I have been talking with a lot of people recently about the changes that are taking place in the United States and elsewhere. More and more people are discussing the possibility that the world is changing in a way that only happens once every 80 years or so. These people are saying that whatever comes out in the 2010s and 2020s will be incredibly different than what was there before 2000. In essence, the sixties are dead.
They seem to be saying that what came out of the 1940s and 1950s was “different” from what existed in the 1920s.
An interesting case-in-point is the recent demise of Osama bin Laden. Although the general response to this action has been that this was an important occurrence, there is also the undertone that the “times have changed," maybe the world has moved on and the significance of this event lies more in the past than the future.
In this the “protesters” and the “street” in the Middle East have become more important than the purveyors of a closed fundamentalist group that promotes jihad and the return to a model of society that is more from the Middle Ages than from the 21st Century.
To these people seeking broader rights, the passing of bin Laden is just a footnote to the real battle. To these people the cell phones and the social networks represent the path to freedom and self-respect. Osama bin Laden was legacy, coming from the age of the television where he saw and rejected the creeping intrusion of Western culture into his image of what the Middle East should be.
America, the world's greatest country, whose financial strength and dollar were supreme for the past 100 years, has been put on notice by Standard & Poor's that it is on the road to second rate status. It was disconcerting to read the ho-hum reactions of economists to S&P's shift to a negative outlook for U.S. sovereign debt. As one who sees darker implications of a downgrade in Treasurys, it gave me pause to wonder if I am overreacting to the event. Perhaps they are correct in that it will probably not happen, and that if it does, it's no big deal because the dollar still is the world's reserve currency. Japan and Great Britain did it and they are fine. And where else would investors go?
My conclusion is that the other 99 guys are out of step. My fellow analysts are mired so deep in the trees that they overlook the forest of reasons why we got into this mess in the first place. The problem with economic analysis and analysts is that there is a tendency of disassembly. By breaking down the problem into its parts one can miss how they all connect. Perhaps if they stepped back and considered where this country is heading they would be less sanguine.
After all, we are not looking at a single event but a series of political decisions made over the past 15 years or so that have created today's budget crisis. And stepping back even farther, we are experiencing fundamental changes in American culture. The well-worn cliché of the large ocean tanker taking miles to change course is an accurate depiction of our situation. There is so much built-in momentum based on entitlements and defense spending it is unlikely that a crisis can be avoided.
Editors Note: The full, 481 page report behind these highlights can be found at www.kpcb.com/usainc.
This report (that this article highlights) looks at the federal government as if it were a business, with the goal of informing the debate about our nation’s financial situation and outlook. In it, we examine USA Inc.’s income statement and balance sheet. We aim to interpret the underlying data and facts and illustrate patterns and trends in easy-to-understand ways. We analyze the drivers of federal revenue and the history of expense growth, and we examine basic scenarios for how America might move toward positive cash flow.
By the standards of any public corporation, USA Inc.’s financials are discouraging.
It’s official. The U.S. economic recovery is stumbling again, as indicated by Thursday’s report that GDP growth plunged to only 1.8% in the 1st quarter (from 3.1% growth in the previous quarter). And spiking oil, food, and other commodity prices have inflation on the rise.
Don’t lose sight of how we got here.
Exactly a year ago the recovery from ‘The Great Recession’ of 2007 – 2009 also stalled significantly as the government’s stimulus efforts, including rebates to homebuyers and cash-for-clunkers programs, expired. Economic reports from the housing industry, auto sales, and consumer spending were the leading indicators that the recovery had stalled, which was then confirmed when the 2nd quarter GDP report was released and showed economic growth had slowed from 3.7% in the 1st quarter to only 1.7% in the 2nd quarter.
At that point, the Federal Reserve seemed to panic, concerned the economy might be dropping back into a double dip recession. It began promising another round of stimulus, and then followed through by flooding the financial system with another dose of easy money via its current QE2 program.
That did the trick. The economy (and stock market) began to recover more strongly again. By the 3rd quarter of last year GDP was growing at a 2.6% rate, and then at a 3.1% rate in the 4th quarter. That was still well below the 5.0% growth of the 4th quarter of 2009, but promising.
With the federal government anchored down with over $14 trillion in debt and trillion dollar deficits as far as the eye can see, somehow people are shocked that Standard & Poor’s downgraded its outlook on U.S. government debt to “Negative” from “Stable.” This is about as surprising as learning that Fat Albert is overweight or that Charlie Sheen has a substance abuse problem.
Let’s use an example. Suppose I received a pay demotion and then I went on an irresponsible around-the-world spending rampage while racking up over $1,000,000.00 in credit card debt. Should I be surprised if my 850 FICO score would be reviewed for a possible downgrade, or if credit card lenders became slightly concerned about the possibility of collecting my debt? I guess I wouldn’t be flabbergasted by their anxiety.