 -- 6 +1
Top 26-50 $3,392 0% 10% 44% 44% 0% $7,682 -2% 13% $164 6% 6% 2
Global 34,632 8 100 68 66 2 57,937 -2 100 2,886 100 7 2
Y/Y
(pps)
www.kpcb.com
Source: IMF, Business Intelligence Monitor.
USA Inc. | Appendix 460
…‘Top 75’ Countries Ranked by Net Debt as % of GDP
Rank
Country
2009 Net Debt
Outstanding ($B)
Y/Y
As % of Net Debt as % of GDP As % of 2009 Budget As % of 2009
World
05-09 2009 GDP World Surplus / World Gross Unemployment
Total 2009 2005 Change ($B) Y/Y Total Deficit ($B) Deficit
Rate
51 Zambia $4 -16% 0% 32% 32 -- $12 6% 0% 1 -- -- --
52 Macedonia 3 1 0 31 47 -16 9 -- 0 -0 0 -- --
53 Ecuador 17 2 0 30 30 0 56 0 0 -0 0 -- --
54 Lithuania 11 45 0 30 18 11 36 -15 0 -3 0 -- --
55 Peru 37 0 0 29 29 0 127 1 0 0 -- -- --
56 South Africa 78 0 0 28 -- -- 277 -2 0 -0 0 -- --
57 Paraguay 4 -15 0 27 27 0 14 -5 0 1 -- -- --
58 Venezuela 95 11 0 27 27 0 353 -3 1 -9 0 -- --
59 New Zealand 29 -10 0 26 27 -1 110 -2 0 3 -- 6 +2
60 Thailand 64 1 0 24 26 -2 266 -2 0 -0 0 -- --
61 Namibia 2 2 0 24 -- -- 9 -1 0 -0 -- -- --
62 Tanzania 5 7 0 24 -- -- 22 5 0 -0 0 -- --
63 Senegal 3 -6 0 23 -- -- 13 2 0 0 -- -- --
64 Mozambique 2 -2 0 22 -- -- 10 6 0 0 -- -- --
65 Romania 35 29 0 22 16 6 161 -7 0 -8 0 -- --
66 Uganda 3 8 0 21 -- -- 16 7 0 -0 0 -- --
67 Bulgaria 7 -4 0 15 29 -14 45 -5 0 0 -- -- --
68 Nigeria 24 -20 0 15 -- -- 165 6 0 6 -- -- --
69 Angola 10 -18 0 15 -- -- 70 0 0 2 -- -- --
70 Cameroon 3 -8 0 14 -- -- 22 2 0 0 -- -- --
71 China 609 7 2 13 18 -5 4,758 9 8 -38 1 -- --
72 Kazakhstan 11 3 0 11 -- -- 107 1 0 -0 0 -- --
73 Algeria 13 -16 0 10 -- -- 135 2 0 2 -- -- --
74 Russia 92 -15 0 7 14 -7 1,255 -8 2 17 -- -- --
75 Estonia 1 15 0 7 5 2 18 -14 0 -0 0 -- --
Top 51-75 $1,163 0% 3% 23% 27% -4% $8,064 0% 14% $60 2% 6% 2
Global 34,632 8 100 68 66 2 57,937 -2 100 2,886 100 7 2
Y/Y
(pps)
www.kpcb.com
Note: China’s net debt may be under-reported as it excludes potential liabilities from bad loans of state-owned banks.
Source: IMF, Business Intelligence Monitor.
USA Inc. | Appendix
461
OECD Countries Ranked by Gross Debt as % of GDP
Rank
Country
2009 Gross Debt
Outstanding ($B)
Y/Y
Gross Debt as % of GDP
As % of
OECD Total 2009 2005
05-09
Change
2009 GDP
($B)
Note: Data for Slovenia and Estonia not available. Data may differ from Eurostat / national government figures. Gross debt data are not always comparable across
countries due to different definitions or treatment of debt components. Notably, USA and Australia gross debt include the funded portion of government employee
pension liabilities, which overstates their debt levels relative to other countries. Source: OECD.
www.kpcb.com
USA Inc. | Appendix 462
Y/Y
As % of
OECD Total
1 Japan $974 14% 27% 193% 175% 18% $5,049 -5% 13%
2 Italy 269 1 7 129 120 9 2,090 -5 5
3 Iceland 1 -8 0 123 53 70 12 -28 0
4 Greece 40 8 1 119 114 5 338 -2 1
5 Belgium 47 -1 1 101 96 5 461 -3 1
6 Portugal 19 4 1 87 74 13 220 -3 1
7 France 227 5 6 86 76 11 2,635 -2 7
8 Hungary 10 -13 0 84 69 16 124 -6 0
9 USA 1,184 17 32 83 61 22 14,266 -2 36
10 Canada 109 4 3 82 72 11 1,319 -3 3
11 Germany 247 -2 7 76 71 5 3,235 -5 8
12 UK 159 4 4 72 46 26 2,198 -5 6
13 Austria 26 -4 1 70 71 -1 374 -4 1
14 Ireland 16 23 0 70 33 38 227 -7 1
15 Netherlands 54 -6 1 69 61 7 790 -4 2
16 Spain 90 18 2 63 51 12 1,438 -4 4
17 Poland 25 -14 1 58 55 4 423 2 1
18 Finland 13 15 0 53 48 4 242 -8 1
19 Denmark 16 11 0 52 46 6 308 -5 1
20 Sweden 21 -8 1 52 60 -8 398 -4 1
21 Norway 18 -28 0 49 49 0 369 -2 1
22 Czech Republic 8 2 0 42 34 8 190 -4 0
23 Switzerland 20 -5 1 42 56 -15 484 -1 1
24 Slovakia 3 17 0 39 38 1 88 -5 0
25 New Zealand 4 3 0 35 27 8 110 -2 0
26 Korea 29 -3 1 35 27 8 833 -11 2
27 Australia 18 28 0 19 16 3 920 1 2
28 Luxembourg 1 -5 0 18 8 11 52 -11 0
OECD Total $3,648 9% 100% 90% 76% 14% $39,261 -4% 100%
Total Government + Private Debt in USA –
At Historic High of 360% of GDP
USA Total Credit Market Debt Outstanding as % of GDP, 1929 – 2009
350%
300%
U.S. Credit Market Debt / GDP (%)
250%
200%
150%
100%
50%
Government
Corporates
GSE
Financials
Households
0%
1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
Households Corporates Financials GSE Government
www.kpcb.com
Source: Dept. of Treasury, Federal Reserve.
USA Inc. | Appendix
463
Appendix
Useful Links
www.kpcb.com
USA Inc. | Appendix 464
Appendix – Useful Links
� Congressional Budget Office, “The Long-Term Budget Outlook,” 6/2010
http://cbo.gov/doc.cfm?index=11579
� Congressional Budget Office, “Budget and Economic Outlook, Fiscal Years 2011 Through 2021,” 1/2011
http://cbo.gov/doc.cfm?index=12039
�
Department of Health & Human Services, Centers for Medicare & Medicaid Services, “The 2010 Annual
Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds,” 8/5/2010 https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf
� Department of the Treasury, “2010 Financial Report of the United States Government,” 12/2010
http://www.fms.treas.gov/fr/10frusg/10frusg.pdf
�
�
�
National Commission on Fiscal Responsibility and Reform, “The Moment of Truth: Report of the National
Commission on Fiscal Responsibility and Reform,” 12/1/2010
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_20
10.pdf
Social Security Administration, “The 2010 Annual Report of the Board of Trustees of the Federal Old-Age
and Survivors Insurance and Federal Disability Insurance Trust Funds,” 8/9/2010
http://www.ssa.gov/oact/tr/2010/tr2010.pdf
White House Office of Management and Budget, “Budget of the United States Government, Fiscal Year
2012,” 2/2011 http://www.whitehouse.gov/omb/budget/Overview/
www.kpcb.com
USA Inc. | Appendix
465
Disclaimer
This report has been compiled by Mary Meeker and her co-contributors (collectively referred to below as
the “Contributors”) for informational purposes only. It is not intended to serve as the basis for investment,
legal, political, tax or any other advice. Furthermore, this report is not to be construed as a solicitation or an
offer to buy or sell securities in any entity, including any entity that is associated with the Contributors.
The information contained in this report has been compiled from public sources that the Contributors
believe to be reliable. While the Contributors find no reason to believe that the data relied upon and
presented in this report are factually incorrect, they have made no separate investigation or otherwise
independently verified the accuracy of such data. As such, the Contributors cannot guarantee the accuracy
of any of the data (raw or interpreted) and accordingly the Contributors make no warranties (express,
implied or statutory) as to the information in this report.
This report summarizes a significant amount of publicly available data, and is not intended to be allinclusive.
The Contributors have complied this report based on selected sources that they believe to be
most pertinent to the presented subject matter. Furthermore, the graphic illustrations are based on
generalized calculations and are provided for illustrative purposes. Readers are encouraged to conduct
their own analysis of the data underlying this report, as well as data from other sources, so as to come to
their own conclusions.
The information presented in this report represents the view of the Contributors, and does not necessarily
reflect the views of Kleiner Perkins Caufield & Byers or any of its associated management personnel,
investment vehicles, investors, portfolio companies or any affiliates or associates of the foregoing.
www.kpcb.com
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467
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USA Inc. | Appendix 468
Glossary
Accountable Care Organization (ACO) -
A health system model with the ability to
provide, and manage with patients, the
continuum of care across different
institutional settings, including at least
ambulatory (outpatient) and inpatient
hospital care and possibly post acute care.
ACOs have the capability of planning
budgets and resources and are of sufficient
size to support comprehensive, valid, and
reliable performance measurement. The
ACO model is one of the latest designs for
managing healthcare costs and especially
Medicare costs, and is gaining traction
among policymakers desperate to control
costs and boost quality in healthcare.
Accrual accounting - A system of
accounting in which revenues are recorded
when they are earned and outlays are
recorded when goods are received or
services are performed, even though the
actual receipt of revenues and payment for
goods or services may occur, in whole or in
part, at a different time. Compare with cash
accounting.
Adjusted Gross Income (AGI) - All income
that is subject to taxation under the
individual income tax after "above-the-line"
deductions for such things as alimony
payments and certain contributions to
individual retirement accounts. Personal
exemptions and the standard or itemized
deductions are subtracted from AGI to
determine taxable income
Alternative Minimum Tax (AMT) - A tax
intended to limit the extent to which higherincome
people can reduce their tax liability
(the amount they owe) through the use of
preferences in the tax code. Taxpayers
subject to the AMT are required to
recalculate their tax liability on the basis of a
more limited set of exemptions, deductions,
and tax credits than would normally apply.
The amount by which a taxpayer’s AMT
calculation exceeds his or her regular tax
calculation is that person’s AMT liability.
American Recovery and Reinvestment
Act of 2009 (ARRA) - This act provided
appropriations for several federal programs
and increased or extended some benefits
payable under Medicaid, unemployment
compensation, and nutrition assistance,
among others. ARRA also reduced
individual and corporate income taxes and
made other changes to tax laws.
Asset-Backed Security - Security backed
by real estate or another type of asset; a
claim on an income flow, such as expected
interest payments on loans, payments on
leases, royalty payments, or receivables; a
claim on the principal of a loan; or a claim on
the expected appreciation of an asset.
Automatic Stabilizers - Taxes that
decrease and expenditures that increase
when the economy goes into a recession
(and vice-versa when the economy booms)
without requiring any action on the part of
the government. Stabilizers tend to reduce
the depth of recessions and dampen booms.
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Bundled Payment (Healthcare) - Also
known as episode-based payment, defined
as the reimbursement of health care
providers (such as hospitals and physicians)
on the basis of expected costs for clinicallydefined
episodes of care. It has been
described as "a middle ground" between
fee-for-service reimbursement (in which
providers are paid for each service rendered
to a patient) and capitation (in which
providers are paid a "lump sum" per patient
regardless of how many services the patient
receives).
Business Cycle - Fluctuations in overall
business activity accompanied by swings in
the unemployment rate, interest rates, and
corporate profits. Over a business cycle, real
(inflation-adjusted) activity rises to a peak
(its highest level during the cycle) and then
falls until it reaches a trough (its lowest level
following the peak), whereupon it starts to
rise again, defining a new cycle. Business
cycles are irregular, varying in frequency,
magnitude, and duration. (NBER) See real
and unemployment rate.
Cash Accounting - A system of accounting
in which revenues are recorded when they
are actually received and outlays are
recorded when payment is made. Compare
with accrual accounting.
Centers for Medicare & Medicaid
Services (CMS) – US federal agency which
administers Medicare, Medicaid, and the
Children's Health Insurance Program.
Copayment – A flat amount paid out of
pocket per medical service, e.g., $5 per
office visit.
Congressional Budget Office (CBO) – A
non-partisan federal agency within the
legislative branch of the U.S. government,
charged with reviewing congressional
budgets and other legislative initiatives with
budgetary implications.
Conservatorship - The legal process by
which an external entity (in the case of
Fannie Mae and Freddie Mac, the federal
government) establishes control and
oversight of a company to put it in a sound
and solvent condition.
Consumption - In principle, the value of
goods and services purchased and used up
during a given period by households and
governments. In practice, the Bureau of
Economic Analysis counts purchases of
many long-lasting goods (such as cars and
clothes) as consumption even though the
goods are not used up. Consumption by
households alone is also called consumer
spending. See national income and product
accounts.
Cost-of-Living Adjustment (COLA) - An
annual increase in Social Security and other
entitlement payments to reflect price
inflation.
Current-Account Balance - A summary
measure of a country’s current transactions
with the rest of the world, including net
exports, net unilateral transfers, and net
factor income (primarily the capital income
from foreign property received by residents
of a country offset by the capital income from
property in that country flowing to residents
of foreign countries).
Cyclical Deficit or Surplus - The part of the
federal budget deficit or surplus that results
from the business cycle. The cyclical
component reflects the way in which the
deficit or surplus automatically increases or
decreases during economic expansions or
recessions.
Cyclically Adjusted Budget Deficit or
Surplus - The federal budget deficit or
surplus that would occur under current law if
the influence of the business cycle was
removed—that is, if the economy operated
at potential gross domestic product.
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Debt - In the case of the federal
government, the total value of outstanding
bills, notes, bonds, and other debt
instruments issued by the Treasury and
other federal agencies. That debt is referred
to as federal debt or gross debt. It has two
components - debt held by the public (
federal debt held by nonfederal investors,
including the Federal Reserve System) and
debt held by government accounts (federal
debt held by federal government trust funds,
deposit insurance funds, and other federal
accounts). Debt subject to limit is federal
debt that is subject to a statutory limit on the
total amount issued. The limit applies to
gross federal debt except for a small portion
of the debt issued by the Treasury and the
small amount of debt issued by other federal
agencies (primarily the Tennessee Valley
Authority and the Postal Service).
Deductible (Medical Insurance) - A fixed
amount, usually expressed in dollars in the
form of an annual fee, that the beneficiary of
a health insurance plan must pay directly to
the health care provider before a health
insurance plan begins to pay for any costs
associated with the insured medical service.
Deficit - The amount by which the federal
government’s total outlays exceed its total
revenues in a given period, typically a fiscal
year. The primary deficit is that total deficit
excluding net interest.
Defined Benefit Pension Plan – Retirees
receive predetermined monthly retirement
benefits from employers despite the funding
status / investment returns of their pension
funds.
Defined Contribution Pension Plan –
Retirees contribute specified amount to their
pension funds and receive variable monthly
retirement benefits depending on investment
returns. Examples include Individual
Retirement Accounts (IRAs) and 401(k)
plans.
Disposable Personal Income - Personal
income—the income that people receive,
including transfer payments—minus the
taxes and fees that people pay to
governments.
Economic Stimulus - Federal fiscal or
monetary policies aimed at promoting
economic activity, used primarily during
recessions. Such policies include reductions
in taxes, increases in federal spending,
reductions in interest rates, and other
support for financial markets and institutions.
Entitlement - A legal obligation of the
federal government to make payments to a
person, group of people, business, unit of
government, or similar entity that meets the
eligibility criteria set in law and for which the
budget authority is not provided in advance
in an appropriation act. Spending for
entitlement programs is controlled through
those programs’ eligibility criteria and benefit
or payment rules. The best-known
entitlements are the government’s major
benefit programs, such as Social Security
and Medicare.
Excise Tax - A tax levied on the purchase of
a specific type of good or service, such as
tobacco products or air transportation
services.
Federal Poverty Level (FPL) - Income
amounts set each February by the U.S.
Department of Health and Human Services
used to determine an individual's or family's
eligibility for various public programs,
including Medicaid and the State Children's
Health Insurance Program.
Federal Reserve System - The central
bank of the United States. The Federal
Reserve is responsible for setting the
nation’s monetary policy and overseeing
credit conditions. See central bank and
monetary policy.
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Fiscal Policy - The government’s tax and
spending policies, which influence the
amount and maturity of government debt as
well as the level, composition, and
distribution of national output and income.
See debt.
Fiscal Year - A yearly accounting period.
The federal government’s fiscal year begins
October 1 and ends September 30. Fiscal
years are designated by the calendar years
in which they end—for example, fiscal year
2011 will begin on October 1, 2010, and end
on September 30, 2011.
GDP price index - A summary measure of
the prices of all goods and services that
make up gross domestic product. The
change in the GDP price index is used as a
measure of inflation in the overall economy.
General Fund - One category of federal
funds in the government’s accounting
structure. The general fund records all
revenues and offsetting receipts not
earmarked by law for a specific purpose and
all spending financed by those revenues and
receipts.
Government-Sponsored Enterprise (GSE)
- A financial institution created by federal
law, generally though a federal charter, to
carry out activities such as increasing credit
availability for borrowers, reducing borrowing
costs, or enhancing liquidity in particular
sectors of the economy, notably agriculture
and housing. Two housing GSEs (Fannie
Mae and Freddie Mac) were taken into
federal conservatorship in 2008.
Health Maintenance Organization (HMO) - A
managed care plan that combines the
function of insurer and provider to give
members comprehensive health care from a
network of affiliated providers. Enrollees
typically pay limited copayments and are
usually required to select a primary care
physician through whom all care must be
coordinated. HMOs generally will not
reimburse all costs for services obtained
from a non-network provider or without a
primary care physician's referral. HMOs
often emphasize prevention and careful
assessment of medical necessity.
Independent Payment Advisory Board
(IPAB) - A 15-member Independent
Payment Advisory Board created under
PPACA with significant authority with
respect to Medicare payment rates.
Beginning in 2014, in any year in which the
Medicare per capita growth rate exceeded a
target growth rate, the IPAB would be
required to recommend Medicare spending
reductions. The recommendations would
become law unless Congress passed an
alternative proposal that achieved the same
level of budgetary savings. Subject to some
limitations—hospitals, for example, would be
exempt until 2020—the IPAB could
recommend spending reductions affecting
Medicare providers and suppliers, as well as
Medicare Advantage and Prescription Drug
Plans.
Labor Force - The number of people age 16
or older in the civilian non-institutional
population who have jobs or who are
available for work and are actively seeking
jobs. (The civilian non-institutional
population excludes members of the armed
forces on active duty and people in penal or
mental institutions or in homes for the elderly
or infirm.) The labor force participation rate
is the labor force as a percentage of the
civilian non-institutional population age 16 or
older.
Marginal Tax Rate - The tax rate that would
apply to an additional dollar of a taxpayer’s
income. Compare with effective tax rate and
statutory tax rate.
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Medicaid - Public health insurance program
that provides coverage for low-income
persons for acute and long-term care. It is
financed jointly by state and federal funds
(the federal government pays at least 50
percent of the total cost in each state) and is
administered by states within broad federal
guidelines.
Medicare - Federal health insurance
program for virtually all persons age 65 and
older, and permanently disabled persons
under age 65, who qualify by receiving
Social Security Disability Insurance.
Mortgage-Backed Securities (MBSs) -
Securities issued by financial institutions to
investors with the payments of interest and
principal backed by the payments on a
package of mortgages. MBSs are structured
by their sponsors to create multiple classes
of claims, or tranches, of different seniority,
based on the cash flows from the underlying
mortgages. Investors holding securities in
the safest, or most senior, tranche stand first
in line to receive payments from borrowers
and require the lowest contractual interest
rate of all the tranches. Investors holding the
least senior securities stand last in line to
receive payments, after all more senior
claims have been paid. Hence, they are first
in line to absorb losses on the underlying
mortgages. In return for assuming that risk,
holders of the least senior tranche require
the highest contractual interest rate of all the
tranches.
National Commission on Fiscal
Responsibility and Reform - A bipartisan
commission created by President Obama to
address the nation's fiscal challenges. The
Commission is charged with identifying
policies to improve the fiscal situation in the
medium term and to achieve fiscal
sustainability over the long run. Specifically,
the Commission shall propose
recommendations designed to balance the
budget, excluding interest payments on the
debt, by 2015. In addition, the Commission
shall propose recommendations that
meaningfully improve the long-run fiscal
outlook, including changes to address the
growth of entitlement spending and the gap
between the projected revenues and
expenditures of the Federal Government.
Net Interest - In the federal budget, net
interest comprises the government’s interest
payments on debt held by the public (as
recorded in budget function 900), offset by
interest income that the government
receives on loans and cash balances and by
earnings of the National Railroad Retirement
Investment Trust. See budget function and
debt.
Office of Management and Budget (OMB)
– White House office responsible for
devising and submitting the president’s
annual budget proposal to Congress.
Organization for Economic Co-operation
and Development (OECD) – An
international organization of 31 developed
and emerging countries (see list on slide
354) with a shared commitment to
democracy and the market economy.
Other Post-Employment Benefits (OPEB)
– An accounting concept created by the
Governmental Accounting Standards Board
(GASB) by pronouncements designed to
address expenses that entities may or may
not be legally bound to pay, but pay as a
moral obligation (such as retirees’
healthcare costs).
Pay-As-You-Go (PAYGO) - Procedures
established in House and Senate rules that
are intended to ensure that laws that affect
direct spending or revenues are budget
neutral. The Senate and the House have
had such rules in place since 1993 and
2007, respectively.
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PEP / Pease (Tax Policy) - PEP is Personal
Exemption Phase-out designed to eliminate
personal income exemptions for high
earners; 3) Pease is a similar phase-out, but
instead of applying to personal exemption, it
applies to most of the itemized deductions of
a taxpayer’s claims (mortgage interest,
charitable gifts, state & local taxes paid,
etc.); Pease is named after Representative
Donald Pease (D-OH) who pushed for its
enactment in 1990.
Present Value - A single number that
expresses a flow of current and future
income (or payments) in terms of an
equivalent lump sum received (or paid)
today. The present value depends on the
rate of interest used (the discount rate). For
example, if $100 is invested on January 1 at
an annual interest rate of 5 percent, it will
grow to $105 by January 1 of the next year.
Hence, at an annual 5 percent interest rate,
the present value of $105 payable a year
from today is $100.
Patient Protection and Affordable Care
Act (PPACA) – A federal statute as the
result of the healthcare reform. Signed into
law on 3/23/10, the PPACA aims to expand
Medicaid eligibility, incentivize businesses to
provide health care benefits, prohibit denial
of coverage/claims based on pre-existing
conditions, establish health insurance
exchanges, and support for medical
research. The costs of these provisions are
offset by a variety of taxes, fees, and costsaving
measures, such as new Medicare
taxes for high-income brackets, taxes on
indoor tanning, improved fairness in the
Medicare Advantage program relative to
traditional Medicare, and fees on medical
devices and pharmaceutical companies.
Productivity - Average real output per unit
of input. Labor productivity is average real
output per hour of labor. The growth of labor
productivity is defined as the growth of real
output that is not explained by the growth of
labor input alone. Total factor productivity is
average real output per unit of combined
labor and capital services. The growth of
total factor productivity is defined as the
growth of real output that is not explained by
the growth of labor and capital. Labor
productivity and total factor productivity differ
in that increases in capital per worker raise
labor productivity but not total factor
productivity.
Tax Expenditures - Losses to the U.S.
treasury from granting certain deductions,
exemptions, or credits to specific categories
of taxpayers. Tax breaks are one method
Congress uses to promote certain policy
objectives. For example, deductions for
mortgages encourage home ownership,
while credits for childcare expenses allow
single parents to work. Tax expenditures are
an alternative to direct government spending
on policy programs.
Troubled Asset Relief Program (TARP) -
A program that permits the Secretary of the
Treasury to purchase or insure troubled
financial assets. Authority for the program
was initially set by the Emergency Economic
Stabilization Act of 2008 at $700 billion in
assets outstanding at any one time and
remains in effect until October 3, 2010. The
TARP’s activities have included the
purchase of preferred stock from financial
institutions, support to automakers and
related businesses, a program to avert
housing foreclosures, and partnerships with
the private sector.
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Trust Funds - In the federal accounting
structure, accounts designated by law as
trust funds (regardless of any other meaning
of that term). Trust funds record the
revenues, offsetting receipts, or offsetting
collections earmarked for the purpose of the
fund, as well as budget authority and outlays
of the fund that are financed by those
revenues or receipts. The federal
government has more than 200 trust funds.
The largest and best known finance major
benefit programs (including Social Security
and Medicare) and infrastructure spending
(such as the Highway Trust Fund and the
Airport and Airway Trust Fund).
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Index
Accounting, Government, 31
ARRA, 200-203
Balance Sheet, 209-217
Budgeting, Government, 32
Business Lines, 38-43
CBO (Congressional Budget Office)
Entitlement Spending, 77
Forecasts, 11
Healthcare, 313
Long Term Outlook, 174, 175, 270
Policy Options, 262-264, 324-326
Tort Reform Proposals, 313, 314
Cash Flow, 14, 15, 26, 27, 33
Competitiveness, 390-394
Consequences of Inaction, 413-434
Austerity Measures, 426
Credit Rating, 419
Credit / Debt Crisis, 422-430
Deficits / Swap Rate Correlation, 430
Public Debt, Net Worth vs. Peers, 416-417
Short Term / Long Term, 415
Social Unrest, CDS, 429
Costs & Headcount, 345-348
Debt
Composition, 168-172
Crisis, 422-447
Level, 145-160, 247
Defense Spending, 38-41, 63-70
by % GDP, 65, 68
by Country, Rank 67
by Number of Troops, 69, 70
by Type, 64
Deficit 35, 36, 54, 56
Deficit Commission, 256, 265, 326-328, 352,
353, 410, 465
Disability Insurance, 39
Economist vs. Investor Language, 36
Education, 377-382
Employment, 383-388
Entitlement + Interest vs. Revenue, 174, 175
Entitlement
Covered Population, 86
Expanded Eligibility, 87
History, 74, 75
Income per Beneficiary, 89
Income vs Personal Savings, 90
Inflation Indexed, 250
Not Contracts, 251
Programs, 15, 17, 37, 43
Social Security % of income, 92
Spending, 72-82
Spending, "Unfunded", 82, 83
Spending Breakdown, 80, 81
Spending Deficit, 75
Spending per Household, 74
Trust Funds, 76, 77
Unfunded, 247
Fannie Mae / Freddie Mac, 182-187, 194-199
Federal Wages & Benefits, 335-337
Financial Challenges, 20, 21, 37, 49
GDP, 44, 356-368, 392, 405, 408
General Motors, 431-434
Growth, Sustainable Economic, 356-368
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Headcount, 346-348
Healthcare, 16, 39
Costs 118-120, 279
Indicators, 112, 307
Performance, Life Expectancy, 111
Reform (PPACA), 114-120
Spend, 105-120
Spend vs. OECD countries, 108-112
Spend by funding source, 106
Spend per capita vs. OECD countries, 109
Spend vs. Education, 105
Income Statement, 54, 54-60
India GDP, 44
Infrastructure, 373-376
Interest Rates, 161-167
Medicaid, 16, 95-99, 280-328
Enrollment, Payments Up, 97
Underfunded, 96
State Budgets, 99
Medicare, 16, 43, 101-107, 280-328
Enrollment, Payments Up, 103
Medicare, Medicaid Beneficiaries, 86
Medicare, Medicaid per Beneficiary, 85
Medicare, Medicaid Underfunded, 84
Underfunded, 102
Medicare & Medicaid Restructure, 280-328
CBO Policy Options, 323-325
Deficit Commission Options, 326-328
Economic Factors, 292-310
Growing and Aging Population, 283-286
Improve Efficiency / Productivity, 315-318
Legal Factors, 311-314
Possible Solutions, 290, 291
Reduce Services, Medicaid, 319-322
Social Forces, 282-328
Unhealthy Lifestyles, 287-279
National Commission on Fiscal Responsibility
and Reform, see Deficit Commission
Net Debt/EBITDA, 34
Net Income, 54
Net Interest Payments, 17
Net Margin, 15, 54, 56
Net Worth, 27, 30
Non-Core 'Business' Out-Sourcing, 350-351
Off Balance Sheet Liabilities, 14, 212, 438
One Time Charges, 177-205
Operating Loss, 35
Out-Sourcing, 350-351
Pensions, 339-341
P&L, 56, 58
Real Estate, 182-187
Retirement, 42, 257
Social Security, 16, 130-141, 255-267
Solutions, 21
Summary, 13-23, 437-449
Surplus, 54, 56
TARP, 188-192
Tax Policies, 395-410
Tax Rates, 396-399
Tax Subsidies / Expenditures / Broaden Base,
401-410
Technology, 369-372
Tech / Infrastructure / Education, 366-382
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Turnaround, 18, 19, 221-410
Competitiveness, 390-394
Constraints, 235
Costs & Headcount, 345-348
Drive Sustainable Growth 355-365
Expense Drivers, 231, 232
Expense Growth, 229, 230
Expenses, 252-353
Federal Wages & Benefits, 325-337
Imperatives, 234
Increase Employment, 383-388
Invest in Education, 377-382
Invest in Infrastructure, 373-376
Invest in Technology, 366-372
Unemployment
Benefits, 122-128
Insurance, 16
Rates, 267, 346
Unions, 342-344
USA Inc. Data Points, 47
USA Inc .Trends, 48
Wages, 336-337
War in Iraq, Afghanistan, Terror, 66
Invest in Tech / Infrastructure / Education, 366-
382
Japan Experience, 246
Non-Core 'Business' Out-Sourcing, 350-351
Operating Efficiency, 329-353
Pensions, 338-341
Principles, 244
Questions, 240-243
Reform Entitlements, 253-328
Restructure Medicare & Medicaid, 268-328
Restructure Social Security, 255-267
Revenue Drivers, 227, 228
Revenue Expense Correlation, 222
Revenue Growth, 225, 226
Sensitive, 245
Tax Policies, 395-410
Tax Rates, 396-399
Tax Subsidies / Expenditures / Broaden Base,
401-410
Unions, 342-344
Weak Economy, 236
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USA Inc. – A Basic Summary of America’s Financial Statements USA Inc.