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Reviewing the financials of USA Inc.

Kleiner Perkins Caufield & Byers (KPCB), one of the world's largest venture capital firms, has issued a sobering report on the financial challenges now facing a well-known entity that has been around for a more than 200 years. That entity is the United States government.

KPCB researcher and strategist Mary Meeker has put together an "income statement and balance sheet" for Uncle Sam, and it's not a pretty picture. Her report includes a two-page foreword (by George P. Shultz, Paul Volcker, Michael Bloomberg, Richard Ravitch and John Doerr), a 12-page text summary and 460 PowerPoint slides.

Here is one of those slides, followed by part of the text summary:

Imagine for a moment that the United States government is a public corporation. Imagine that its management structure, fiscal performance, and budget are all up for review. Now imagine that you're a shareholder in USA Inc. How do you feel about your investment?....

If we were long-term investors, how would we evaluate the federal government's business model, strategic plans, and operating efficiency? How would we react to its earnings reports?.... [F]ew of us take the time to dig into the numbers of the entity that, on average, collects 13% of our annual gross income (not counting another 15-30% for payroll and various state and local taxes)....

By the standards of any public corporation, USA Inc.'s financials are discouraging. True, USA Inc. has many fundamental strengths.... But cash flow is deep in the red (by almost $1.3 trillion last year, or -$11,000 per household), and USA Inc.'s net worth is negative and deteriorating....

Since the Great Depression, USA Inc. has steadily added "business lines" and, with the best of intentions, created various entitlement programs.... Apart from Social Security and unemployment insurance, however, funding for these programs has been woefully inadequate — and [is] getting worse.

Entitlement expenses amount to $16,000 per household per year, and entitlement spending far outstrips funding, by more than $1 trillion (or $9,000 per household) in 2010....

Regardless of the emotional debate about entitlements, fiscal reality can't be ignored — if these programs aren't reformed, one way or another, USA Inc.'s balance sheet will go from bad to worse.

None of the information in the report is truly new. Larry Burkett, who was honored posthumously last week at the annual National Religious Broadcasters convention, was writing about these same issues nearly 20 years ago. But the KPCB report offers a clear and sobering reminder that time is running out.

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