I.O.U.S.A. Movie Is Well-Done and Informative 33 comments
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It seems that the next bubble to burst is the good ol' U.S. of A. itself. The movie I.O.U.S.A. paints a clear, grim, and stark picture of the debt problems that face America. The country has bounced along a rapidly expanding debt bubble. If we do not regain control over it, the bursting of this bubble will surely put the country into insolvency.
On August 21, 2008, I attended the premiere of "I.O.U.S.A." Ironically, I "overpaid" for the movie, having spent a total of $73 for the ticket ($18!), service fee, gas, and babysitting. Nonetheless, I enjoyed the movie and highly recommend it. I will spend the rest of this piece providing a brief review and commentary about the movie (consider this your "spoiler" warning).
I.O.U.S.A. opens with a series of clever soundbites from American Presidents from Eisenhower to Bush, Jr. Each President talks about America's economic peril and/or the importance of getting the country's debts under control. The most ironic clip shows Ronald Reagan early in his term imploring Americans to join him in controlling the deficit so as to avoid burdening future generations. He speaks with his typical resolve, but we are shown later in the movie how the federal deficit ballooned in the 1980s anyway. The main message is that administration after administration since World War II has promised to get tough on deficits, but most have failed, whether Democrat or Republican.
Two key changes blemish the way America manages its money now:
- Since the founding of the Republic, big deficits tended to alarm the Federal government and, as soon as possible, the government worked to pay down its debt. After we paid down the enormous debts from World War II, we have yet to pay the debt down in any significant way. Big debts tended to come from wartime spending (the Civil War almost bankrupted the country).
- It was also after World War II that the Federal government began relying more and more on foreign countries to finance the debt. We used to owe this money to ourselves.
The general lack of fiscal discipline combined with an increasing reliance on "the kindness of strangers" has weakened the country and made it economically vulnerable.
Our protagonists - David Walker, former Comptroller General and now President and Chief Executive Officer of the Peter G. Peterson Foundation, and Robert Bixby, executive director of the Concord Coalition - use the Fiscal Wake-Up Tour as the thread weaving the fabric of the story together. We watch them as they travel the country trying to get out the alarming message about America's four key deficits:
- Federal budget - as of the time of this writing, the public debt has grown to $9.6 TRILLION, about 64% of GDP. Over the course of the movie, another $85B was piled on. Surpluses in social security have been used to fill budget gaps; otherwise the real number is even worse. That gambit will run out soon as more and more baby boomers retire.
- Savings - Americans are no longer net savers and now have few resources to help pay down this debt. (Last year, I explained how the bull market that began in 1982 seems to have been driven by a long-term downtrend in interest rates that has discouraged savings and encouraged debt-driven consumption).
- Trade - Warren Buffet narrates an animation showing how a nation that consumes more than it produces eventually runs out of assets to sell to support its spending habits. At that point, the consuming nation is forced to get back to work to earn its keep. The animation simplifies the story to two island nations: Squanderville and Thriftville.
- Leadership - our leaders lack the will to give us real solutions because they are not rewarded for making the required tough choices. Americans need to get educated on the problem, demand solutions, and vote for the politicians who are bold enough to deliver and stand against the toxic inertia.
Add in our unfunded liabilities and interest payments on the debt, and our TOTAL liability comes to a whopping $53 TRILLION! Wow! The numbers get so ridiculously large, you have to fight the glaze building over the eyes.
So what are the solutions? This is where the movie comes up a bit short. I think the movie focused so much on describing the problem and raising the alarm because the country is in a general state of denial at worst and inertia at best on this issue. The solutions were described by a rapid sequence of animations. It was so fast and flashy, that I cannot remember them all. As best as I can recall, the movie offered the following:
- Get our "money's worth" from healthcare spending
- Save more
- Register and vote
- Reduce oil consumption
- Only buy what you can afford
Since the movie also stated that we could not raise taxes high enough to pay off our debt, we can only assume that we are being told to significantly reduce spending.
The Town Hall discussion that followed was much more useful in terms of offering solutions. The discussion was moderated by CNBC's Becky Quick. (I THINK the price premium on the ticket went to "fund" this panel?)
The participants in the discussion were:
- Warren Buffett, CEO of Berkshire Hathaway
- Peter G. Peterson Chairman of the Peter G. Peterson Foundation and a Buffet buddy
- David Walker
- William Niskanen, Chairman of the CATO Institute
- Bill Novelli CEO of AARP
Given the backgrounds of this cast, there were naturally disagreements. But the discussion was very civil and well-conducted. The big surprise was Warren Buffet. His first comment was to introduce himself as the "token Pollyanna," and he proceeded to spend much of the night talking up America's strengths and advantages. He was steadfastly optimistic - to such an extent that it really sounded like he believed there is no big problem ("a democracy always has problems"). I started to wonder why he was on the panel! His comments seemed to contradict his role in the movie. Buffett droned on about America's economic pie growing bigger all the time and being big enough for everybody.
Walker had to remind him that all the dire statistics were presented as percentages of GDP (gross domestic product), and so they already took into account the growth of the "pie." Buffett even claimed that the unfunded liabilities of social security and Medicare are no different than the promises the government makes to defend the country. A "Buffett Watch" piece posted on CNBC tonight confirms that his comments caught the panelists and movie makers by surprise (see "Warren Buffett Goes Against the Script At "Inconvenient Debt" Premiere".
Additional solutions that came out of this panel:
- Increase the retirement age to 75 incrementally and with plenty of warning (note that the full retirement age is already increasing)
- A lot of emphasis on changing politics, particularly in promoting bi-partisanship in the Congress. Again, rewarding politicians who "do something" instead of nothing. Instituting campaign finance reform to reduce the influence of special interests. And redistricting to provide more real competition in Congressional elections. This last one was interesting. Walker claimed that only about 60 seats in Congress are truly competitive. He and Peterson complained that America's founders envisioned Congress as a part-time workplace where folks would do some public service and return home to their real jobs. Now that politics is a full-time job, politicians mainly worry about keeping their jobs. But if races are made more competitive, it seems to me that politicians will worry even more about their jobs. Anyway...
- Promote good health in your family. Each panelist agreed that healthcare costs are the #1 budgetary problem and greatest unfunded liability
- Control government spending
- Privatize social security or fix it with "tweaks" on the revenue side and changes to the obligations side - disagreements on this one of course
- Control health care costs
- Improve the nation's education system and increase financial literacy
- Hold our politician's accountable
There was a lot of additional colorful commentary from this panel, and I wish I had the time to note all of it. All of these guys are in their later years and had plenty of funny quips, stories, parables, and the like. Overall, the movie was well-done and informative, and the town hall discussion was a useful add-on. Go see "I.O.U.S.A."
Be careful out there!
Full disclosure: No related positions.
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This article has 33 comments:
seekingalpha.com/artic...
Title: The U.S. Economy: Finding the Balance Between Production and Consumption
Excerpt: "The first dose of reality is to understand that no economy can maintain a 66% consumption rate. The ideal situation is that production equals consumption."
CrossProfit
www.agorafinancial.com...
Can we get a balanced budget amendment passed, please? Can somebody convince the American people that the chief beneficiary of the Social Security system is not grandma, it's Congress? The main difference between real T-bonds and the fuzzy $53 trillion liability the gov't supposedly "owes" us for Social Security is that the gov't can renege on the deal at any time without the consequences of defaulting on a bond.
As for BigBagel's solution #9, it is not clear that foreign wars such as those the US is now fighting in the Middle East are not also protecting the USA and its vital interests (by protecting the oil supply).
Interestingly, Buffet admitted last night that he pays less taxes than his cleaning lady.... so much for your statistics on the rich and their share of 90% of taxes...
Besides, the rich CEO's who are making millions as they swindle their company pension plans and company stocks seem to be making out rather nicely as well.... so tell me where is their pain relative to the average Joe?
Already we are hearing the same old platitudes and promises from both Obama and McCain. Neither one has the vision much less the recognition of the extent of the threat to our national security and our way of life from the financial mismanagement of this great nation.
As long as partisanship clouds our political system and blinds our so called "leaders", nothing will be accomplished and the American people will suffer from their negligence and incompetence.
Frankly, I see little hope unless we can muster an alternative political party immune to the corrupt influences of special interests and of self-serving political hacks.
regardless of your position on any of the many critical issues brought up by the film, if people can start talking about the problems, actually admitting that they are there, there won't be any need for name calling
the goal is to create better lives for ourselves and our families
- Too much attention given to Bob Bixby and David Walker spreading the message rather than "the message"
- Not nearly enough attention given to where gov't is spending our money and how it gets approved.
- Videos of old people travelling around talking to old people aren't going to inspire anyone, esp. the young who need to be energized to participate
- Warren Buffett's comments while probably accurate significantly undermined the urgency to take action
- If health care is the big issue, they should have focused on this from beginning of discussion instead of it coming up 30 min into it
- Hated the music at the end of movie. Too sappy and no one will remember it. Missed a great opportunity to do something people would remember and reinforce the message
- Really liked Peterson and thought he hit problem squarely when he said something to the effect that problem won't get attention because is spans past the Congressional term and gets in the way of their real job which is to get re-elected.
- Questions from audience too obviously planted
As much as I hate to say it, this is documentary that needed Michael Moore's help or at least someone who could energize it. I was expecting something much better.
BTW, I'd guess there were maybe 50 people in our theater.
Also, consider priorities. People first. Always people before bombs and bullets. Ike was right about those interests which would seek to exploit fear to hijack the Treasury. You hearin' me Cheney Bush?
www.optimist123.com/
- here it is M E D I C A R E... of the 55T of the problem MEDICARE is the vast majority of it.
So I appreaciate the fact that a bunch of old AARP farts have legislated themselves a system that can give them a heart transplant when they are 80 years old and will likely only prolong their life by 2 years, but WHEN MY GENERATION takes over, your entitlements will be drastically reduced. NO heart transplant for you geezer. So you BETTER start saving your money so you can pay for it.
That is essentially the problem here, the US, unlike china, has promised to give everything to a select group of old people (low birthweight babies as well - but that is another subject). Guess what, won't happen mr. Baby Boomer, so start actiing like it wont. Don't wait until we have a crisis and we (the people) but the gun to the head of the politicians to fix this mess that you have created.
I, personally, for all the world to see, forego treatment of my medical ailments when i reach the age of 80 - let me dye in peace and use the money on the young, the ones that will actually HELP keep america strong... not some parasite who just wants to choke up the golf course every day.
And with a stroke of a pen, this will happen. Get ready.
Piss poor leadership = piss poor performance, end of story. Being 30 years old, it sickens me to see the catastrophic future which will be passed to my generation, and most likely the last "generation" of the American Dream. Thanks for nothing.
There's also a companion book coming out soon, check it out: www.amazon.com/I-O-U-S...
The problem is that we, as americans, WANT to be lied to ... and told that everything will be ok...
It's easy to see how PE firms for years were able to take advantage of the Equity vs. Debt arbitrage. Sell Debt (and pay 6-9% interest) to buy equity and pledge the FCF to back your creditworthiness. If the project fails, its the company, not Blackstone, which gets downgraded to junk. This does not have any effect on future BX buyouts. The concept is very similar to an individual buying an income producing asset (like a farm), defaulting, and then blaming the land for being unable to produce enough to stay afloat. This is of course not the case in the real world, as the farmer would lose his lose and all of his other personal assets. After a BX owned company defaults, the company's assets get pledged to pay down the debt, and Blackstone walks away with a loss on its 25% or so initial equity investment, which it has buy now probably recouped through paying itself dividends (by, no surprise here, issuing more junk debt). And at the tail end of this fairy tale, BX ends up dumping the majority of its tax liabilities on the fools who bought into its IPO (check out the Prospectus for some interesting reading).
Peterson and his firm had exploited this for years, and now that it comes time to finally retire, why not remind Americans how grave of a debt problem we have on our hands and how we will need to cope with higher taxes in order to pay down the deficit.
PE has been the biggest beneficiary of cheap debt and it's quite angering to be reminded of the problems it causes by Blackstone's founders...
The rich may pay a smaller percentage of their income, but they still shell out lots of dough. The money they don't get to keep is money they don't get to invest, spend or otherwise employ. Is that money best spent by Congress? How many jobs created or sustained per dollar spent by Congress vs. per dollar spent by private investors? How productive are gov't workers vs. non-gov't workers?
I'm actually very much against raising taxes, but if you want to maximize the revenue haul (as well as economic productivity) you would raise rates on poor people. It would not be considered fair, but you could raise enough dough to do anything gov't could want to do.
It's a lousy idea, but it proves that people are not serious about erasing the IOUs through taxation or they'd propose a shared-pain approach. They propose soaking the rich, but the money just ain't there. To raise serious moolah, you have to skim from the wide shallow ocean of low-earners rather than the very narrow, very deep rivulets of high-earners. Plus, sharing the pain would transfer pressure on Congress to reduce spending. As logical as this is, it would never fly in a democracy. "Soak the rich" is a much easier sell.
My point is that the only solution is to force Congress by Constitutional amendment to balance the budget. Any other solution harms the poor. If you tax the poor, they are directly harmed. If you tax corporations and the rich, you harm everybody else indirectly (through job loss and lower economic output). And Congress is not going to volunteer to cut spending, they just won't. As xsuddensam pointed out, their job is to get re-elected. You have to take the deficit spending option off the table.
But xsuddensam is wrong that McCain spouts the same old rhetoric. He is a proven spending slasher. He ran on that back in 2000. We'd have been better off in most ways if he'd won the GOP nomination back then, despite his refusal to back economy boosting tax rate cuts.
Better late than never.
I too think that everyone should pay at least some tax. This is needed
because everyone needs a stake in the system.
As it is now, many on the low end not only don't pay, they get back money they didn't earn. In this case you have a group that is very
happy to get more and more from everyone else.
I thought Buffet's remarks were just sort of 'Rah, Rah' for the U.S.
and I thought he was largely wrong. Predicting the future from the past
is impossible.
Very worthwhile film. Even if there was nothing particularly new, it
did a great job of arrangement and illustration of the dire path this
country is now on.
I would like to see much smaller gov't using the thesis that the gov't
should only do what the people cannot do for themselves. Clearly,
this is not the current case.
McCain portrays himself as a cost cutter and fighter against pork. That may be, but all that wasteful spending is a very tiny percent of our problem. As the film illustrates, the problem is healthcare. It seems obvious that our legislators should focus on that area of spending. There is no reason why we cannot have a great system that is cost
effective. Now the U.S. spends 22 cents for every healthcare dollar
on adminstration. Compare that with Tiawan that has a decent healthcare system and spends less than a nickel of each dollar on
admin. costs.
Regarding statements that were made in the film that our national legislatures were envisioned to be only part time people with careers back home I would note that even though we supposedly have full time legislators.
they still only work as if they are part time.
1) Education -- Private schools spend, on average, one-third what public schools spend, yet have better test scores and quality of learning.
2) Health care -- medicare/medicaid is riddled with fraud
3) Socialism -- social security is a joke, and that 14.2% of your paycheck could be FAR better invested privately
Yet people are STILL talking about giving the government MORE money through taxation!?! Have we learned nothing? The government has ONE (count it: one) solution to every single problem it ever faces: throw more money at the problem and hope it goes away. That's why we're in this mess.
Throwing more money at the government so it can throw that money away on its self-created problems is NOT a solution. Returning to some form of Constitutional govenment *is* a solution. We are supposed to be a Republic, not a Socialist state. The more the government gets involved in re-distribution of income, the more we move toward socialism, the greater our debt becomes. We need to cut spending, slash the entitlement programs, and return absolutely as many programs as we can to the private sector.
Are we really this stupid, that people still believe the very same government that created our problems can get us out of those problems if we just give it more money? C'mon people. THINK.
After the movie, It was suggested by a live panel of "experts " David Walker (Former GAO head), Pete Peterson, Warren Buffet, Bill Niskanen (CATO Institute), and Bill Novelli (AARP). that a saving account and working harder and into our 70's is the solution.
Yes, there was an old clip of Dr. Paul humiliating Greenspan. However that sound bite would have one conclude that the problem was a result of Greenspans personal incompetence rather than the fact that the Federal Reserve Bank itself is the real culprit. The film was dangerously misleading. Just another lie with a grain of truth. Ron Paul's presence in the film only served to legitimize the lie. I believe that if Ron would have seen the finished product he would have not participated.
Hey baby boomers apparently we are the new enemy within. Just like Hitler declared that the Jews were enemy's of the state, this movie hints that our economic problems are a result of our generations selfish greed and fiscal irresponsibility. After all most of us are living like kings and we have never had to really work very hard.( sarcasm ). However there is a grain of truth to that but the real truth is that the connected elected along with world bankers have stolen this country's wealth , now with that said.This will become the new trend
www.usnews.com/blogs/p...
Seems like a good way to divide the country even more.Get the next generation to blame us and force us to work till the day we die all the wile dictating how we save our money.Then the next generation will come of age.The movies solution is new leadership that will address our over spending and get this, we need forced saving accounts and the baby boomers need to work longer even into our 70's. OK lets put more money into savings accounts so bankers can loan even more on our deposits and get richer on the intrust . And get used to the idea of working till the day you die. Sounds like a blue print for slavery to me