Financial Experts Tend to ‘Assume What Can Go Wrong

Financial Experts Tend to ‘Assume What Can Go Wrong, Will Go Wrong, and Usually Manage Expenses in that Way e In projecting scenarios, financial experts would note that USA Inc.’s revenue and expenses are highly correlated to economic changes — for example, a 0.1 percentage point slowdown in real GDP annual growth rate could worsen USA Inc.’s F2011-F2020E budget deficit by $288B, or 5% owing to lower tax revenue and higher welfare spending. Key Revenue Spending Deficit Economic a i What if... ($B/% of Base- ($B/% ofBase- ($B/% of Base- Variables P Case) Case) Case) G, Real GDP oes EERIE Real GDP growth a + S YN Growth 4.4% F2012-14E ee ple ae Sete Rate percen age poin (-1%) (--%) (-5%) lower per year 2.4% F2015-20E ee 46%. ona-month T- interest rates ate 1 Interest bills remmaneeninetety +$94B +$1,214B -$1,120B percentage point Rates higher (+0.3%) (+3%) (-19%) 5.5% on 10-year T- Eel notes Inflation is 1 a + + = Inflation 1.7% percentage point pene aa B oiler higher (+7%) (+7%) (-12%) KP Source: CBO, “The Budget and Economic Outlook: Fiscal Years 2010 to 2020,” 1/10. (@)E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 245 Past Performance Does Not Guarantee Future Results — Japan’s Economic Miracle From 1960 to 1990 Rapidly Deteriorated Into the ‘Lost Decades’ of 1990’s & 2000’s Japan Real GDP Annual Growth Rates, 1960 — 2010 Inflection Point — Bursting of Real Estate Bubble in 1991 Real GDP Annual Growth Rates (%) 2000 1960 1965 1970 1975 1980 1985 199 2005 0 I I Average Annual Real GDP Growth, Japan vs. USA, 1960’s — 2000’s I I 1960’s 1970’s 1980’s 1990’s 2000’s Japan 10% 5% 4% ; 1.5% 0.7% I USA 4% 3% 3% I 4% 2% KP Source: World Bank, IMF. (@E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 246 HOUSE_OVERSIGHT_020964