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America
Inc, Just imagine that America is a business called America Inc and has now been called in to see a very worried bank manager as they want to review the deteriorating state of the accounts. We will imagine that GDP is the turnover of the business, receipts are the profits, expenditures is the overhead. The deficit/surplus is the annual profit or loss and the national debt is the bank overdraft. Now when we look at the following figures, they look much simpler to understand but still very worrying. All figures below are Billions of dollars.
I think the bank manager would say something such as the following to America Inc. "First, we notice that the turnover of America Inc apparently looks very healthy. But we are somewhat worried about this figure, as we do not like or understand all this hedonic indexing that you like to use. Can you please tell us the real figure, America Inc? Next, the profit of your business is worrying as you say your turnover has risen. But your profit has actually decreased substantially since 2000 not only in real terms, but also as a percentage of your turnover from 20% to only 15.68% for this year. To use an old business saying, America Inc, even if your turnover figures are as we expect massaged, ‘turnover is for vanity, but profit is for sanity’. We feel that the ratio of your overdraft to your profit is far more important than the ratio of your overdraft to your turnover--the more commonly used ratio. You do not pay debts from turnover. You pay them from profit. We also notice that your overhead has risen continuously from 1980--a perfect unbroken trendline. To be blunt, America Inc, you are not earning enough in relation to what you are spending, HENCE YOUR MASSIVE OVERDRAFT. You have a very simple choice: either earn more or probably more appropriately, please SPEND LESS! Now when we look at overdraft, it is today at 7112 Billion Dollars. You tell us that by the end of the year it will be 7304 Billion Dollars a further increase of 521 Billion Dollars from last year's overdraft of 6783 Billion Dollars. As it seems apparent that you have no intention of spending less money, America Inc, we have to look very carefully at the bank's future relationship with you. Your overdraft is now approximately 400% of your annual profits and growing rapidly. Last year you paid us an average of 4.68% interest, some 318 Billion Dollars, a very cheap level of interest in relation TO THE LEVEL OF RISK THE BANK IS NOW CARRYING WITH AMERICA INC. You will appreciate that because of this fact alone, interest payments are far more likely to rise in the future, America Inc. Let's look at 5 years from now. We will assume that you keep spending 500 Billion Dollars more than you earn each year. This will put your overdraft at 6783 + 2500 = 9283 Billion Dollars. If we also assume that at this point interest will be 8% as it was around 1990 (still an historic low level), it was much higher than this throughout the 80's. This will mean that America Inc will now be paying the bank 742 Billion dollars each year in interest. We understand that you feel that your annual debt will not be as much as 500 Billion Dollars per year over the next few years, but we must state, America Inc, that your Chief Executive Officer informed us that within 2 terms, your overdraft would be reduced substantially. It has in fact grown substantially since then as your credibility with the bank has declined. We also notice that much of your overhead is ‘mandatory’ and is likely to increase dramatically over the next 10 years with all the baby boomers retiring. We are very worried that your overhead will increase far more rapidly than you expect. We also notice that you wish to spend yet more money on Defense when you already spend more than the next 15 countries in the world put together! Can we ask why? Considering the very poor state of your accounts, America Inc, this does look like the man with the new Porsche and an Armani suit--very impressive, but it is paid for on the credit card and therefore ‘all flash, but no cash’! We further understand and approve of your efforts to try and keep your overhead down in the future by aggressively massaging down official inflation figures, although completely omitting a whole month's PPI figure was just a little obvious. It seems to us, America Inc, that your profits are in decline or at best now static. It also seems that your overhead is rising dramatically, which is leading to a VERY LARGE OVERDRAFT. We are not happy or comfortable with this very large overdraft. We are concerned as to how in the near future you intend to finance the interest payments on this overdraft from present profits and also how you intend to stop this overdraft from growing further. Finally, and this is a delicate question as far as the bank is concerned, considering your overdraft is now 400% of your annual profits and rising (an extraordinary ratio), just how do you intend to pay it all back? We like you, America Inc, you have been a good customer of the bank. You will pay your overdraft back one day won't you America Inc? Please answer the question, America Inc." SILENCE.
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