Consequences of Inaction — Investor Perspective e Short Term, No Problem Yet — Global bond investors, in part, have looked past USA Inc.’s deteriorating financials because growth, inflation, and Fed purchases matter more, and because income statements and balance sheets of many other developed countries (Such as Greece / Spain / Portugal / Ireland) are worse. e Long Term, Consequences of Inaction Could Be Severe — If USA Inc.’s “managers” and “board” continue to ignore rising unfunded entitlement spending, investors could eventually demand a higher return to lend money to USA Inc. — leading to rising bond yields / higher borrowing costs for USA Inc. At some point, USA Inc.’s currency could also weaken significantly. Source: Richard Berner, “America’s Fiscal Train Wreck” (7/2/2009), Morgan Stanley Research. i USA Inc. | Consequences of Inaction 415 For Perspective, USA Inc.'s 55% Public Debt as % of GDP (2009) is in Middle of Pack When Compared with ‘Top 25’ Global Peers, Though Rising to 90% ‘Warning’ Level* As % of As%of 2009Budget As %of 2009 Rank Country Outstanding ($B) Y/Y Total 2009 2005 Change ($B) YIY Total Deficit ($B) Deficit ment Rate (pps) 1 Japan $9,149 12% 26% 181% 162% 19% $5,049 -5% 9% -960 33% 5% +1 2 Italy 2,434 0 7 116 106 11 2,090 5 4 -0 - 8 +1 3. Greece 374 8 1 111 99 12 338 -2 1 -27 1 9 +2 4 Belgium 454 0 1 98 92 6 461 -3 1 -1 0 8 +1 5 France 2,028 5 6 77 66 11 2,635 -2 5 -105 4 9 +2 6 Germany 2,423 1 7 75 68 7 3,235 5 6 -16 1 7 +0 7 Austria 263 2 1 70 64 6 374 4 1 5 0 5 +1 8 India 854 -3 2 69 80 -12 1,243 6 2 31 _ -- _ 9 UK 1,444 3 4 66 42 24 2,198 5 4 -49 2 7 +2 10 Canada 870 5 3 66 70 -4 1,319 -3 2 44 - 8 +2 11. Netherlands 503 -1 1 64 52 12 7390 4 1 4 - 4 +1 12 Argentina 178 -7 1 59 59 0 301 1 1 14 - -- - 13 USA 7,811 23 23 55 37 TF 14,266 -2 25 -1,438 50 9 +3 14 Poland 223 -11 1 53 47 6 423 2 1 26 - -- - 15 Spain 757 20 2 53 43 10 1,438 4 2 -125 4 18 +7 16 Norway 187 -17 1 51 45 6 369 -2 1 38 - 3 +1 17 Sweden 175 -5 1 Ad 51 7 398 4 1 9 - 8