Dealing with National Bankruptcy!
May 13, 2015
As posted on www.usaponzi.com
The U.S. Government is technically bankrupt. Because the U.S. Government is operating a massive Ponzi scheme (USAPonzi), our Public Liabilities (Debt($18.2 Trillion) + Unfunded Liabilities($84.2 Trillion) = $102.4 Trillion) are nearly 6 times our GDP ($17.4 Trillion) and increasing exponentially. Washington must accept this reality and take the appropriate actions to deal with its deteriorating financial condition and terminate this Ponzi scheme.
As www.usaponzi.com has explained, we in the United States have been living beyond our means since FY1969 because of a Fiscal Policy that has produced a massive ($100+ Trillion) Ponzi scheme (USAPonzi). USAPonzi has caused us to think that we are much more wealthy than we really are by about 10X and to make us think that we are much more prosperous than we really are by about 2X (See Americans think we are richer and more prosperous).
This commentary will expose the magnitude of what our Cash and GAAP Deficits would be in FY2016 if we did not have the economic stimulus that USAPonzi is producing with GAAP basis Deficit Spending.
I will compare the expenditures and revenues in FY2014 and FY2015 with the expenditures and expected revenue in FY2016 without the revenue produced by our GAAP basis deficit spending. According to my analysis in U.S. "Real GDP" FY2015, 44% of our GDP in FY2015 is due to our GAAP basis Deficit Spending. Let me say that again; 44% of our economic activity in FY2015 is created by GAAP basis Deficit Spending. The U.S. Government has been artificially stimulating the U.S. and the global economy by spending money that we do not have and promising to spend money that we will never have.
If we were to begin operating with a balanced GAAP basis budget in FY2016, i.e. with honest accounting, our GDP would drop by 44% to less than $10 Trillion! I also feel that we must increase tax rates somewhat to help balance our budget so I would propose that we increase our tax rates to yield an effective rate of 21% of GDP. With these assumptions and with my projections for general operating expenditures to follow current trends, we would have a Cash Deficit of $1.95 Trillion and a GAAP Deficit of $8.13 Trillion in FY2016 after eliminating the economic stimulus of USAPonzi. The bottom line is that balancing our GAAP basis budget will reduce our GDP and reduce our tax revenue which means that we will be forced to make even deeper cuts in our expenditures and social benefit promises.
Our current fiscal policy is creating massive Cash and GAAP Deficits that can only be eliminated by increasing taxes somewhat, significantly reducing our general operating expenditures, and dramatically reducing our social benefit promises. Determining just how much each of these needs to be increased/reduced can only be quantified by assessing, budgeting and reporting on a GAAP (accrual) basis.
FY2014 FY2015 FY2016
($Billions) without stimulus
GDP $17,011 $17,446 $9,770
Tax Revenue%GDP 17.6% 17.6% 21.0%
Tax Revenue $3,026 $3,339 $2,052
Cash Outlays $3,509 $3,806 $4,004
Pensions $909 $970 $1,023
Health Care $925 $1,045 $1,097
Education $101 $131 $126
Defense $801 $840 $860
Welfare $376 $386 $404
Protection $34 $34 $35
Transportation $92 $98 $101
General Government $45 $50 $52
Other Spending 0 0 0
Interest on Public Debt $228 $252 $305
Cash Deficit -$483 -$467 -$1,952
Accruals for Social Benefits $5,735 $5,950 $6,174
GAAP Deficit -$6,218 -$6,517 -$8,126
Table 1: U.S. Government Financial Data for FY2014-FY2016
Data sourced from USAPonzi Fiscal Model
The leadership in Washington and the general public must come to understand that our economy is being artificially and dramatically stimulated by our current fiscal policy that is creating massive GAAP basis Deficit Spending. We have been incurring an exponentially increasing amount of GAAP basis Deficit Spending for 46 years and this has given us a false feeling of wealth and prosperity. We must face financial reality and start telling the truth to the U.S. citizens and to the world by using honest accounting. The truth is not pretty and the resulting actions will be painful but we have no choice. We have been living in a "fantasy world" and we must now face the "real world".
The U.S. Government is bankrupt and has no choice but to default on its Public Liabilities. Our Public Liabilities are now over $100 Trillion and growing exponentially and therefore can never be paid. The U.S. Government must accept this reality and take the actions that are required to balance our GAAP basis budget. We have, according to my estimates, a GAAP basis budget gap to close of $8.1 Trillion. Table 1, above, clearly shows that most of the spending cuts will have to come from reducing social benefit promises not only because of the huge Accrual for Social Benefits line item but also because of the size of the Pension, Health Care and Welfare expenditure line items.
Balancing the GAAP basis budget will be a technical default on our social benefit promises because we will have to reduce our Social Security, Medicare, Medicaid, and other promises but this will not reduce our national debt. By reducing our GAAP basis Deficit Spending we will also be reducing our GDP rather dramatically so our Debt($18.2 Trillion)-to-GDP($9.8 Trillion) ratio will also nearly double to 186% of GDP which creates further concern about our ability to pay back our national debt. This is eerily similar to what happened during "The Great Depression" (See U.S. Total Financial Leverage).
Using a corrupt and fraudulent accounting system for nearly half a century has created some serious financial issues (See The Distortions of USAPonzi).
USAPonzi is "The Biggest Ponzi Scheme on the Planet" that has appeared to make the ruling class prosperous, the upper class super prosperous and super wealthy, and given all Americans a standard of living that is the envy of the rest of the planet. But it is all a lie because of the way the U.S. Government keeps it books. When will "someone of proper stature" own up to this massive fraud?