What does the U.S. Federal Government Spend Money on?

What does the United States Federal Goverment Spend their money on?

In 2012, the breakdown is as follows:

In the chart above, over 62% of the 2012 US Federal Budget was spent on Entitlements including Health Care, Social Security, Pensions, Medicare and Medicaid.  The next largest group is National Defense at 19%.  Net Interest is at 6%, and that leaves 13% for all other spending including subsidies, major Departments, Education, and Foreign Affairs. 

Since in 2012, spending as a percentage of GDP was 23% and revenue was 16.1% (with the long term average revenue as a percentage of GDP from 1944 to 2012 to be around 18%), that is a large percentage difference just to break even on the deficit. 

Let us say that we can bring up revenue to the long term average of 18% of GDP, and that means to break even, the United States would have to cut spending by around 20%. 

This means that even if we spread the reductions over many years, we would have to raise Revenue to 18% of GDP and then cut the Entire National Defense Budget.  Or, raise Revenue to 18% of GDP, cut the National Defense Budget in half, and then cut all Foreign Affairs, the entire Education budget, and almost all Departments and subsidies.  This is going to be painful even if we spread it out over many years.

Looking forward many years, it will even be worse.

In the chart above, we see that Entitlements (Medicaid, Obamacare, Medicare, Social Security) and Net Interest are going to completely dominate the U.S. Revenue as a Percentage of GDP.

This makes intuitive sense.  Net Interest should rise because we already have $16 Trillion in U.S. Federal National Debt, and we are adding more each year with large deficits, and Interest Rates are likely going to rise.  Entitlements would continue to increase because of the Aging Population, Retiring Baby Boomers (starting in 2011), and more expensive medical costs.

This is not sustainable.  Major reforms will have to be be done including and especially major Entitlement reforms or else this U.S. Economy will have a major collapse or another Great Depression.

About the Data:

Data from the Office of Managment and Budget, the Congressional Budget Office (Alternative Fiscal Scenario), and charts produced by Heritage. 

S&P 500 Stock Market Crash?: $16 Trillion in National Debt and Bad Demographics

Is the Stock Market and the U.S. S&P 500 in Denial and is a Stock Market Crash Ahead?

Since the great stock market crash of 2008, the U.S. Stock Market has gone up from an S&P 500 low of 683 to 1432 today, September 6, 2012 for a gain of 110%.

However, during the same time, the United States National Debt went from $10.6 Trillion Dollars to today's $15.86 Trillion Dollars for a gain of 50%.

If we look at the ratio of U.S. Debt to GDP (Gross Domestic Product), we went from 74% Debt to GDP towards the end of 2008, to around 101% today, September 6, 2012:

 

 

[Numbers Here]

Is the Stock Market in Denial? 
National Debt and Bad Demographics means Trouble Ahead for the Markets.

The Stock Market has gone up over 100% since the bottom in 2009, but at the same time, the National Debt has reached a record $16 TRILLION, and now, the ratio of U.S. National Debt to GDP is over 100%.

Recently, for the first time ever, the Bond Rating Agencies downgraded the United States Credit Worthiness.

Also, there was a recent budget impasse in the U.S. Government, and the U.S. appears to be nearing a fiscal cliff.

The interest on the national debt alone will top more than $5 trillion over the next decade according to the projections from the Congressional Budget Office.

And there is no sign that this trend will slow down and reverse itself anytime soon, unless drastic and proactive actions are taken.

Bad Demographics:

Bad demographics will make this bad situation worse.   One of the largest demographic groups in the U.S., the Baby Boomers born soon after World War II, are starting to retire and will be claiming Social Security Benefits, and Medicaid benefits.  The Baby Boomers will also be living longer, putting a further strain on the system.

The hope is that the younger generations can fill the gap, but that's a problem, with high young adult unemployment rates, the young having to move home after College, and increasing debt and increasing college tuition costs.  Labor participation as a percentage of population has been decreasing and will continue to decrease, which it makes it more difficult to grow the economy.

Edge of Fiscal Cliff:

We are on the edge of a fiscal cliff, and important very active steps need to be taken to solve this dire financial problem.

The Stock Market could also be in Denial, and there is a risk of a gradual or sudden downturn which may occur soon, or over many years in the future.  There may be many Stock Market Corrections and Crashes and Violent Rallies in our future.

Despite the recent bull market since 2008, we are still in the middle of a Long Term Secular Bear Market.  The Stock Market is currently in Denial with many headwinds from a National Debt Crisis and Unfavorable Demographics.

Idea #1: HMSY: Profit From Government Healthcare Waste

Simple Investment Idea #1: HMSY: Profit From Government Healthcare Waste

• TICKER: HMSY
  
• COMPANY: HMS Holdings
  
• SECTOR: Healthcare, Financial Recovery
  
• GROWTH THEME: If you believe that government is wasteful and will continue to be wasteful especially in areas such as Benefits and Medicaid, then you can profit by investing in HMSY, a company which recovers healthcare government waste.
  
• MARKET CAP: $2.26B
  
• Forward PE: 36.75
  
• Estimated 5 Year Growth: 24.75%
  
• Forward Yield: 0%
  
• PEG+Y Growth: 1.48
  
• Percent Above 50 Day Moving Average: 13.7%
  
• Percent Above 200 Day Moving Average: 30.9%
  

Profit from Big Government Healthcare Waste

There is a trend towards Big Government and Big Government Health Care, especially with the traditionally Big Government and Big Health Care Democrats having control of both the Executive and Legislative Branch of the United States.

With so much money being spent on Health care, Government sponsored Health care, there is a niche area to recover much of the waste and inefficiencies.

HMS Holdings (HMSY) is an $800 Million company that does just that.

HMS Holdings is the nation's leader in coordination of benefits and program integrity services for government health care programs. The company’s clients include health and human services programs in more than 40 states, 80 Medicaid managed care plans, the Centers for Medicare and Medicaid Services (CMS), and Veterans Administration facilities. HMS helps ensure that health care claims are paid correctly and by the responsible party. As a result of the company’s services, government health care programs recover over $1 billion annually, and avoid billions of dollars more in erroneous payments.

HMSY has a Forward PE of 32.20, and 5 year estimated growth rate of 26%, for a PEG of around 1.25 (PEG under 1 is a value, over 2, is too expensive).

The Stock chart of HMSY is showing strength (as of January 20, 2009), and the stock is above both the 50 day and 200 day moving average even in a bad market.

On January 13, 2009, HMSY has updated its earnings guidance for fiscal year ending December 2008, and due to better than forecasted business performance for the fourth quarter of 2008, the company is revising its 2008 full year EPS guidance from $0.77 to a range of $0.78 to $0.79.

All of this good news is occurring in a bad market.

The Company's website is www.hmsholdings.com.