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

The $100 Trillion Counterfeit Money Machine
The U.S. Government
Nov 12, 2014
As posted on

As this website has repeatedly stated, the Government of The United States of America is running a massive Ponzi scheme, which I have named USAPonzi.

is "The Biggest Ponzi Scheme on the Planet"

because the U.S. Government has been dramatically undertaxing the U.S. citizens and businesses on a GAAP basis since FY1969 and as of Nov 1, 2014 this undertaxing has created Debt of $17.9 Trillion and Unfunded Liabilities of $80.8 Trillion for a total GAAP Obligation (Debt plus Unfunded Liabilities) of $98.7 Trillion.  This "unpaid tax" money is counterfeit money since the U.S. citizens and businesses retain this "unpaid tax" money only because the U.S. Government has assumed a corresponding liability (GAAP Obligation) that the future taxpayer has no hope of ever paying.  This GAAP obligation is increasing by $578 Billion every month, so by Jan 10, 2015 we will have $100 Trillion of counterfeit money in circulation.  This makes USAPonzi 2000 times as big as the Madoff Ponzi scheme (Madoff claimed counterfeit profits for his investors of nominally $50 Billion) which up until now has been considered the biggest Ponzi scheme ever.

This Ponzi scheme is created by the U.S. Government making social benefit commitments that dramatically exceed the Government's financial capability and by making the decision, in FY1969, to continue to use Cash Accounting after adopting the "Unified Budget".

This means that; 1) all social benefit payments are made from current period tax revenues or by borrowing money, 2) the U.S. Government ignores the accruing liabilities for future social benefit commitments, 3) the U.S. Government does not fund the social benefit trust fund, and 4) the U.S. Government leaves these future social benefit commitments to be paid by future taxpayers.

Proper accounting dictates that the U.S. Government use GAAP (accrual) Accounting so that the Government would begin accruing the funds in a social benefit trust fund as citizens become eligible for benefits so that the money in this trust fund would earn interest and therefore the U.S. Government would have the appropriate funds available as the social benefit commitments come due.  GAAP accounting determines, from the future stream of financial commitments, the amount that the U.S. Government should "spend", i.e. put into trust funds, to "adequately fund" the social benefit trust fund.  When the U.S. Government does not adequately fund the trust fund, the shortfall is added to the Cash basis Deficit/Surplus creating what is called the GAAP basis Deficit.  GAAP basis
Deficit Spending provides stimulus to the U.S. (and global) economy; the larger the deficit the larger the stimulus.

By using Cash Accounting, by not funding the social benefit trust fund, and by spending more money in the current period than we collect in cash; we incur two types of financial obligations; Cash Debt and Unfunded Liabilities.  Cash Debt is the cumulative effect of our Cash Deficits, i.e. the amount of cash we spend minus the amount of cash we receive in tax revenues.  Unfunded Liabilities are the cumulative effect of the shortfall that we have each year in funding our social benefit trust fund. The annual shortfall in funding of our social benefit trust fund when added to our Cash Deficit is called our GAAP Deficit.  On this website, I refer to the sum of our Cash Debt and our Unfunded Liabilities as our GAAP Obligation.  Our GAAP Obligation is the cumulative effect of our GAAP Deficits and is the amount owed by future taxpayers in addition to paying for the current period GAAP spending.

To summarize:

    Cash Deficit is cashout minus cashin. (Cash Surplus is when cashin exceeds cashout)
    Cash Debt is the cumulative effect of our Cash Deficits.
    GAAP Deficit is the annual shortfall in funding our trust fund plus our Cash Deficit.
    Unfunded Liabilities is the cumulative effect of our annual shortfalls in funding our trust fund.
    GAAP Obligation is our Cash Debt plus our Unfunded Liabilities.

By making the decision to use Cash Accounting and to not fund the social benefit trust fund, the U.S. Government has caused a massive build up of Unfunded Liabilities for future taxpayers to pay but at the same time has dramatically reduced the tax bill for current taxpayers.  This is creating massive new money, at the rate of our GAAP basis Deficit Spending, for the current U.S. citizens and businesses that should have paid the taxes to cover our GAAP Deficit, increasing their collective net worth by the amount of this GAAP basis Deficit Spending each year. The financial responsibility for these accruing Unfunded Liabilities is passed forward to future taxpayers creating a massive GAAP Obligation (Debt plus Unfunded Liabilities) that the future taxpayer will never be able to pay, which means that this "unpaid tax" money is counterfeit. These Unfunded Liabilities transition to debt as the social benefits come due to the recipients when the taxpayer does not produce enough tax revenue to pay the benefit since there is no money in the social benefit trust fund.  This makes the private sector appear to be wealthier by $98.7 Trillion while the public sector increases its liabilities by that same amount.

With this current fiscal policy (USAPonzi), the U.S. Government is doomed to financial failure since our GAAP Obligation (Debt plus Unfunded Liabilities) is increasing exponentially and without limit and we are currently in the hole by $98.7 Trillion.  The following quotation is from the "Citizen's Guide to the 2013 Financial Report of the United States Government":  "The continuous rise of the Debt-to-GDP ratio after FY2023 indicates that current policy is unsustainable."

The $100 Trillion Counterfeit Money Machine

By using Cash Accounting rather than the appropriate GAAP Accounting, the U.S. Government is covertly printing counterfeit money at the rate of our GAAP basis Deficit Spending which in FY2015 is $6.9 Trillion a year, $578 Billion a month, and $19.0 Billion a day.  Since FY1969, the U.S. Government has covertly printed $98.7 Trillion of counterfeit money (our GAAP Obligation) and according to my calculations, by January 10, 2015, we will have $100 Trillion of counterfeit money in circulation.  Remember, the amount of counterfeit money in the financial system is measured by our GAAP Obligation which is the sum of our Debt and our Unfunded Liabilities.

Author's Note: Creating $100 Trillion of counterfeit money, and apparent new wealth, is what has made it possible for people to buy things like this Rothko Painting for $45 Million and this Ferrari GTO for $38 Million.

This systematically forced introduction of counterfeit money into the U.S. financial system is causing stocks, real estate, art, gold, silver, classic cars, etc. to escalate in price rather dramatically and is creating fiscal stimulus to the U.S. and global economy.  Since the Government is creating new counterfeit money faster than the economy is producing new assets, we have more dollars chasing nominally the same assets.  People (and businesses) have $100 Trillion of counterfeit money to spend or invest and they sometimes spend it on art and classic cars assuming that the value of these assets will continue to appreciate.  I agree that asset prices will continue to appreciate as long as the U.S. Government continues USAPonzi and therefore continues to create counterfeit money exponentially and without limit.

The U.S. Government is telling the world that we have a $17.9 Trillion National Debt but is not telling the world, and especially not telling the U.S. citizens, that the U.S. Government has an obligation to pay $80.8 Trillion of Unfunded Liabilities for our social benefit commitments.  The U.S. Government has no chance of being able to pay either of these commitments (a total of $98.7 Trillion) and these commitments are increasing by $19.0 Billion a day and $6.9 Trillion in FY2015.  This year (FY2015) the taxpayer is projected to pay in only $3.3 Trillion (CBO estimate) of tax revenue when the U.S. Government is spending $3.9 Trillion on a Cash basis and spending $10.0 Trillion on a GAAP basis.  The future taxpayer has no chance of ever catching up, since GAAP spending in FY2015 is 3 times what the taxpayers are paying in tax revenue ($10.0T/$3.3T = 3.03).

This means that both our GAAP Obligation and our counterfeit money are increasing each year by more than twice what the taxpayers are paying in tax revenues.

A further and major complication is that our tax revenue in FY2015 of $3.3 Trillion is dramatically overstated since our economic activity is overstated due to our GAAP basis Deficit Spending.  I estimate (see U.S. "Real" GDP FY2015) that 47% of our GDP in FY2015 is caused by the stimulus of our GAAP basis Deficit Spending.  That would imply that our tax revenue is also overstated by 47% (assuming that tax revenue is linear with GDP), meaning that our "real" tax revenues in FY2015 are about $1.75 Trillion ($3.3T x (1-0.47) = $1.75T)This would mean that our GAAP spending is more than 5 times our "real" tax revenues in FY2015 ($10.0T/$1.75T = 5.71) and that our Cash spending is more than 2 times our "real" tax revenues in FY2015 ($3.9/$1.75T = 2.23).

Corrupt and Fraudulent Accounting

Using the wrong accounting system (Cash Accounting vs.GAAP Accounting) has caused dramatic distortion to our economy and to our financial system.  We have been fooling ourselves for 46 years by thinking things are a whole lot better than they really are.  If my analysis is correct that our GDP is overstated by 47% because of our GAAP basis Deficit Spending and our tax revenue (income) is therefore overstated by 47% then we have a "real" Cash Deficit that is much greater than currently projected.

                  Current Projection       "Real" (without USAPonzi stimulus)
GDP                   $18.00 T                  $9.54 T
Cash Spending    $3.90 T                  $3.90 T
Income                 $3.28 T                  $1.75 T
Cash Deficit         $0.62 T                  $2.15 T

Table 1: FY2015 U.S. Government Financials without USAPonzi stimulus 

Again, IF my analysis is correct, then we would only have $1.75 Trillion of "real" income and we are overspending on a Cash basis by $2.15 Trillion.  What spending cuts would you make to balance the Cash budget?  The following is where we are projected to spend our money in FY2015.

                     Pensions        $970 B
                 Health Care     $1,045 B    
                    Education        $131 B
                       Defense        $840 B
                        Welfare        $386 B
                    Protection          $34 B
             Transportation          $98 B
   General Government          $50 B
           Other Spending          $97 B
Interest on Public Debt        $252 B

             Total Spending    $3,901 B  
                   "Real" Income   $1,750 B   (without USAPonzi stimulus)

Table 2: FY2015 U.S. Government Spending vs. "Real" Income

This is why we have got to quit kidding ourselves and start using a proper accounting system!!!!!

Please remember that the spending cuts to balance the spending and income in Table 2 are just what is required to balance the Cash Budget!!!!!

We must then start working on the cuts in social benefit promises to balance the GAAP Budget!!!!!

The Simpson-Bowles recommendations do not come close to what is really required to have a sustainable fiscal policy when we begin to use HONEST ACCOUNTING!!!!!

LBJ did not do us any favors when he set up the "Unified Budget" in FY1969 except to give us an artificial economic and financial joy ride for the last 46 years, especially for the rich and powerful, and to create a bunch of fake millionaires and billionaires!!!!!

This is also why I say that
 Washington DC is a coming Ghost Town!!!
 Table 2 shows, the U.S. Government is overspending on a Cash basis by more than 2X.  Our Government is much much bigger than the taxpayer can afford.

This is also why I say that we have a bunch of Liars and Cheaters in Washington!!!!
Washington promises to pay social benefits but refuses to fund these promises.  The U.S. Government must make affordable promises and then keep those promises.

This is why I say that the U.S. Government is now "The $100 Trillion Counterfeit Money Machine" and that the amount of counterfeit money in the U.S. financial system (our GAAP Obligation) is growing exponentially and without limit.

Everybody must come to understand that the U.S. Government, because of our current fiscal policy (USAPonzi), is creating $578 Billion of counterfeit money every month and that this counterfeit money is mostly going to the rich and the powerful.  Also, most of this "unpaid tax" money should be going into the social benefit trust fund to pay future social benefit commitments but the U.S. Government has not put one penny in the social benefit trust fund since LBJ emptied all of these funds to "falsely balance" the FY1969 budget.  So those that need the money least (the rich citizens and businesses) are getting this counterfeit money and those that need the money the most (the poor, the disabled, the elderly, and the underprivileged) have absolutely nothing in their social benefit trust fund.  We simply cannot possibly pay the social benefits that are currently promised.

Because of the way this counterfeit money is created, by undertaxing the U.S. citizens and businesses, most of this counterfeit money shows up in the pockets of the richest citizens and businesses since they are the ones that should be paying the extra taxes IF the U.S. Government was operating with a sustainable fiscal policy, i.e. with a balanced GAAP basis budget.  And since most of this undertaxing is because the U.S. Government is using corrupt and fraudulent accounting and therefore is not collecting the money to pay the promised social benefits, the people that are expecting these social benefits are left holding an empty bag.  And most of these social benefit recipients are totally unaware that they are being cheated by the U.S. Government so that the rich citizens and businesses can appear to get even richer and so the people in government can pay themselves more than the taxpayer can afford.

This will cause massive civil unrest when the general populous realizes that the U.S. Government is going to great lengths (using corrupt and fraudulent accounting) to make the rich and powerful, appear to be more rich and more powerful at the expense of the poor, the disabled, the elderly, the underprivileged, and the ordinary citizen.

More promises to the Underprivileged means that the rich get richer faster!

An interesting side effect of this Ponzi scheme is that the more social benefits that are promised to the underprivileged, the richer the rich citizens and businesses appear to be since the amount of counterfeit money created is the cumulative amount of GAAP basis Deficit Spending which is our GAAP Obligation.  Since our GAAP Obligation is our Debt plus our Unfunded Liabilities and our Unfunded Liabilities grow faster if we make more promises that means that we create more counterfeit money faster.  That also means that the future taxpayer has a bigger unpayable bill faster but since it is unpayable it doesn't really matter much how big the future taxpayer's bill is.

This of course makes perfect sense, since more promises to the underprivileged means more real and implied purchasing power to the economy, i.e. more stimulus to the U.S. and global economy.  And since we are not accruing for the future social benefit liabilities we do not have the fiscal drag of having to collect the taxes that would be required to adequately fund and sustain these future commitments.

That is why I say that USAPonzi is creating a virtuous cycle for the current citizens and businesses and a vicious cycle for the future citizens and businesses.

By promising to pay more social benefits than the taxpayer can afford and by using corrupt and fraudulent accounting to undertax the current taxpayer, the U.S. Government has been able to create $100 Trillion of counterfeit money out of "thin air" and when USAPonzi implodes, this counterfeit money will evaporate into the "thin air" whence it came.

Many businesses will also vanish into "thin air" as well since some businesses are viable only because of the counterfeit money the U.S. Government is creating.  Others will only survive with reduced margins and lower compensation for employees.  Many direct and indirect employees of the U.S. Government will see their jobs or pensions diminished or vanish.  And nearly 150 million U.S. citizens will see their social benefits dramatically reduced or vanish.

If my math is correct, the value of that $45 million Rothko painting, that I referenced earlier in this commentary, will drop in value to about $5.625 Million (12.5 cents on the dollar as of Nov 1, 2014) when USAPonzi implodes since the value of U.S. Total Assets are overstated by 7-8X because of the counterfeit money created by USAPonzi (see U.S. Total Assets Bubble).  But this painting will only be worth this $5.6 Million if there is anyone around that has that much spare cash and still wants to buy art after USAPonzi implodes.

The only way to fix this problem, i.e. extinguish
USAPonzi, is for the U.S. Government to adopt GAAP Accounting and balance the GAAP basis budget (see Fixing Fiscal Policy).

We are headed toward a financial catastrophe of epic proportions!!!!!!!

Next page:
Fixing Fiscal Policy