The Biggest Ponzi Scheme on the Planet-The U.S. Government
"American Economic Exceptionalism Explained"                     USAPonzi                                      by John W. White   Mar 29, 2013

Chapter 9 Creating Counterfeit Prosperity
November 22, 2015


39.2% of our projected economic activity in FY2016 will be created by Government induced stimulus due to the GAAP basis deficit spending of USAPonzi.


The U.S. Government is dramatically stimulating the U.S. economy and the global economy with GAAP basis deficit spending. This deficit spending is creating counterfeit money and counterfeit prosperity by overpaying the U.S. Government workers and U.S related businesses, by overpaying the social benefit recipients, and by undertaxing the U.S. citizens and businesses.


The following analysis will estimate how much the U.S. economy (GDP) is being stimulated in FY2016 with the $5.87 Trillion of GAAP basis deficit spending as reported by usdebtclock.org Nov 22, 2015.  My thesis is that the U.S. Government, with this deficit spending, is spending money that we do not have and therefore is creating economic activity that is not sustainable i.e. artificial. We can clearly see that our Cash basis deficit spending is artificial but since the U.S. Government is using corrupt and fraudulent accounting our "real" deficit is our GAAP deficit.


In this estimate I am assuming that a dollar of deficit spending equates to a dollar of increase in U.S. GDP. One can make a valid argument that that this ratio of GDP increase to deficit spending is either more or less than 100%.  Some deficit spending dollars may be saved and not create much economic activity at all while other deficit spending dollars may be spent in a fashion that generates a "chain reaction" of economic activity that magnifies the benefit of that dollar.
This analysis makes the simplifying assumption that a dollar of deficit spending creates a dollar of economic activity.


In this calculation, I will assess not only the first order effect of the deficit spending, i.e. the overspending by our GAAP Deficit but also the further impact that the reduction of GDP causes by losing the tax revenue associated with the first order reduction of economic activity. I will extend this analysis to look not just at the "first order" effect of this deficit spending stimulus but also the "second order" and "third order" effects of this GAAP basis deficit spending.


First Order Effect of Deficit Spending

According to usdebtclock.org Nov 22, 2015, our FY2016 GDP will be $18.17 Trillion, our Income of $3.28 Trillion will be 18.0% of GDP and our GAAP deficit will be $5.87 Trillion.  This $5.87 Trillion of GAAP deficit is "spending" money that we do not have so I contend that our "real" GDP is, as a "first order" estimate, $12.30 Trillion.


Projected FY2016 GDP                $18.17T
"first order" deficit spending           -$5.87T
"first order" estimate of GDP       =$12.30T


Second Order Effect of Deficit Spending

But if we were operating the finances of the U.S. Government with proper accounting and a balanced GAAP basis budget as this "First Order" effect implies, then our income would also be reduced. The usdebtclock.org Nov 22, 2015 estimate of our FY2016 tax revenues is $3.28 Trillion, 18.0% of GDP, which means that by not having that $5.87 Trillion of artificial GDP, we would not have tax revenue (income) on that stimulus induced GDP and that would amount to 18.0% of $5.87T or $1.06T. This loss of tax revenue due to the "first order" reduction of GDP would then create a further GAAP Deficit of $1.06T meaning that the "second order" effect would yield the following:


Projected FY2016 GDP                  $18.17T
"first order" deficit spending             -$5.87T
"first order" estimate of GDP         =$12.30T
"second order" deficit spending        -$1.06T
"second order" estimate of GDP    =$11.24T


Third Order Effect of Deficit Spending

Following the same logic as above, the "third order" effect of deficit spending would be 18.0% of "second order" deficit of $1.06T or $0.19T and would yield the following:


Projected FY2016 GDP                  $18.17T
"first order" deficit spending             -$5.87T
"first order" estimate of GDP         =$12.30T
"second order" deficit spending        -$1.06T
"second order" estimate of GDP    =$11.24T
"third order" deficit spending            -$0.19T
"third order" estimate of GDP        =$11.05T


U.S. "Real" GDP in FY2016 would therefore be estimated to be $11.07 Trillion vs. the projected $18.17 Trillion ($11.05T/18.17T=0.608).


Therefore 39.2% of our economic activity in FY2016 is created by U.S. Government induced stimulus.

As this analysis indicates, deficit spending generates artificial economic activity and since USAPonzi is currently projected to create a GAAP deficit of $5.87T that is also generating artificial tax revenues, the total impact is causing our GDP to appear to be $18.17T when a more realistic estimate of naturally occurring economic activity would be on the order of $11.05T or 60.8% of the currently projected GDP.


Author's Note: The above analysis could be continued ad infinitum but as you can see the "third order" effect is only $190 Billion of reduction to FY2016 GDP and the subsequent reductions in GDP would not be material in the grand scheme of things. In theory, our "real" GDP in FY2016 would converge to $11.01 Trillion.


Financial data sourced from usdebtclock.org Nov 22, 2015.


Continue to: 10 Cheating the Common Man
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