About 50 Kentuckiana CFA's were in attendance for the following:
CFA Society of Louisville Lunch Lecture Series
Tuesday, April 5, 2011 at the Pendennis Club
218 West Muhammad Ali Blvd. | Louisville, Kentucky 40202
The National Debt and What We Can Do About It
By Dr. Robert E. Wright
Author and Nef Family Chair of Political Economy at Augustana College
The U.S. federal government now owes its creditors $14.25 trillion dollars, give or take a few hundred billion dollars. That’s a lot of moolah in nominal terms, enough in $1 bills to stretch to Saturn I’m told. If that sounds far-fetched, keep in mind that a trillion is a thousand billion, a one with 12 zeroes after it. But is $14.25 trillion dollars a lot in what economists call real terms, in terms of its purchasing power? That is much less clear. The national debt amounts to about $45,800 per citizen. Maybe that isn’t so bad. But two out of three citizens do not pay taxes, at least not directly. So maybe we should judge the debt by how much each taxpayer owes, currently a little over $128,000 dollar. When we consider that the median household income was a little shy of $50,000 dollars last year that number looms much larger but of course people with seven figure incomes and bad tax accountants will bear the brunt of it.
We also need to consider the fact that the debt need not be repaid in a year. Theoretically, America can spread its burden out over years, decades, centuries even. But in actuality it can do so only by rolling over existing debt. The average maturity on U.S. treasury bonds is about 5 years. That means that we have to repay the $14.25 trillion within that time or borrow that amount at prevailing interest rates. Let’s hope Treasury bond rates stay low because taxpayers are already paying over $200 billion a year in interest on the national debt alone.
While some of that interest goes to domestic bondholders, much of it goes overseas. The governments of China and Japan combined own about $2 trillion dollars of U.S. treasury bonds and the rest of the world about $2 and a half trillion more. That makes a lot of Americans wary but generally for the wrong reasons. Many imagine that our debt makes it easy for China to manipulate U.S. policy. That’s backwards. China doesn’t invade Taiwan because it knows that such a move would cost it, at a minimum, the $1 trillion plus of Treasury debt that it owns. Rather than invade the U.S., China actually has an incentive to protect it from attack. One of Alexander Hamilton’s key insights was that debt ties the interests of the borrower and lender together, except in Sopranos scenarios. But it’s not like China can break our thumbs or kneecaps.
What IS scary about the large foreign holdings of our debt is what will happen if foreigners dump a big batch of Treasuries on the open market or, more likely, simply slow or stop their accumulation of them. If that happens, yields on Treasuries will jump and American taxpayers will have to pony up even more in interest in the years to come.
Thankfully, the U.S. national debt is all currently denominated in dollars, which makes it mighty convenient to service Treasury bonds by firing up the proverbial printing press. But if the government resorts to making lots of new money to pay its debts, the dollar will plummet as inflation soars. The former will help with our huge trade deficit, currently running at over $660 billion dollars, but not enough to offset the many economic distortions that domestic inflation causes. Things don’t have to get as bad as in Zimbabwe a couple years ago to have serious negative economic and social consequences. Anyone remember the Great Inflation of the 1970s? I do, barely, but isn’t pretty. Government price control-induced shortages, rapidly declining real wages, deep trouble for financial institutions like Savings and Loans, and my father fighting with the farmer up the road over the rising cost of bailing hay.
Too much inflation would eventually induce foreigners to stop buying dollar-denominated debt. We glimpsed this in the 1970s, when during the Carter administration the U.S. government actually sold some debt denominated in West German marks. If the U.S. government ever has to borrow large sums in euro or yuan, we will be subject to the same budget constraints as Mexico or Argentina and probably won’t handle it as well.
But that won’t happen, will it? The mighty U.S. dollar can handle any strains, can’t it? Maybe, maybe not. If that 9.0 had hit Cali instead of Honshu we might have learned its limits. The most astute economists argue that the debt to GDP ratio is one important metric to watch. Right now, it is almost 100 percent. That means that the national debt is almost as large as the value of the final goods and services Americans produce in a year. That might sound like an upper limit, but it is not. During World War II the ratio topped out at about 120 percent and has hit several hundred percent in other countries, sometimes with disastrous results, other times not.
If the federal government continues to run budget deficits that exceed the growth rate of the economy, which will average about 3 percent per year at best without reforms like those I’ll discuss later, the national debt will continue to grow vis-à-vis the economy until something gives. I liken the situation to that of a large man in a small boat. If the man grows faster than the boat, the latter is sure to sink at some point. But economics is more black art than physics so economists can’t know for sure when that tipping, or rather sinking point will be reached. Part of the problem is how to precisely measure the debt’s size. That $14.25 trillion dollars I mentioned earlier is just the par value of Treasury securities, the amount the Treasury has promised to repay bondholders. Unfortunately, the U.S. government owes a lot more than that, but how much more is difficult to say.
The government’s Social Security liabilities are estimated at about $15 trillion, the Bush prescription drug benefit at a pill popping $20 trillion, and Medicare at an eye popping $78 trillion. If people work longer than expected, however, the Social Security figure will go down a bit. And if they are healthier than projected the drug and Medicare figures will be lower. But the biggest savings would come from older Americans dropping dead younger than expected and dying more quickly and cheaply than anticipated because that would mean less paid in Social Security, which is after all a life annuity product, and would mean less paid for drugs and other types of healthcare. I’m convinced the people screaming about death panels during the healthcare debate last year intuited – correctly – that the federal government has a vested interest in their sudden death the day after they retire.
On top of all this, Americans have personal debts all their own. I’m less concerned about this as the average citizen owes $178,000 dollars but has assets of almost $250,000. Granted, those averages disguise the fact that a few Americans owe nothing and have assets worth millions while millions of others are underwater on their mortgages. But like Alfred E. Newman, I’m not worried about consumer debt. The claims of numerous historical ignoramuses in the media to the contrary notwithstanding, the average American has been in hock up to his eyeballs since at least the eighteenth century without causing any systemic problems. Let’s not blame the victims in other words. Credit cards and other forms of consumer finance are a big part of America’s social welfare net.
What does concern me is how our nation got into the fiscal, financial, and economic mess that it currently faces. The best escape route out of governmental and personal debt as well as high unemployment is sustained and robust economic growth. At present, achieving genuine economic growth, as opposed to tricking the economy into a temporary prosperity with another asset bubble like the dotcom and real estate bubbles, appears impossible because too many important economic sectors are FUBAR – that’s fouled up beyond all recognition in polite company – and because Thomas Jefferson was right when he predicted that politicians would find it difficult to resist the allure of borrowing and spending.
Jefferson’s view grew out of his public dispute with Alexander Hamilton over the proper way to handle America’s first national debt, the one it racked up fighting for independence from the British. The rebel governments – I mean the ones in Boston and Philadelphia, not Benghazi -- found it too difficult to tax so it resorted to lotteries, currency inflation, and borrowing, some of it voluntary but much of it forced on soldiers and provisions providers. After the war, most states continued to find taxing Americans challenging to say the least. Some threw up their hands and defaulted on their debts, the market price of which dropped to pennies on the dollar. Others, most infamously Massachusetts, pushed taxation until they sparked rebellions in their western hinterlands. The situation was dire but thanks to some invisible elixir the Constitution resulted, Federalist George Washington was elected president, and the Senate confirmed fellow Federalist Alexander Hamilton as his Treasury Secretary.
Hamilton certainly had his faults. Most infamously, he had an affair that would make Bill Clinton blush and did it with a woman who by all descriptions would make Megan Fox look like Monica Lewinsky. No joke, Maria Reynolds was smoking. Hamilton also lost a duel to a Vice President, a species of politician not known for its acumen at anything. But when it came to finance, Hamilton was a freaking genius. Freaking genius. He established a tax that Americans would pay -- a revenue tariff that he let manufacturers believe was a protective tariff -- and used it to service three new types of bonds issued in lieu of the scores of different types of junk certificates the rebels unleashed on their fellow Americans during the war. Because tariff revenues were volatile, Hamilton also established a national bank, the Bank of the United States, charged with lending the Treasury money to pay interest on its new bonds should its revenues fall short. Suddenly rendered safe and liquid, government debt soared from a few cents on the dollar to above par. Bond yields, in other words, dropped from high double digits to under six percent.
You would think that Jefferson and his followers, then called Democratic-Republicans, would have been happy that in a few short years Hamilton transformed the United States from a bankrupt backwater into a nation whose bonds -- which were briefly more valuable than British Consols – cemented the nation together just as Hamilton said they would because they incentivized holders, who were spread wide geographically and occupationally, to back the new regime.
But the Democratic-Republicans were not happy. Some of it was just party politics but some was genuine. They did not like the fact that speculators seemingly made large profits when yields plummeted during implementation of Hamilton’s reforms. As argued then and shown since, speculative profits were not out of line given prevailing interest rates and risk premia but Democratic-Republicans nevertheless argued that the original holders of the governments’ IOUs, the soldiers, farmers, and other patriots to whom they were first issued, should be compensated instead, even though that probably would have delayed the development of our capital market for decades.
Jefferson and his buddies also loathed the Bank of the United States as they harbored a deep distrust of all banks and corporations, except for the ones they owned shares in of course. They also did not believe that the Constitution allowed the federal government to charter any corporation, let alone one so big and extensive. When it was formed in 1791, the Bank of the United States dwarfed all the other banks then in existence – COMBINED. Although headquartered in Philadelphia, it soon began establishing branches – tentacles in the eyes of those who feared this alleged Leviathan – in the nation’s most important cities, a sure sign of its evil designs according to its foes.
Finally, Jefferson and his Democratic-Republican followers disliked the fact that the federal government assumed the state government’s debts even though Hamilton clearly explained that the measure was necessary because the federal government monopolized the best tax then available, the tariff. Hamilton, they believed, was trying to make the national debt as large and long-lasting as possible so it could drain taxpayers in favor of a large national government and a handful of its pampered cronies and rich capitalists.
Hamilton, however, wanted no such thing. He wanted the debt to be widely held so that it would cement the union together and also so the bonds would be liquid, valuable investments. Moreover, Hamilton argued in favor of a vigorous national government not a large one, at least not large by today’s standards. He wanted a tiny national government by today’s standards, Jefferson a teensy-weeny one. Hamilton also did not want the national debt to be perpetual, as his detractors claimed. The new bonds his Treasury issued did not have fixed redemption dates because he did not want to encounter a re-financing problem in the future. The government could still retire its debt and in two ways in fact: First, it could do so at any time by buying its bonds in the open market via an institution called the Sinking Fund. Second, it could retire its bonds slowly via an amortization feature built into some of the bonds that gave the government the option, but not the obligation, of repaying 2 percent of the principal each year.
Maybe that was all too technical for Jefferson, who for all his brilliance in other areas was a financial illiterate and an insolvent debtor most of his adult life. But his Treasury Secretary Albert Gallatin and subsequent Democratic-Republican and Democratic treasury secretaries all understood and used those mechanisms to pay off America’s original national debt, as well as subsequent debts contracted to fight the War of 1812 and several lesser conflicts, and to buy the Louisiana Territory from Napoleon. So score one for Little Hammy.
But Jefferson had the last laugh. As he predicted, politicians would not be able to resist the lure of borrowing and spending. Taxing and spending was of course a political death sentence most election cycles but borrowing and spending could be conducted to great electoral effect because taxpayers received more in benefits from government programs than they paid in taxes and that made them happy, at least in the short term.
Not surprisingly, after completely paying off the national debt in early 1835, the U.S. government had to sell bonds again just a few years later. Tariff receipts fell during a recession, you see, and because Andrew Jackson refused to recharter the second Bank of the United States it was not available to fill the hole in the budget. The federal government’s debt remained small compared to the overall economy but jumped a little during the Mexican war and of course took a huge leap during the Civil War, when it reached 30 percent of GDP for the first time since early in Hamilton’s era.
The government never completely repaid the national debt again but the early pattern established by Hamilton, Gallatin, and other early Treasury Secretaries repeated itself over and over: wars and occasional territorial acquisitions caused the debt to increase but thereafter a combination of expenditure restraint and robust economic growth reduced the debt’s real burden to manageable terms. Even the large run up in the national debt during the Reagan administration fit the pattern: the debt accumulation essentially won the Cold War and was reversed, in percentage of GDP terms anyway, during the 1990s, culminating in small surpluses late in Clinton’s second term.
The pattern, however, now appears to be history, if you can ever forgive that pun. I know I can’t. During the administrations of George W. Bush, the national debt rapidly increased in both nominal and percent of GDP terms, much more rapidly than the relatively minor wars in Iraq and Afghanistan could have caused. Under Obama the debt has continued to soar but due to an unprecedented cause, the bailout of the financial system and massive fiscal stimulus. Various myths to the contrary notwithstanding, the United States got out of the Depression by devaluing the dollar and increasing the money supply, not by large amounts of Keynesian deficit spending. The Depression was over well before World War II began though that fact was clouded by continued high levels of unemployment and the so-called Roosevelt recession of 1937 which was caused, in part, by Roosevelt’s strong desire to balance the federal budget.
The U.S. government certainly engaged in other bailout activity over the years – I’ve recently completed a paper about it that I’m happy to share with you if you wish – but not even the S&L bailout of the early 1990s comes close to the resources thrown at the economy following the Panic of 2008. We’ll never know for sure if the bailouts and fiscal stimulus saved the economy from a steeper or longer downturn than it suffered anyway because we can’t replay those events under a different policy. It’s pretty darn clear, however, that politicians chose to increase the national debt in order to appear to maybe have done some good over allowing the crisis to play out. They will be likely to do so again in the future until, that is, the crisis is about the national debt. Then, some fear, politicians will be flummoxed by hard choices that could potentially tear the nation asunder along its geographical, generational, class, or racial fault lines.
There is, however, an alternative that has not yet garnered the consideration it merits. We need to find ways to become more efficient, plain and simple. Our nation’s economic greatness was built on finding ways to do more with less. It used to take 90 of us to inadequately feed 100 of us. Now it takes only 2 to make 100 of us obese and to feed many abroad as well. We used to need half the workforce to toil 70 to 80 hours a week just to clothe us and provide some basic manufactured goods. Now 20 percent of workers lollygagging about a mere 40 hours a week provide us with more physical stuff than we have ever enjoyed in the past, and that’s not counting imported goods. That’s right, U.S. industry makes more today than it ever has in the past and does so with fewer workers.
Agriculture and manufacturing are our pride and joy but the very efficiency of those sectors threw most farmers and factory operatives out of those occupations and into the service sector, which now accounts for over 75 percent of U.S. GDP. That’s right, three quarters of our economy is service-based. Some service-based activity is low value-added. You know, proverbial burger-flipping. But most of it is higher end activities like construction, consulting, education, entertainment, finance, health-care, legal, and research.
Unfortunately, many of those areas suffer from stagnant productivity growth. We know that is the case in custom construction by directly comparing over time how many inflation-adjusted dollars it takes to complete a structure of fixed size and quality. It’s not an exact science, but the consensus appears to be that construction productivity in 2010 is not statistically significantly different from construction productivity in 1960. In other cases, we can infer productivity stagnation from price trends. When the costs of services like healthcare or education rise faster than inflation for decades on end, there is clearly a problem.
If we are going to jumpstart our economy, we are going to have to figure out how to make construction workers, financiers, healthcare providers, and professors more efficient. Good luck with that you might be thinking and if so, you are right. Reform, meaningful reform anyway, is not easy here as Dodd-Frank and the Mess in Madison attest. But we have to try, even if folks like Will Baumol think it silly.
Will is a friend of mine even though his first journal article appeared the same year my mother was born. We overlapped at New York University’s Stern School of Business a couple of years and worked on several projects together. He’s a brilliant man but that does not mean that he is perfect. He is currently working on entrepreneurship but earlier in his career he made a big impact on economists by describing what has come to be called Baumol’s disease. It’s basically a parable about a string quintet that purports to show how difficult it is to improve productivity among service workers: it still takes five musicians x number of minutes to play a tune composed by Mozart over 200 years ago.
That’s certainly true, but improved musical pedagogy could greatly reduce the amount of time it takes to prepare someone to be able to play a piece of music as sophisticated as that created by Mozart, improved practice techniques could greatly reduce the time spent learning the specific composition, and improved technology could enable a single playing session to be listened to an infinite number of times. When viewed in that light, Baumol’s disease looks more like Baumol’s case of the sniffles.
What actually ails the stagnant parts of the service sector is a bad case of mis-aligned incentives. Fix those mis-alignments and productivity will surge and with it the economy. The national debt probably won’t go away but it’ll look smaller compared with our ability to service it. For more details on this stuff, by the way, see my book Fubarnomics.
Let’s start with custom construction, the creation of quasi-unique houses, office buildings, and other built infrastructure for a specific owner. The root problem here is not ancient building codes, unions, the Davis-Bacon Act, a recalcitrant workforce, ineffective managers and supervisors, or even organized crime because those are all effects of what is effectively a non-competitive industry. Sure, there are millions of construction firms in the U.S. but they range from tiny to infinitesimal and many are highly specialized. In many markets, it is all that somebody can do to get three bids. Not that the bidding process does a dang blasted thing for owners because contractors game bids. In other words, the bid is not an estimate of the actual costs of the job but rather is a way of winning a job. The key is to set the bid low enough to win the contract even if it is unprofitably low. That is because a construction firm on the job is a near monopolist. Contractors use their market power to make so-called change orders stick.
Contractors call them change orders because bill padding is a little too obvious but that is what most change orders are, the means by which contractors who bid too low get their profits. The economic problem here is that contractors don’t so much compete on price, quality, and time as on how good they are at gaming bids and sticking owners with change orders. That is why so many construction firms are small and why so many construction projects come in late, over budget, or, most insidiously of all, under quality.
The fix here is to stop allowing contractors to issue change orders, perhaps through what has been called fixed-price contracts. In such contracts, construction firms face penalties if they do not finish within so many percent of the time and price they promised. The widespread adoption of fixed-price contracts would likely spur a huge consolidation in the industry which, in turn, would result in many fewer but far larger companies run by more professional managers and with far more ability to fight unions and to combat productivity-damaging government policies like antiquated building codes. Some segments of the construction industry are finally beginning to embrace this line of thinking but much work remains to be done.
Financiers can be made more efficient through incentive re-alignment as well. The Panic of 2008 occurred because some individuals profited from offering economically dumb-assed products like 125% LTV loans to NINJA borrowers – individuals with No Income, Job, or Assets – and the various derivatives based upon them. The individuals profited because they made big commissions or bonuses from the sale of the products but did not suffer personally when they all exploded a few years later. There was absolutely no excuse here as the subprime mortgage crisis was the seventh time in U.S. history that a mortgage securitization scheme blew up because of the same set of misaligned incentives. In other words, it was the seventh time that we forgot that brokers should not receive a full commission today for a product that has a 15 or 30 year life. In the nineteenth century, by contrast, life insurers learned and never forgot that they had to spread commissions out over 5 or 7 years or they would soon be inundated with terminally ill policyholders.
The fix for finance today is much the same as it was for the life insurance industry more than a century ago. Don’t pay people for engineering or selling products that haven’t proven their ultimate profitability. I realize that is easier said than done but deferred compensation and bonus-malus systems, where bonuses can be lost back if experience shows that they were too high when awarded, has worked wonders at mutual life insurers like Guardian and at some joint-stock companies as well.
Please do note that the recommendation here is about the structure of compensation and not its extent. As a possible future millionaire I don’t want to mess with market prices. I just want to destroy the ability of executives to pay themselves royally for royally bad behaviors. Not that it is their fault per se. Our corporate governance is really messed up compared to its heyday before the Civil War. We need to again incentivize shareholders to monitor the companies they invest in. But I don’t want to digress further about that complex subject.
Next up are healthcare providers of all stripes, or doctors for short. The solution here is so simple that even Jigsaw, the serial killer from the Saw movie franchise, was able to figure it out. We should pay doctors for curing us, not for merely seeing us. There are several ways of doing that. One developed in the U.S. in the 1920s was called prepaid medical. When you were well, you paid so much per month. When you were ill, you paid nothing until the doctor got you well again. Sure, some people tried to malinger and some doctors tried to stop treating really sick patients but disinterested third parties could generally sort them out and rule accordingly.
Another, not mutually incompatible proposal, is to mandate individual insurance for all, beginning in the womb before any genetic testing has been conducted. That would reduce adverse selection, or the predilection for sicker people to seek health insurance. Moreover, I think that health insurance should be tied to a life insurance policy and structured actuarially so that healthier people get a bigger life insurance payout per dollar of premium paid and sicker people get a smaller one. Combining the two policies into one has the virtue of bonding the insurer to pay for healthcare up to an economic breakeven point. Out of their own self interest, for example, an insurer would easily conclude to pay $500,000 to cure somebody with a $1 million life policy that would otherwise soon fall due. And if it clearly meant less money going to their children and grandchildren, more people would opt out of expensive end of life treatments. As in construction, such reforms would induce doctors to become more efficient, perhaps by tiering service more rationally, ordering fewer tests, embracing new therapies more readily, and so forth. Medical malpractice would still occur but the number and severity of suits would be reduced due to greatly increased emphasis on preventative care.
That brings us to professors and, what the heck, K through 12 teachers too. Unions and tenure are not the problem per se here but rather symptoms of the underlying disease, which is anything but Baumolian. The root problem in education is that professors and teachers are employees instead of professional partners. Like other employees, professors tend to do just enough to keep their jobs while bargaining hard for as much pay and as many perks as they can get, including lifetime tenure. If they have an idea about how to improve pedagogy they are generally mum about it because sharing it won’t get them any more money and might even cost them a teacher of the year award. If somebody suggests a change that personally inconveniences them, they fight it with all their might even if it would help students or cut expenses.
Imagine how differently professors and teachers would behave if their long-term compensation were tied to how well their school did, and how well their school did depended on how well they taught and, in a university setting, how well they completed research projects? That would be the actual case if governments subsidized students instead of schools and if profs and teachers were partners in an LLC instead of mere employees clinging desperately to unions and tenure. In an LLC, professors’ tenure would be priced instead of absolute. They would still have significant job security but could be bought out by the other partners, as in a law firm.
If these reforms are implemented, I think productivity would soar, just as it did when slaves were emancipated from bondage in Egypt and Central Europe. The world looks much different when one can reap the fruits of working harder and smarter. So there you have it. The solution to our macroeconomic woes rests in our willingness and ability to use the microeconomics of incentives to unleash the forces of human creativity.
I fear none of these ideas will ever be adequately tested in the cauldron of real life, at least not in time to do us much good, but stranger things have happened. I think we should try each one on a small scale and then encourage their proliferation should they prove salubrious.
But, you might be wondering, what about Jefferson’s insight? Won’t politicians still have an incentive to borrow and spend no matter how productive the service sector becomes? Perhaps. But recall that until recently American politicians actually did a pretty good job of restraining themselves, increasing the national debt only to fight necessary wars or to acquire vast territories on the cheap, and then working hard afterwards to make sure that the economy grew faster than the debt. Maybe we only need to re-educate voters to return to that relatively happy state of affairs because they will elect politicians committed to committing themselves to reducing the debt, through, say, a balanced budget rule. Some states, including South Dakota, have those and they work fairly well though some effectively circumvent the restrictions, which began in the 1840s when a number of states wrote them into their constitutions in order to avoid going bankrupt like Mississippi and several others did following the financial panics of 1837, 1838, and 1839, aka the good old days.
So voter education might work, but then again it might not. In case you haven’t noticed, candidates for high office have a way of saying one thing and doing another. I once suggested that we force them to post performance bonds that would essentially pauperize them if they ever went back on a formal, solemn promise but for some reason politicians never liked that idea.
If you are with Jefferson and despair of politicians ever again getting a handle on the federal budget, perhaps we should consider emulating Switzerland and have one house of Congress determine revenues, which then binds the other house’s expenditures. If you want to get more radical, how about allowing each taxpayer to determine the precise allocation of his or her taxes? That would reduce tax avoision by empowering the people to set the expenditure side of the budget.
Even more radically, why not adopt a one vote per dollar in taxes paid rule, similar to the one vote per share rule common in corporate elections? That would actually incentivize people to pay more in taxes in order to get more voting power. Most radically of all, why even have elections? No, I’m not advocating dictatorship but rather randomness. Politicians are NOT like the rest of us, that is why they became politicians and why most of them seem to have problems keeping it in their pants. I mean their hands, instead of stretching them out for bribes like that Senator from Alaska, may he rest in peace. If we want to be represented by our peers, we need to turn our legislatures into big juries, except instead of paying them $10 a day the government should pay anyone so drafted their accustomed salary at their regular job, plus 10 percent and reasonable expenses during the entirety of their one and only term. Sure, we will get some dolts in there but that would incentivize us to improve the educational system. Plus I’d rather be led by a group of honest dolts than a gaggle of shady ones.
Gosh, I hope there are no politicians in the audience. Or construction contractors, doctors, or professors! Or financial services professionals. Thank you for your time and attention. I’ll now entertain questions.
