...Drilldown on USA Inc. Financials e 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). e 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. 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 fail 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. (@)) www.kpcb.com USA Inc.| Summary 441 How Might One Think About Turning Around USA Inc.?... e Key focus areas would likely be reducing USA Inc.’s budget deficit and improving / re