HOUSE_OVERSIGHT_021049.jpg

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. KP www.kpcb.com 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 Net Debt as % of GDP As%of 2009 Budget As % of 2009 2009 Net Debt World 05-09 | 2009 GDP World Surplus/ World Gross Unemploy- Y/Y Rank Country Outstanding ($B) Y/Y Total 2009 2005 Change ($B) YIY Total Deficit ($B) Deficit ment Rate (pps) 3s Japan Italy Greece Belgium France Germany Austria o Netherlands Argentina USA Poland Spain Norway Sweden Brazil Switzerland Denmark Turkey Australia Venezuela China Russia NiogoeenNagnon eobsatdtdrokhnN bndbaohkhdboaohkhanonagd NO -NA ABABA WA BNA GAANANA OG AA 1 1 6 7 1 2 4 3 1 1 3 1 2 1 1 2 1 0 1 1 0 2 0 Top 1-25 $32,438 $47,081 -3% 81% $2,790 Global 34,632 57,937 -2 100 2,885 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 fall 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 K P gross debt. For more information, see Reinhart and Rogoff, “Growth in a Time of Debt,” 1/10. Pps is percentage points. Source: IMF, Business Intelligence Monitor . (@ EB) www.kpcb.com USA Inc. | Consequences of Inaction 416 HOUSE_OVERSIGHT_021049