I.O.U.S.A. Movie Is Well-Done and Informative

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:

1. 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).
2. 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:

1. 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.
2. 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).
3. 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.
4. 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:

1. Get our "money's worth" from healthcare spending
2. Save more
3. Register and vote
4. Reduce oil consumption
5. 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:

1. Warren Buffett, CEO of Berkshire Hathaway
2. Peter G. Peterson Chairman of the Peter G. Peterson Foundation and a Buffet buddy
3. David Walker
4. William Niskanen, Chairman of the CATO Institute
5. 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:

1. Increase the retirement age to 75 incrementally and with plenty of warning (note that the full retirement age is already increasing)
2. 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...
3. Promote good health in your family. Each panelist agreed that healthcare costs are the #1 budgetary problem and greatest unfunded liability
4. Control government spending
5. Privatize social security or fix it with "tweaks" on the revenue side and changes to the obligations side - disagreements on this one of course
6. Control health care costs
7. Improve the nation's education system and increase financial literacy
8. 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.

Comments

[CrossProfit_]

Nothing new here. Read this article from two years ago as it explains the situation very clearly, including the solution.
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

2008 Aug 22 06:27 AM

[BigBagel]

#9 Cut military spending and only use our military to defend and protect the USA and its vital interests. Nothing more, nothing less. You know, like its supposed to be.

2008 Aug 22 08:05 AM

[IOUSA Fan]

I went to see the film last night and was shocked at the US's economic dilemma. This movie should be required viewing for your children, grand children and all our elected leaders. Here is a link to the trailer....
www.agorafinancial.com...

2008 Aug 22 08:20 AM

[kmca1989]

that'd do a lot of good - although at the moment social security & medicare compose ~2/3 of the national budget to begin with - reducing defense expenditures won't make everything rosy.

2008 Aug 22 08:26 AM

[milkchaser]

So I guess it would not be a good idea to add yet another gov't entitlement program like the innocuously mis-named "single payer program" touted by Barack Obama. How can we rein in spending when, as Obama frequently tells us, we are not doing enough "for the least of these my brethren". The problem is obvious: the rich are not paying enough. They may pay 90% of federal income tax, but that's not enough! (or so we're told).

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.

2008 Aug 22 08:29 AM

[milkchaser]

Here's an idea. You want to balance the budget and eliminate the debt? Make everybody, including poor people, pay federal taxes. This will work because a) there are so many more people currently not paying much and b) once people feel the pain of even small increases in their taxes, they'll get serious about wasteful spending.

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).

2008 Aug 22 08:33 AM

[applesauce]

Buffet cannot say things are terrible due to what it will do to his stock price and his boy obama wants to spend more which is at odds with solving the problem.

2008 Aug 22 08:59 AM

[mrpitchfork]

Hey milkchaser, Taxing the hell out of everyone including the poor isn't the answer. Shrinking the government and eliminating the federal income tax is. America did just fine before the federal income tax and the federal reserve. There are other ways to have operating expenses for the fed. government than by taxing the people..

2008 Aug 22 09:03 AM

[Kelly Lieberman]

Milkchaser,
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?

2008 Aug 22 09:10 AM

[xsuddensam]

The underlying problem is leadership. No politician wants to tell the truth and certainly no politician wants to do anything about the problems because real solutions are painful. Pain equates to not being elected and more importantly not being re-elected.

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.

2008 Aug 22 09:14 AM

[adan]

my wife and i, born and raised americans by the way, saw the movie last night, great info and well done

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

2008 Aug 22 09:23 AM

[Umm, yeah]

I enjoyed the article. And thank you, CrossProfit, for that link.

2008 Aug 22 09:26 AM

[RobertsJim]

There are three ways out of this mess: reduce spending, increase taxes or both

2008 Aug 22 10:01 AM

[expectingmore]

Well, I went tonight, and in a word ..... disappointed. In no particular order,

- 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.

2008 Aug 22 10:05 AM

[Briggsy]

Register and vote? That should only be on the list of solutions if you have accepted "the message." Otherwise, you are just adding to the demand side of the equation.

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?

2008 Aug 22 10:58 AM

[ain't no fortunate son]

thank you milkchaser... your idiotic comments are a perfect description of the denial and ignorance that have fueled this looming disaster

2008 Aug 22 11:01 AM

[caveatBettor]

I'd suggest balancing the viewpoints in IOUSA with regular reading of Steve Conover, who actually uses data. Qualitative discussion, ideas, and hypotheses are great, but take a look at the numbers, too!

www.optimist123.com/

2008 Aug 22 11:21 AM

[mouse85]

unfortunately, I missed the first hour due to work. My theater wasnt full, but I did have to sit next to the wall. I think everyone should see it. Im buying the DVD when it comes out and showing it to everybody i know. A note to Kelly Lieberman. Buffet pays 15% on a billion dollars, his maid pays 15.3% on 40,000. Who pays more taxes????

2008 Aug 22 12:00 PM

[nukldrager]

mouse85 is that a trick question? Would you rather have $850m or $34k after taxes?

2008 Aug 22 02:02 PM

[onzilla]

I've not yet seen the movie but I am intimately familiar with the top. The answer: to me is obvious - and this may piss some people off. But the mess that we are in is one the Lyndon Johnson *legislated*
- 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.

2008 Aug 22 02:05 PM