If America were a corporation, would you invest in it?
Take a mental trip back to 1997. Silicon Valley's tech boom is in full swing. Yet a share of Apple is just $5. Gil Amelio is CEO. The company is on pace to lose $1 billion. Did you invest?
If you had, you'd be sitting on a pile of cash. Today, Apple's share price tops $330. It's one of the wealthiest companies in the world.
Now, imagine you're a shareholder debating whether to invest in "USA Inc." It's bleeding cash ($2 trillion last year). Its "board of directors" is divided over budget cuts and may have to shut down operations on April 8. Would you invest?
If you said "No," you'd have plenty of company; fears of America's economic collapse seem to be growing daily. But you also might be missing out on a great turnaround story – if USA Inc.'s leaders commit to a radical turnaround plan.
That's the heart of Mary Meeker's bold analysis of America's financial condition. She's a longtime Morgan Stanley tech-stock analyst who recently joined legendary venture capital firm Kleiner Perkins Caufield & Byers. By treating the country as a corporation (and citizens as shareholders) she has brought fresh thinking and new urgency to the nation's fiscal straits. If you have lots of time on your hands, you can leaf through her 460-page PowerPoint presentation here. If you don't, here is the salient point from her recent article in Bloomberg Businesweek:
The bottom line on USA Inc.? Cash flow and net worth are negative, profits are rare, and off-balance-sheet liabilities are enormous. The "company" has underinvested in productive capital, education, and technology – the very tools needed to compete in the global marketplace. Lenders have been patient so far, but the sky-high rates on the sovereign debt of Greece, Ireland, and Portugal suggest what might lie ahead for USA Inc. shareholders and our children.
By our rough estimate, USA Inc. has a net worth of negative $44 trillion. That comes to $143,000 per capita. Negative.
To be fair, the net worth calculation leaves out some assets, including, most importantly, the power to tax. Which simply means that the government can improve its own finances by worsening those of its citizen-shareholders.
It's true that, unlike a regular corporation, USA Inc. can print its own money. But Ms. Meeker suggests that's a source of false hope: "Even though USA Inc. can print money and raise taxes, USA Inc. cannot sustain its financial imbalance indefinitely – especially as the Baby Boomer generation nears retirement age."
Don't head to the hills just yet. As Meeker points out, "USA Inc. has serious financial challenges" but "its problems are fixable." The key? "If the American people embrace the need for bold action, their political leaders should find the courage to do what's right."
Perhaps the brightest news of all: USA Inc., Meeker says, is in better shape than Apple was in 1997. Ready to invest?
