Interest Payments:
3 Determinants = Debt Level + Interest Rates + Maturity
Debt Level 4 : > * 62% of GDP in 2010, up 2x over 30 years f Debt y + Projected to rise to ~146% of GDP by 2030E Level | owing to diminishing surpluses from Social
~ 7 Security and rising expenses from Medicaid and Pa —_— other entitlement spending
Effective Interest Rates
Effective ¢ At historic low of 2.2% in 2010, vs. 30-year Interest average of 6.4% Rates * Will rise with federal funds target rate & long-term
Treasury yield as economy recovers
Maturity
¢ Shorter debt maturities imply less leverage to Maturity reduce future interest payments via inflation
¢ Long-term debt (10+ year) only 10% of total in
2010, down from 15% in 1985
¢ Short-term debt (0-1 year) especially large in 2009
P Source: Historical debt level / effective interest rates data per White House OMB; Debt projection per CBO; Maturity and composition per Dept. of Treasury. (@)E) www.kpcb.com USA Inc. | Income Statement Drilldown 143
Drill Down on Debt Levels & Related Expenses
We begin with a simple study of current and historical debt levels and key drivers of why debt has risen so much, then we look at interest rates (which are low by historical standards) and the impact they have on interest expense, then we look at the short-term vs. long-term composition of USA Inc.’s debt.
KP a USA Inc. | Income Statement Drilldown 144
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