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

Recommedations for a sustainable Fiscal Plan
July 2014
 

I would propose following actions for how we should develop a long term sustainable fiscal plan for the U.S. Government: 

The first rule of a sustainable budget process is that you only spend and commit to spend what you have the ability to pay for.  Sounds simple but we have obviously been ignoring this basic rule for at least the last 46 years.  

The second rule is that you must have an accurate assessment of what you are spending AND what you are committing to spend.  Sounds simple but we have obviously been ignoring this basic rule for the last 46 years.  

The third rule is that you do not commit to picking up the tab for other people's financial problems however large they might be.  Sounds reasonable but we have obviously been ignoring this basic rule for the last 46 years. 

The fourth rule is that you cannot make unlimited defined benefit commitments to the U.S. citizenry when they meet fuzzy eligibility criteria.  Schemers and scammers will always find a way to find beneficiaries that can meet this fuzzy criteria.  We must do what most private entity businesses have done and switch from defined benefit to defined contribution for most of our social benefits.

Now this is the hard part.  Because we cannot predict accurately what our economy will produce in the way of economic activity (aka GDP), we cannot predict accurately what our income will be and therefore we cannot predict what social benefits will be affordable.   As a result, many of our social benefit payments will need to be variable based on our ability to pay for them.

One issue that has gotten us into the fiscal crisis we have today is that we have said we will pay a fixed amount of social security to each person that meets certain age and other criteria but we have not funded the trust funds sufficiently to meet these payments.  Now we have only so much money coming in (not nearly enough) so we can only pay so much.

Another issue that has gotten us into the fiscal crisis we have today is the we have said we will pay most, if not all, of your medical bills if you meet certain criteria but we have not funded the trust funds sufficiently to meet these payments.  Now we have only so much money coming in (not nearly enough) so we can only pay so much.

So my recommendations are as follows:

0) Use GAAP accounting for the Federal Government.  

1) Change the Fed to a single mandate: stable money policy.  Drop the full employment mandate.

2) Formally set the Fed inflation rate target at 2%.  

3) Do not let the Fed lower the Fed Funds Rate to less than this inflation rate target of 2% without the approval of Congress. 

4) Require that the U.S. Government makes a GAAP-basis budget that is approved by Congress.

5) Balance the GAAP-basis budget. This will likely require an Ammendment to the Constitution.  Require that the GAAP-basis budget deficit be no more than 2% percent (the Fed target inflation rate)  of GDP.  Basically requiring a balanced budget but with a little wiggle room.  Even with this wiggle room this should keep the debt-to-GDP ratio from growing. 

6) Set the target Federal Government spending level at 21% of GDP. 

Author's note: This 21% spending target will need to be tweaked somewhat as we get a few years experience with a "Balanced Budget".  I base this proposed 21% target on the recent average spending level of 20.5%.

7) Modify and simplify the current tax code to yield this 21% tax revenue.  Flat tax sounds nice but is too hard and potentially too dangerous to make such a massive change and it shifts too much of the tax burden to those least capable of paying. 

8) Dramatically reform/reduce social benefits so that they are actuarially achievable within the 21% spending limit.  Everything should be on the table but repealing "The Affordable Care Act" and dramatically cutting the "Prescription Drug Program" should be the first targets.

9)  Simpson-Bowles should be the model for these spending reforms.  Some really smart and relatively independent folks did the best they could to address the big picture problem.  If their solution does not fit into the 21% budget box then pro rata it down until it fits.

10) Stop Government backing of Home loans and phase out Fannie and Freddie.  These entities were a major part of the Housing Bubble and have inappropriately enriched a lot of folks in and out of Washington either directly or indirectly.

11) Stop Government backing of Student loans.

12) Stop Government backing of private company pension plans.

13) Open ended Government guarantees induce fraud and lead to privatizing profits and socializing losses.  Schemers and scammers will always find a way to siphon off money from "the biggest piggy bank on the planet".

14) Institute a voucher system for healthcare.  We are almost surely in a "Healthcare Spending Bubble" induced in large part by the explicit backing of the Federal Government.

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