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21TH November 2011

Creative problem Solving - Geopolitical - Leadership - Race to the Bottom - Timely - Uncategorized

Defecit Super Committee newsflash: USA spends more than it makes, may cause problems


How long can Ben float?

Years ago I got my start on Wall Street and was assigned to read business plans for a tiny investment banking boutique named Beuret & Co. I saw a lot of crap, but nothing near what the deficit “super committee,” must be analysing this week.

I didn’t have any financial background aside from a knack for knowing what added up and what didn’t, in a spooky kind of way. By my own count, people had wheeled in something like 10,000 plans, which I digested and, in many cases called the hapless entrepreneur and told them why it wouldn’t work, IMHO of course. One habit that I had been to take a little 3×5 piece of scrap paper and staple it to the cover of the plan with some basic facts, just to rememebr what plan I was talking about. What industry. Problem and solution. Stage of development. Unique properties. Raise and use of capital. And profit and loss basics. When I was asked about this deal or that, I had a handy reference, but later in life I realized that, once you get it you rarely needed more than those basics. (See my many references to investing like a child). When asked later in life how I came to read plans so quickly and asses a companies prospects in a flash, my only explanation was that when you see 10,000 of anything wrong by process of elimination you begin to know what is right.

Which is why, when I read this balance sheet and income statement on USA Inc. from Mary Meeker at the end of her Mobile Update, I nearly cried.

It came at the end of her regular update on digital media, now done under the auspices of Kleiner Perkins. She has routinely walked through the basics of income, expense, assets ans liabilities much the way I would have done it sitting in my little cubicle on Wall Street. As an American citizen, listening to this deadpan presentation is a must-do.

“By the standards of any public corporation, USA Inc.’s financials are discouraging,” she writes in an introduction to the report. “True, USA Inc. has many fundamental strengths. On an operating basis (excluding Medicare and Medicaid spending and one-time charges, the federal government’s profit and loss statement is solid, with a 4% median net margin over the last 15 years. But cash flow is deep in the red (by almost $1.3 trillion last year, or ~$11,000 per household) and USA Inc.’s net worth is negative and deteriorating. That net
worth figure includes the present value of unfunded entitlement liabilities but  not hard-to-value assets such as natural resources, the power to tax or mint  currency, or what Treasury calls ‘heritage’ or ‘stewardship assets’ like National Parks. Nevertheless, the trends are clear, and critical warning signs are evident in nearly every data point we examine.”

If the United States of America was a start-up, no one would give it any more money. More likely we would just take it out back and shoot it.  Luckily, USA is not a start-up, but unfortunately it still takes a boatload of faith and capital to run the thing. While unlikely to actually go out of business, the cost of keeping the lights on gets higher and higher as the faith goes lower.

This does not bode well for us. But we can do something about it. If we really try.

More likely, it will get kicked to 2012 instead.

 

 

 

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