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
Oct 2013


The GAAP-basis Deficit spending by the Federal Government, which is created by USAPonzi and partially concealed by our Cash-based Deficit reporting, has been artifically introducing an exponentially increasing amount of "new money" (Qvalue) into the U.S. economy (and world economy) each year since fiscal year 1969 (see Cooking the books!). Part of this "new 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 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 Liabilities on the Federal Obligation ledger. Remember our Federal Obligation = ( Federal Debt + present value of Unfunded Liabilities) so all of the accounting offset to this GAAP-basis Deficit spending accrues to our Federal Obligation.


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 Laundering Money). 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 currently puts our total national assets 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 money" into the economy we would have $111-112T chasing that $106T worth of assets ($111T/106T = 1.047 or 4.7%). While this assessment of the devaluation of the dollar represents the current year (2013) impact, USAPonzi has been introducing this  "new money" into the economy each and every year since 1968.


A 5% devaluation would reduce the value of the dollar by one half in a 14 year period:

Year           0     1     2     3     4     5     6     7     8     9   10   11   12   13   14
5%           1.0  .95  .90  .86  .81  .77  .74  .70  .66  .63  .60  .57  .54  .51  .49


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% 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 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 look at some examples of consumer price inflation over this 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. Postal Service                   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 SS Benefit  $123.82        $1260.00       ssa.gov(1970 and 2013)           5.54%
        GDP                $1,038B        $16,000B       usdebtclock.org                         6.57%
 US Total Assets     $5,192B        $97,281B       Federal Reserve(1969-2012)    7.05%                         


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 we have anything but stable asset prices because of the systemic asset price inflation induced by USAPonzi. The fact that house prices have increased by nominally 5% a 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 you don't. But as I hope this website shows, this asset inflation is built on the full faith and credit of the U.S. Government 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 inflation rate of nominally 5%!


It is therefore my contention that USAPonzi is introducing a 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 policies.


Next page:
Joblessness-A Byproduct of USAPonzi