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

March 17, 2014

To: Mary Jo White Chairwoman
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

From: John W. White
2804 Fenwick Lane
Plano, TX 75093
jwwhite38@outlook.com
214-762-1678 cell
972-758-7302 office

On January 8, 2014 I submitted a "Whistleblower" letter to the SEC expressing my deep concerns regarding the use of an improper (even fraudulent) accounting methodology by the U.S. Government; using Cash Accounting rather than the appropriate GAAP Accounting and Fiscal Gap Accounting.  

On January 27, 2014 and February 24, 2014 I submitted followup letters to the SEC again stressing my concern that this improper accounting poses a serious threat to the stability of the U.S. and global financial system.  On January 28, 2014 I received a response back from the Inspector General of the SEC acknowledging the receipt of the January 27, 2014 letter and accepting my complaint. 

My letters to the SEC and the response from the Inspector General of the SEC are all posted on my website www.usaponzi.com.

As a result of this inappropriate accounting, the Federal Government of the United States of America has been running a massive Ponzi scheme since FY1969 which I have named USAPonzi.  This Ponzi scheme is concealed by the use of Cash Accounting which dramatically understates the magnitude of our deficit spending.

The U.S. Government, according to the CBO (Congressional Budget Office), projects a cash deficit for FY2014 of $514B and according to www.TreasuryDirect.org reports a cash debt of $17.4T as of March 1, 2014.  However, according to my "USAPonzi Fiscal Model" (based on ShadowStats.com assessment of the U.S. Government GAAP financial reports) the much more informative GAAP deficit is projected to be $6.4T for FY2014 and our GAAP Obligation (our public liability) as of March 1, 2014 is $94.3T.  The difference between these two assessments is that the U.S. Government, by using cash accounting, has chosen to ignore the future liabilities for the social benefit promises they have made when assessing and reporting our financial condition.

LBJ launched USAPonzi in FY1969 by using the social benefit trust fund money to pay for the Vietnam war and put in place a "Unified Budget" that became a gentleman's agreement within the U.S. Government that we would no longer fund the social benefit trust fund and that the U.S. Government would continue to use Cash Accounting.  These promises of future social benefits are real and massive future liabilities that must be acknowledged and appropriately planned for so that these promises can be met.

Warren Buffett, in the Berkshire Hathaway letter to shareholders dated Feb 28, 2014, included the following commentary regarding the "pitfalls of pension promises".  

Start of excerpt from Buffett Letter (page 21)

Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans. 

Investment policies, as well, play an important role in these problems. In 1975, I wrote a memo to Katharine Graham, then chairman of The Washington Post Company, about the pitfalls of pension promises and the importance of investment policy. That memo is reproduced on pages 118 - 136. 

During the next decade, you will read a lot of news – bad news – about public pension plans. I hope my memo is helpful to you in understanding the necessity for prompt remedial action where problems exist.

End of excerpt from Buffett Letter

The Berkshire Hathaway Shareholder letter can be accessed through the "Buffett on Pensions" page on the www.usaponzi.com website.  

I find it interesting that Mr Buffett would choose to place this warning in his letter to shareholders at this point in time.   I find it especially interesting because of the sentence highlighted in blue.  This sentence is exactly what has happened to create USAPonzi.   The U.S. Government has now made a total of $81.9 Trillion of social benefit promises without funding any of these promises.

While Mr. Buffett's pension tutorial was originally intended to provide guidance in regard to how to manage corporate pension plans and his warning is directed toward local and state pension plans, his commentary applies just as well to our federal social benefit promises.  The key difference is that most, if not all, local and state governments have some money in their pension trust funds.  The U. S. Government has taken this "financial tapeworm" to the extreme by having nothing in our social benefit trust fund and making no attempt to put money into the fund.

By choosing to not fund the social benefit trust fund, the Government is giving current taxpayers a huge tax break in the amount of the annual GAAP deficit which as I note above is projected to be $6.4 Trillion for FY2014.  Taxpayers have been getting this exponentially increasing tax break for the last 46 years amounting to now a total of $94.3 Trillion (our GAAP Obligation).   As my www.usaponzi.com website details this is causing devastating distortion in the U.S. and global financial system.  It is causing inflation at the rate of about 5% per year.  It is causing the rich to get richer.  It is causing the poor to get poorer.   It is causing people to quit their jobs.  It is causing wealth to transfer from future taxpayers to the current wealthy.  It is creating a  bubble in U.S. private assets.  And will it lead to hyperinflation if it is not curtailed.

Because of these massive tax breaks, U.S. private assets (Households, Corporations, and Small Businesses) have increased to $109.9 Trillion (Mar 1, 2014), U.S. public liabilities have grown to $94.3 Trillion (Mar 1, 2014),  and the social benefit trust fund has nothing in it.   But the underprivileged still expect to receive their promised benefits.   Either the wealthy will have to give up much of their wealth to fund the current social benefit promises or these social benefit promises will have to be dramatically reduced or we will have to print money to fulfill these promises.   I have created a webpage "Scoping a Grand Bargain" on www.usaponzi.com the projects how we might construct a compromise to address this dilemma and the issues that will arise when we make that compromise.

In the mean time, USAPonzi in FY2014 is artificially injecting $535B per month ($17.6B per day) into the U.S. and global economy due to this GAAP basis deficit spending of $6.4T by the U.S. Government.  As a result this is essentially adding $535B per month to our U.S. private assets (which is causing the stock market to go up) and is adding $535B per month to our U.S. public liabilities.   And the way USAPonzi works this GAAP basis deficit spending is growing exponentially so both our U.S. private assets and our U.S. public liabilities are also growing exponentially.

Again I quote Warren Buffett from his Berkshire Hathaway shareholder letter:  "During the next decade, you will read a lot of news – bad news – about public pension plans. I hope my memo is helpful to you in understanding the necessity for prompt remedial action where problems exist."

USAPonzi is "The Biggest Ponzi Scheme on the Planet" and is also the biggest of the problems to which Mr. Buffett refers.

I respectfully request that the U. S. Securities and Exchange Commission take action to ensure  that we start using an appropriate accounting methodology (GAAP Accounting) for our U.S. Government financial reporting so that this devastating distortion can be eliminated.

At that point it will then be incumbent upon the U.S. Government to balance the GAAP basis budget.

 

John W. White
2804 Fenwick Lane
Plano, TX 75093
jwwhite38@outlook.com
www.usaponzi.com 
214-762-1678 cell
972-758-7302 office