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

Inflation-A Byproduct of USAPonzi 10/22/16
October 22, 2016


The following is a reprise of my October 2013 commentary that explains how USAPonzi is causing inflation. I have updated this commentary with my current terminology and with links to my current commentaries. In 2013, I referred to the money being borrowed from the future Americans by USAPonzi as Qvalue (questionable value) money but I now call it counterfeit money or imaginary-counterfeit money. Also, the U.S. Government financial data in the 2013 commentary were estimates from the "Comeback America" website which I used before www.usdebtclock.org began posting their estimates on a GAAP basis which I now use in all my commentaries since mid 2015. Key data, as of Oct 22, 2016 is shown in the following table.

 

National Debt    $19.7 Trillion 
Cash Deficit in FY2017  $0.59 Trillion 
GAAP Deficit in FY2017  $5.69 Trillion 
US Unfunded Future Liabilities  $84.2 Trillion 
  US Unfunded Liabilities (GAAP)   $103.9 Trillion 
Imaginary-counterfeit money  $103.9 Trillion 
Total National Assets  $123.8 Trillion 

        Source: www.usdebtclock.org Oct 22, 2016



The bottom line is that the U.S. Government has now borrowed $103.9 Trillion of imaginary-counterfeit money (fake money) from the future Americans and given it to the current Americans. Most of this fake money is being given to the U.S. upper class (by undertaxing them) and this new fake money is now purchasing assets and consumer products that are similar in scope to those in 1969 when USAPonzi was launched. For example, we do not have a whole lot more land, buildings, gold, oil, stamps, or eggs now than we had in 1969 when our National Private Net Worth was nominally $5 Trillion but we now have National Private Net Worth (Total National Assets) of $123.8 Trillion but $103.9 Trillion of that is the imaginary-counterfeit money that the U.S. Government has borrowed from the future Americans and given to the current Americans. The U.S. Government is borrowing $15.6 Billion more imaginary-counterfeit money from the future Americans every day and giving it to the current Americans (GAAP Deficit in FY2017 of $5.69T/365 = $15.6B). The U.S. Government is producing imaginary-counterfeit money (borrowing it from the future Americans) a whole lot faster than the economy is producing assets and products. This produces consumer and asset price inflation.


This is the essence of USAPonzi:


The U.S. Government is stuffing imaginary-counterfeit money into the pockets of the current Americans by borrowing/stealing it from the future Americans with GAAP basis Deficit Spending.


Many Americans, especially the ruling class and upper class, are not gaining their income, wealth, and prosperity by expending labor or producing a product; they are appearing to gain massive wealth and prosperity because the U.S. Government is fraudulently borrowing/stealing imaginary-counterfeit money from the future Americans and giving it to the current Americans.


Inflation is a byproduct of USAPonzi. USAPonzi creates deficit spending, deficit spending creates “new money” (imaginary-counterfeit money), and “new money” (imaginary-counterfeit money) causes inflation.


Inflation-A Byproduct of USAPonzi Oct/2013 Reprised
October 2013


The GAAP-basis Deficit spending by the Federal Government, which is created by USAPonzi and partially concealed by our Cash-basis Deficit reporting, has been artificially introducing an exponentially increasing amount of "new money" (imaginary-counterfeit money) into the U.S. economy (and world economy) each year since fiscal year 1969 (See Cooking the books!). Part of this "new imaginary-counterfeit money" makes it appearance as current year spending by the Government and this money gets posted to the Federal Debt ledger.  A lot of this "new imaginary-counterfeit money" is spent in the current year by U.S. citizens that did not pay the taxes that would be necessary to fund the entitlement trust funds sufficiently to finance these future entitlement benefits and as a result sits as the present value of Unfunded Future Liabilities on the Federal Obligation ledger. Remember our Federal Obligation = ( National Debt + present value of Unfunded Future Liabilities) so all of the accounting offset to this GAAP-basis Deficit spending accrues to our Federal Obligation (called US Unfunded Liabilities (GAAP) on www.usdebtclock.org).


It is my contention that a significant portion of the inflation that has led to a devaluation of the dollar over the years is a direct byproduct of USAPonzi since the annual effect of this Ponzi scheme is this exponentially increasing amount of GAAP basis Deficit spending (See Creating Money out of "Thin Air"). Using a first order approximation, let’s see how much this $5-6 Trillion of GAAP-basis Deficit spending is devaluing our currency. The www.usdebtclock.org website estimated our Total National Assets in 2013 at about $106T so that would mean that at this marginal level the value of the dollar would drop by about 5% per year since, after introducing this $5-6T of "new but imaginary-counterfeit money" into the economy, we would have $111-112T chasing that $106T worth of assets ($111T/106T = 1.047 or 4.7% and $112T/$106T = 1.057 or 5.7%). While this assessment of the devaluation of the dollar represents the current year (2013) impact, USAPonzi has been introducing this  "new but imaginary-counterfeit money" into the global economy each and every year since 1968 by undertaxing the current Americans.


A 5% per year devaluation cuts the value of the dollar in half every 14 years.


Home Price Inflation Anecdote


We just happened to buy a new home in Dallas, TX in 1968 the very year the "Unified Budget" was adopted and USAPonzi was launched.  We paid $42,500 for that house and added a pool 5-6 years later costing about $10,000 making our total investment about $52,500.  For the sake of simplicity, I will assume that the total investment was made in 1968. That very same house today (2013) has an estimated market value of $426,000 which means a 4.85% average annual devaluation of the dollar over the life of that house and the life of USAPonzi. This also assumes that the intrinsic value of a new house in 1968 is nominally equivalent to the value of a 45-year-old house in 2013. I contend that the intrinsic value of a house diminishes with age so this 4.85% probably understates the "real" asset price inflation.


Is this a coincidence or a correlation?


The fact that these numbers are so close (4.7%/5.7% to 4.85%) is surely a coincidence but I contend that this is fundamentally a correlation. The fact that the Federal Government has incurred an aggregate $85 Trillion of GAAP-basis Deficit spending over the last 45 years and as a result now has a Federal Obligation of $85 Trillion (as of September 30, 2012) means that this "new but imaginary-counterfeit money" has to go somewhere and it is, to a large degree, going into asset price inflation which carries with it consumer price inflation.


Let's now look at some examples of consumer price inflation over this same period. I will actually use prices for the items starting in 1970 from www.thepeoplehistory.com and current prices from the indicated sources in 2013.

     

Item 1970 2013 Source in 2013

CAGR
(growth rate)

Stamp $0.06  $0.46  U.S. Post Office 4.85%
Eggs $0.25  $1.92  Bureau of Labor Statistics 4.86%
Gas $0.36  $3.61  Bureau of Labor Statistics 5.51%
New Car $3,900  $31,252  truecar.com 4.96%
New House $23,400  $254,000  fedprimerate.com 5.70%
Hourly Wage $3.31  $19.75  dshort.com(1970 and 2013) 4.24%
Monthly Soc. Sec. $123.82  1260.00  ssa.gov(1970 and 2013) 5.54%
GDP $1,038B  $16,000B  www.usdebtclock.org 6.57%
US Total Assets $5,192B  $97,281B  Federal Reserve(1969-2012) 7.05%


These consumer price growth rates seem to be clustered around 5%. Therefore, I contend that the very nature of USAPonzi is systematically introducing inflation into the U.S. and world economy, due to this GAAP-basis Deficit spending, at the nominal rate of 5% per year.


Long Term Price Stability-A Priority for the Federal Reserve


One of the top priorities given to the Federal Reserve by Congress is maintaining price stability. This previous analysis shows that we have anything but stable asset and consumer prices because of the systemic asset and consumer price inflation induced by USAPonzi. The fact that house prices have increased by nominally 5% per year for 45 years is certainly understandable because of this phenomenon. This problem could have been controlled if the Federal Government was using appropriate accounting techniques and was operating with a stable and sustainable economic model, i.e. balancing the GAAP-basis budget. This is not a situation the Federal Reserve can control. It has to be done by a fiscally responsible Federal Government.


The Stock Market is a great place to invest in a Ponzi Economy


Over the last 45 years the stock market has been the place to be to enjoy the benefits of this underlying asset inflator of nominally 5% per year. But that is also why we see such a widening gap between the wealthy (the 1%ers) and the rest of the population. If you own assets you benefit from this asset inflation if you don't own assets you don't get the benefit. But as I hope this website shows, this asset inflation is built on the full faith and credit of the U.S. Government since the U.S. Government has now borrowed $85 Trillion from the future Americans and we are reaching the end of that credit. In order for this Ponzi scheme to work we have created this massive $85 Trillion Obligation (as of September 30, 2012) that we must now deal with. The only question now is when will this asset bubble burst? i.e. When will USAPonzi implode?


USAPonzi is causing a baseline asset and consumer price inflation rate of nominally 5% per year!


It is therefore my contention that USAPonzi is introducing a nominal but systemic 5% asset price inflation into the U.S. economy and by induction into the world economy due the fact that the U.S. dollar is tacitly the reserve currency of the world financial markets. I predict that the dollar will not continue as the reserve currency unless we take action to balance our GAAP-basis Federal budget since our currency will continue to dramatically devalue with the current Federal Government fiscal policy.


October 22, 2016


Since the U.S. Government is continuing to borrow imaginary-counterfeit money from the future Americans at an exponentially increasing rate, house prices will continue to increase, the price of gold will continue to increase, the price of oil will continue to increase, the price of eggs will continue to increase, and the stock market will continue to go up. We will continue to buy houses, cars, airplanes, boats, smartphones, football tickets, TV subscriptions, Netflix subscriptions, food, clothes, gas, oil, etc etc that we cannot afford with the imaginary-counterfeit money that the U.S. Government is borrowing from the future Americans at the current rate of $5.69 Trillion a year. Asset and consumer prices will continue to inflate until USAPonzi implodes (See The Implosion of USAPonzi).


I will now perform the same analysis that I did in the Oct 2013 commentary to assess the macro inflation estimate over the next year due to the GAAP basis deficit spending of USAPonzi. Total National Assets of $123.8 Trillion will be increased by $5.69 Trillion (GAAP Deficit in FY2017) so we will have nominally  $123.8T + $5.69T = $129.5T chasing $123.8T worth of assets so ($129.5T/$123.8T = 1.046). Therefore, it would be reasonable for the house prices to increase by about 4.6% during FY2017. I do not pretend that these are precise numbers, but they should give a reasonable macro estimate barring other extraordinary economic events.


The U.S. Government is simply borrowing more and more imaginary-counterfeit money from the future Americans every day with GAAP basis deficit spending and giving it to the current Americans to keep this Ponzi scheme going. The $103.9 Trillion that the U.S. Government has borrowed from the future Americans as of October 22, 2016 is a lot of imaginary-counterfeit money (See How Much Money is $2.5 Trillion?).


When the U.S. Government incurs a dollar of GAAP basis deficit spending, the U.S. Government assumes a dollar of pubic liabilities (US Unfunded Liabilities (GAAP)) and some current American gains a dollar of imaginary-counterfeit money. Public liabilities create private wealth.


The upper class Americans are getting richer every day because of U.S. Government fiscal and accounting fraud but with imaginary-counterfeit money which is devaluing the U.S. dollar by about 5% per year.