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

The Rich get Richer/The Poor get Poorer
(And the future taxpayer gets the bill!)
Feb 18, 2014

In this commentary I will attempt to explain how USAPonzi creates the illusion that "the rich are getting richer" while assuring that "the poor are getting poorer"!. Of course this will all tie back to the fraudulent accounting that is used by the Federal Government. But that is the nature of a Ponzi scheme, every Ponzi scheme has to be supported by a fraudulent accounting methodology in order to obfuscate what is really happening.

The Rich get Richer

The following Table 1 shows how the value of private U.S. assets have changed since the end of Fiscal Year 1999.   These asset values are maintained by the Federal Reserve in three major categories: Household assets, Corporate assets, and Small Business assets. U.S. Total Assets is the total of these three major categories. The bottom line is that private individuals and businesses are getting a massive tax break (my estimate for FY2014 is $6.4 Trillion) partially concealed by the Government's use of fraudulent accounting, so the major reason people are getting rich and corporations are making profits is because these tax payments are being defered to future taxpayers.

The only reason we have 1,426 Billionaires in the world today is because the U. S. Federal Government is lying about its financial reporting. 

Table 1 also shows the GAAP basis deficit for each Fiscal Year and the Federal Obligation at the end of each Fiscal Year. So how does the GAAP deficit compare to the Cash deficit that the Federal Government reports as our defict.  The GAAP deficit includes the following:

1) the Government reported Cash deficit/surplus.  How much cash was spent over and above the cash received.

2) the value of the social benefits tax revenue that was intended to fund future social benefits but was "borrowed" and spent for current period expenses. This amount gets posted on our Federal Debt ledger as Intragovernmental Holdings.

3) the virtual interest on total Intragovernmental Holdings.

4) the present value of any changes in social benefits programs or program payment rates.

5) the present value of the future stream of social benefits for new particiapants in current social benefit programs during the year (newly retired, newly disabled, new entrants to Medicad, etc.)

6) the virtual interest on the present value of Unfunded Liabilities at the end of the prior Fiscal Year.

But since the items 2-6 above are not included in our Cash based accounting we have a huge shortfall in the amount of taxes that we should be collecting to balance our GAAP basis budget. The current U.S. citizenry should be paying this amount of taxes each year just to keep our Federal Obligation from increasing further. Since we have not been funding this GAAP deficit for 46 years we now have the $91.6 Trillion Obligation shown in Table 1 as of the end of FY2013 (Sept 30, 2013).

To have a stable sustainable Fiscal Model for our financial system, we should be collecting these tax revenues from households, corporations, and small businesses but the Federal Government has given each of these groups a pass on this since FY1969 and left these tax bills to future taxpayers. Since the tax codes for how these revenues might have been collected have not been specified, we do not know how much of this unpaid tax revenue has been gifted to each of these three categories but households have a lot more money in their pockets because they did not have to pay these taxes. Corporations and small businesses appear to have made a lot more money than they would have if the Government was taxing them enough to pay our current bills and future liabilities.

But as a group these three categories of asset holders get a repreive every year in the amount of the GAAP Deficit (estimated to be $6.4 Trillion in FY2014).  The right most column in Table 1 shows what percent of their end of prior year assets USAPonzi allowed them to keep. Nominally 5-6 percent of their end of period assets.

        Fiscal     HouseHold    Corporate    Sm. Bus.   U.S. Total   YoY Change      GAAP      Federal         GAAP Deficit
          Year         Assets          Assets         Assets       Assets   US Total Assets    Deficit    Obligation    %U.S. Total Assets
         1999           43.3                9.4              4.6            57.2                                                     22.9
         2000           44.0              10.9              5.0            59.9             2.6                 -3.9            25.9                  6.8%
         2001           44.4              10.8              5.2            60.4             0.5                 -4.5            30.3                  7.5%
         2002           44.1              11.1              5.6            60.8             0.4                 -1.5            35.4                  2.5%
         2003           49.6              11.8              6.2            67.5             6.7                 -3.0            39.1                  4.9%
         2004           56.5              13.6              7.4            77.6           10.1                 -3.4            49.5                  5.0%
         2005           62.8              15.0              8.6            86.5             8.9                 -3.5            53.3                  4.5%                
         2006           67.5              16.5              9.0            92.9             6.4                 -4.6            58.2                  5.3%                
         2007           68.0              18.6              9.1            95.7             2.7                 -4.2            59.8                  4.5% 
         2008           57.3              16.7              7.5            81.5          -14.1                 -5.1            65.6                  5.3%    
         2009           59.0              14.4              6.3            79.8            -1.8                 -4.3            70.5                  5.3%
         2010           63.5              15.9              7.0            86.4             6.7                 -5.3            76.3                  6.6%
         2011           64.9              16.9              7.5            89.2             2.8                 -4.5            80.9                  5.2%                 
         2012           70.9              18.2              8.2            97.3             8.0                 -6.6            85.4                  7.4%
         2013E         77.6              19.7              8.8          106.2             8.9                 -6.2            91.6                  6.4%            

   Table 1:  GAAP Deficit as a percent of U.S.Total Assets ($Trillion)
     Household, Corporate, Small Business, and Total U.S. Total Assets sourced from the Federal Reserve
      GAAP Deficit and Federal Obligation sourced from U.S. Department of Treasury by way of 

Therefore the people that own these assets (largely the rich) were told by the Government, I am not going to take the tax revenue that would be required to have a sustainable fiscal model I'll just let you keep it. But now the financial system has 5-6% more liquidity each year and since the nature of the assets in the economy do not change materially during the year we get an annual asset price appreciation for the owners of these assets of what I judge to be about 5%. But as Inflation-A Byproduct of USAPonzi demonstrates this has carried with it consumer price inflation of basically that same 5% per year over the 46 years that USAPonzi has been operating.

On a dollar basis this Ponzi scheme is making it look like asset owners are getting richer at a compound rate of 5% per year but for most asset owners they are just keeping up with the USAPonzi induced rate of inflation. But it does appear like "the rich are getting richer".

The Poor get Poorer

But people that do not have a significant ownership stake in assets do not get this benefit. By definition, the poor do not own many assets and for the most part have compensation or social benefits payments that are not keeping pace with the USAPonzi induced asset and consumer price inflation so as a result "the poor are getting poorer".

The way I calculate the impact of this Ponzi scheme is that the owners of assets (the rich) see the dollar value of their assets go up by about 5% per year while the people that do not own assets (the poor) see their buying power of their paychecks go down by about 5% per year. No wonder we are seeing a wider and wider split between the haves and the have nots in our country.

Over the last 14 years the private net worth of the United States (U.S. Total Assets) as shown in Table 1 has nearly doubled, the buying power of the dollar has been cut in half (see Devaluing the Dollar!), and the U.S. public liability (Obligation) has more than tripled. Over the last 46 years our U.S. Total Assets (private net worth) have grown from $5.2 Trillion in 1969 to now $106.2 Trillion while our public liabilities have grown from less than $1 Trillion in 1969 to now over $91 Trillion representing the largest Wealth Transfer known to man. USAPonzi is creating some huge distortions in our financial system but the most obvious one to me is that rich folks and rich companies are getting richer because the Federal Government is not taxing these entities enough to fund our accruing social benefit commitments and instead is dramatically increasing our public liabilities.

Author's Note:
I got to puzzling over why the U. S. private net worth "only" nominally doubled over the last 14 years while the public liability (Obligation) more than tripled.   My conclusion is that private net worth, as determined by the Federal Reserve, is a "mark to market" measure of U.S. Total Assets and therefore has some market perception variation in the number.   In particular the Internet Bubble was spiking in 1999 so the U.S. Total Assets were markedly overstated by investors relative to the historical measures of how these assets should be valued and this was happening right at the start of my analysis period.   U.S. Total Assets increased in market value by $6 Trillion in just one year (FY1999) from $51.2 Trillion to $57.2 Trillion.

One of the unusual twists in the inner workings of USAPonzi is that the more social benefits that Congress promises to the U.S. citizenry the more money Congress can spend without telling either the U.S. citizenry or the world. This is because the general public does not have clear visibility into our GAAP basis deficit spending or to our Obligation. If you look at item 4) above in the list of elements included in determining our GAAP basis deficit you will see that the Congress can insert a new social benefit program without changing our Cash deficit very much (only current year spending) but have it be reflected in our GAAP deficit and our Obligation but really not be seen by the general populous.

This also has the effect of making the rich even richer and the poor even poorer since it would increase our GAAP deficit and our Obligation even though on the surface it appears to be solely in the best interest of the recipients of the social benefit which tend to be among the poor. In the longer term the Congress will find that these benefit commitments are not affordable and therefore Congress will have to default on the payment of these social benefits but in the mean time the USAPonzi asset price inflator will go up and make it appear that the richer got even richer. When the USAPonzi asset price inflator goes up it causes consumer prices to go up making the poor even poorer.
In the longer term this enhanced value of rich people's assets will likely not be realized since I predict that when USAPonzi implodes asset prices will tumble. (see Phantom Money

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Washington is Taking from the Poor