Is USA, Inc. a "SELL?"
What would happen if I recommended a stock that had no profits, was losing billions of dollars a year, and had a net worth of negative $44 trillion?
Chances are, you would cancel your subscription to the Mad Hedge Fund Trader, demand a refund, unfriend me on Facebook, and unfollow me on Twitter.
Yet, that is precisely what my former colleague at Morgan Stanley, technology guru Mary Meeker, did.
Now a partner at venture capital giant, Kleiner Perkins, Mary has brought her formidable analytical talents to bear on analyzing the United States of America as a stand-alone corporation.
The bottom line: the challenges are so great they would daunt the best turnaround expert. The good news is that our problems are not hopeless or unsolvable.
The US government was a miniscule affair until the Great Depression and WWII, when it exploded in size. Since 1965 when Lyndon Johnson's "Great Society" egan, GDP rose by 2.7 times, while entitlement spending leapt by 11.1 times.
If current trends continue, the Congressional Budget Office says that entitlements and interest payments will exceed all federal revenues by 2025.
Of course, the biggest problem is health care spending which will see no solution until health care costs are somehow capped. Despite spending more than any other nation, we get one of the worst results, with lagging quality of life, life span, and infant mortality.
Some 28% of Medicare spending is devoted to a recipient's final four months of life. Somewhere, there are emergency room cardiologists making a fortune off of this. A night in an American hospital costs 500% more than in any other country.
Social Security is an easier fix. Since it started in 1935, life expectancy has risen by 26% to 78, while the retirement age is up only 3% to 66. Any reforms have to involve raising the retirement age to at least 70 and means testing recipients.
The solutions to our other problems are simple, but require political suicide for those making the case.
For example, you could eliminate all tax deductions, including those for home mortgage interest, charitable contributions, IRA contributions, dependents, and medical expenses. That would raise $1 trillion a year, and more than wipe out the current budget deficit in one fell swoop.
Mary reminds us that government spending on technology laid the foundations of our modern economy. If the old DARPANET had not been funded during the 1960s, Google, Yahoo, EBay, Facebook, Cisco, and Oracle would be missing in action today.
Global Positioning Systems (GPS) were also invented by and are still run by the government. They have been another great wellspring of profits (I got to use it during the 1980s while flying across Greenland when it was still top secret).
There are a few gaping holes in Mary's "thought experiment". I doubt she knows that the Treasury Department carries the value of America's gold reserves, the world's largest at 8,965 tons worth $576 billion, at only $34 an ounce versus an actual current market price of $1,280.
Nor is she aware that our ten aircraft carriers are valued at $1 each, against an actual cost of $5 billion each in today's dollars. And what is Yosemite worth on the open market, or Yellowstone, or the Grand Canyon or the Grand Tetons? These all render her net worth calculations meaningless.
Mary expounds at length on her analysis, which you can buy in a book entitled USA Inc. at Amazon by clicking here.
