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An Observation from Ben Bernanke, Current Chairman of the Federal Reserve A famous economist once said anything that can’t go on forever will eventually stop, and this [government liabilities from entitlement programs] will stop, but it might stop in a very unpleasant way in terms of sharp cuts, a financial crisis, high interest rates that stop growth, continued borrowing from abroad. So, clearly we need to get control of this over the medium term, and specifically we’re going to have to look at entitlements because that’s a very big part of the obligations of the federal government going forward. -- Ben Bernanke, Chairman of the Federal Reserve Testimony before House Budget Committee, June 9, 2010 KP Note: Emphasis added. (@ 4 www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 249 Bad News: USA Inc.’s Entitlement Programs are Inflation Indexed, Thus Potential Inflation — Which Would Reduce General Consumer Purchasing Power — Would Not Reduce Entitlement Liabilities Social Security, Medicare, Medicaid Spending (All Indexed to Inflation) as % Total Federal Spending 1970-2020E 50% 20% As Percentage of Total Outlays (%) 10% 0% 1970 1978 1986 1994 2002 2010E 2018E Pp Data sources: The Budget and Economic Outlook, CBO 6/10. www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 250 HOUSE_OVERSIGHT_020966