Would You Short America If It Was Publicly Traded?

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Mary Meeker wrote:

In February, we published a report (nearly 500 slides) that describes how America’s spending exceeds our revenues, how and why our debt levels are rising, and how we got here. The report, called “USA, Inc.”, is intended to be fact-based and bipartisan. We do not provide policy recommendations but instead endeavor to provide context about America’s financial trends.

The summary is clear: Our country simply spends more than it brings in; we have lost money in 40 of the past 45 years, and we can’t keep boosting our borrowing indefinitely. If we look at America as if it were a publicly traded company that had to manage its finances responsibly, investors should be rousing for a clear plan to steadily and slowly reduce the budget deficit.

The numbers imply:

  1. Expenses need to be reduced.
  2. Operations need to be restructured so they run more efficiently.
  3. Incentives need to be put in place to drive economic growth which should help spur job growth and tax revenue.

I think this is a great way to look at our problem, like you would evaluate a business. Would you buy more shares in this business or would you short it?

If you work in a business or manage a household you likely think about these types of numbers often.

The fact is our leaders clearly need to make some tough decisions.

And therein lies the problem, our leaders. The people we have in Washington DC, with a few notable exceptions, think more of getting re-elected as opposed to what is good for the country. They will not make the tough decisions, because it may not play well at home, even though it is the right thing to do.

America’s financial challenges are headlined by a negative net worth of $44 trillion (or $371,000 per household) and gross debt as a percent of GDP in excess of 90%.

I don’t think our spending and debt problems can be cured quickly, but I do believe that we can start down that road and maybe in 20 years you would want to buy shares in America instead of wanting to short it.

Will This Be The Obama Downgrade?

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The Wall Street Journal wrote:

So the credit-rating agencies that helped to create the financial crisis that led to a deep recession are now warning that the U.S. could lose the AAA rating it has had since 1917. As painfully ironic as this is, there’s no benefit in shooting the messengers. The real culprit is the U.S. political class, especially the President who has presided over this historic collapse of fiscal credibility.

This is the point, I do believe that as much as the credit agencies did nothing during the run-up to the credit bubble, they now what to be seen as ever vigilant. But the fact remains, they didn’t create the problems that will cause the downgrade.

On spending, it is important to recall how extraordinary the blowout of the last three years has been. We’ve seen nothing like it since World War II. Nothing close.

To be fair part of the deficit is from the current recession and the previous administration was not know for their fiscal austerity. But this administration in its pursuit of “social justice” has totally blown out the stops when it come to spending.

This is the main reason that federal debt held by the public as a share of GDP has climbed from 40.3% in 2008, to 53.5% in 2009, 62.2% in 2010 and an estimated 72% this year, and is expected to keep rising in the future. These are heights not seen since the Korean War, and many analysts think U.S. debt will soon hit 90% or 100% of GDP.

And this charade that the administration has played regarding cuts in spending is shameful. Has there been one specific proposal on spending cuts from the Obama administration? Only specific tax increases have been mentioned.

The President is now claiming to have found fiscal virtue, but notice how hard he has fought House Republicans as they’ve sought to abate the spending boom. First he used the threat of a government shutdown to whittle the fiscal 2011 spending cuts down to very little. Then he invited Paul Ryan to sit in the front row for a speech while he called his House budget un-American.

And now the President is warning that social security checks might not go out. This is the “never let a good crisis go to waste” that has been the hallmark of this administration. Get all the political points you can out of a crisis. I hope the American people see through this charade for what it truly is. Also, I thought that social security goes into a separate fund (that has been raided by every congress and President since Lyndon Johnson) so why wouldn’t the funds be available?

This downgrade, if it happens, will be squarely at the feet of the Obama administration and their mishandling of the economy.

Fix The Debt Crises Fast!

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Buffet Has It Right On This

I don’t always agree with Warren Buffet especially his raise taxes stand. But I think on this point, he is totally correct. This would solve the debt crises immediately. The only thing I would add to it is to add the President into the mix.