1. War Room 07/20 US Debt Ceiling

2. War Room Monthly macro discussion Using tools in context Feature for subscribers only Feedback - what should it to be?

3. US Debt = Out of Control? US Federal Debt, 1900 – 2010 The mainstream media focuses on this graph, and not much else. Is this the whole story?

4. US Debt: Long Term Context Source: treasurydirect.gov US debt-gdp is rising to relatively high levels, but not yet unprecedented US treasury yields are at all time lows => The Market thinks there's no risk in lending to the US government

5. US Debt: Short Term Context Source: Bloomberg Spending has spiked since the financial crisis, and revenue has collapsed, exacerbating current deficit

6. Stop Comparing the US and Greece! Source: IMF World Economic Outlook Debt-to-GDP ratios: US versus Greece, 1980-2011

7. Stop Comparing the US and Greece! Greek debt is Euro-denominated, out of the hands of Greek government US debt is dollar-denominated, US controls its own currency A country borrowing solely in its own fiat currency cannot default Inflation is a risk, default is not

8. Appropriate Comparison: US and Japan Japanese debt-to-GDP is more than double that of the US....

9. 7/20/11 … and Japanese inflation is flat to negative despite debt monetization...but the Yen has continued to rise in value...

10. Debt Ceiling: Potential Outcomes Status Quo: Debt ceiling has been raised 74 times, is raised again without major changes Debt ceiling raised, but with significant spending cuts attached Debt ceiling not raised by 8/2, forcing some government shutdown or nuclear options

11. Long Term Picture Health care spending responsible for most future deficit growth Medicare + Medicaid + interest = 100% of US budget by 2035 if not controlled Govt. health care spending must give HiddenLevers Scenario: Medicare/Medicaid Cost Cuts Occur