Fed Chairmen are Co-Conspirators in USAPonzi July 1, 2014
By failing to expose the use of improper accounting by the U.S. Government, the Federal Reserve Chairmen are contributing co-conspirators in the USAPonzi fraud. The Federal Reserve Chairmen thereby join nine Presidents, thousands of members of Congress, and the Chair of the Securities and Exchange Commission on the long list of prominent individuals that choose to "look the other way" while the U.S. Government runs "The Biggest Ponzi Scheme on the Planet"!
The U.S. Government has been running this massive Ponzi Scheme (which I have named USAPonzi) since FY1969 when LBJ convinced the U.S. Congress that we should switch to a "Unified Budget" for the U.S. Government financial planning and reporting. This "Unified Budget" consolidated all Government tax revenue (income) and all Government spending into one financial statement. Prior to FY1969, the Government maintained an operating budget financial statement for general operating activitiy and separate financial statements for each of the social benefit programs (now called entitlements). Each of these social benefit programs, that were active at that time, were collecting the "paid in" contributions for each of these programs in separate trust funds so that the Government would have the money to pay these social benefits as they came due and so that the money in these funds could earn interest to meet these future obligations.
In 1968, the cost of the Vietnam War was creating a huge budget deficit and LBJ looked at these Trust Fund accounts and saw that he could cover that operating budget deficit by "borrowing" (confiscating) the money in these trust fund accounts. Since that time, FY1969, the Federal Government has not repaid those "borrowed" funds and has also not made even one penny of "real" contribution to any of these social benefit trust funds.
Cash Accounting vs. GAAP Accounting
How does the Government get away with this? By using corrupt and fraudulent accounting! Since adopting the "Unified Budget", the Government has continued to use Cash Accounting rather than the proper GAAP Accounting that would assess and report the tax revenue (income) requirements to meet these future social benefit commitments. This continued use of Cash Accounting allows the U.S. Government to claim that our budget deficit (cash basis) is ONLY $514 Billion in FY2014 when our "real" GAAP basis deficit is estimated to be $6.4 Trillion (see USAPonzi Fiscal Model).
The U.S. Government has been lying to the U.S. Citizenry for the last 46 years by promising to make future social benefit commitments that it has ZERO ability to make good on at the currently promised commitment levels. This budgeting process has created "Unfunded Liabilities" of $78.9 Trillion (as of July 1, 2014) and this is over and above our total public debt of $17.6 Trillion. The total U.S. Government GAAP Obligation (Debt plus Unfunded Liabilities) is therefore $96.5 Trillion and growing at the rate of $535 Billion a month ($17.6 Billion a day).
The Federal Government has, as a result, undertaxed the U.S. Citizenry by $96.5 Trillion over the last 46 years making the wealthy feel like they are a whole lot wealthier than they really are (see U.S. Total Assets Bubble) and making most taxpayers feel like they have much more spendable income (see Living Beyond our Means). At the same time the social benefit recipients still think they are going to get paid their social benefits which have a present value of $83.9 Trillion ($78.9 Trillion of Unfunded Liabilities plus $5 Trillion borrowed from the social benefit trust funds) as of July 1, 2014. These social benefit recipients are making financial commitments and decisions based on the expectation of receiving these future benefits. Also many direct and indirect government employees are also making financial commitments and decisions based on the expectation that the Government will continue this outrageous deficit spending. Also many taxpayers are spending "unpaid tax" money that they retain because of the massive undertaxing by the U.S. Government. The combination of all of these actions has created a significantly stimulated consumption rate for the U.S. (and Global) economy and has caused us, for the last 46 years, to be Living Beyond our Means. The measure of this accelerated consumption rate is our GAAP basis deficit spending of $6.4 Trillion per year. This GAAP basis deficit spending is therefore creating an artificial stimulus to the U.S. economy which causes our GDP to be significantly overstated (see U.S. "Real" GDP June 2014).
An Obvious and Massive Problem
This is an obvious and massive problem, and yet essentially everyone is content to ignore it. The people that are "smart enough" to really understand the problem realize that as soon as somebody that has sufficient "authority and respect" says "The U.S. Government has been operating a Ponzi scheme for the last 46 years" we will be plunged into a financial catastrophe of epic proportions. It could be even worse than "The Great Depression". As a result our U.S. and Global Economy, in fact our U.S. and Global Financial System, is skating on "thin ice" just waiting for someone with authority and respect to expose what is now a widely known but unacknowledged fraud.
As I have said before, USAPonzi (with it's $96.5 Trillion GAAP Obligation) is very much like the Madoff Ponzi (Bernie Madoff claimed it was a $50 Billion fraud) except for the fact that it is more than three orders of magnitude larger than the Madoff Ponzi scheme. The people running USAPonzi and the co-conspirators (those that chose to say nothing about Government's corrupt and fraudulent accounting) appear to be getting wealthy and are living an extravagant life style as a result of this Ponzi Scheme and therefore they do not want it to stop. Even the innocent victims of the fraud are willing to go along with it for now since the Government is handing out "free money".
All of the Fed Chairmen are co-conspirators to USAPonzi
All of the recent Fed Chairmen (Volcker, Greenspan, Bernanke, and Yellen), by failing to expose this use of corrupt and fraudulent accounting, are contributing co-conspirators to USAPonzi, the Federal Government's now 46 year old Ponzi Scheme that has created a total GAAP Obligation of $96.5 Trillion as of July 1, 2014. All of these Federal Reserve Chairmen are highly educated economists that should be able to spot this kind of fraud with just a few minutes of analysis, but because of the lethal nature of this situation they have chosen to stay silent and let the Federal Government continue to operate the U.S. Government's finances with corrupt and fraudulent accounting.
Paul Volcker clearly knows that the Government is running a massive Ponzi Scheme. Paul Volcker was one of the leaders of a task force to assess the "state budget crisis" that is caused by similar accounting irregularities by state governments. The states are making pension commitments that they cannot possibly keep and therefore are not properly funding their pension plans. The Federal Government budget problem for our social benefits is exactly the same problem as that of our state and local government pension funding just on a much grander scale. Paul Volcker has just chosen to stay quiet on the Federal budget crisis.
On January 14, 2014, the State Budget Crisis Task Force released its final report, calling for an end to the longstanding practice of using one-offs and opaque accounting methods that make budgets appear balanced even when fiscal problems are worsening. The task force was led by a former chairman of the Federal Reserve Board, Paul A. Volcker, and a former New York lieutenant governor, Richard Ravitch, who have warned that states and cities have deep structural problems that will not go away just because the country is coming out of the recession that started in 2008. Task Force Report Urges Municipalities to Stop Hiding Fiscal Troubles.
Paul Volcker clearly knows about the fiscal crisis that has been created by USAPonzi; he just does not want to be the one that triggers the catastrophe.
Alan Greenspan surely knows that the Government is running a massive Ponzi Scheme. Alan Greenspan, in December of 1996, made his now famous statement about "irrational exuberance" in regard to the valuation of high tech companies especially those that were related to the internet. Of course "The Internet Bubble" burst in 2000 when the investor hysteria finally reached its peak. What Alan Greenspan seems to have missed is that the real cause of the stock market bubble that resulted in the "Internet Bubble" is the impact of USAPonzi on asset prices. By undertaxing people and corporations by $96.5 Trillion over the last 46 years, USAPonzi has created phantom money that could be invested in the stock market and has also made corporations appear to be much more profitable than they really are and therefore look much more valuable (see U.S. Total Assets Bubble).
Alan Greenspan also claims that the Federal Reserve was not a contributor to the Housing Bubble and denied for several years that a "Housing Bubble" was even forming. The Housing Bubble was caused by four issues:
1) The Federal Government guaranteeing home loans. 2) The Federal Government forcing banks and mortgage companies to lend to people that could not possibly pay for these loans. 3) Lenders voluntarily making loans to people that could not pay for these loans because the lenders knew that they could lay the loans off to the Federal Government. 4) USAPonzi, with its massive GAAP basis deficit spending, has created $96.5 Trillion of phantom money over the last 46 years which has caused housing prices to automatically inflate. (see Inflation-A Byproduct of USAPonzi, U.S. Total Assets Bubble, and Asset Prices to Infinity).
Alan Greenspan surely can see all four of these issues and it even protects his legacy since he was not directly responsible for any of these four isusues. But he should have seen all of these issues forming and should have sounded the alarm. The actions the Federal Reserve has taken over the last several years (lowering the Fed Funds rate and Quantitative Easing) have just been a monetary response to the Fiscal Crisis created by USAPonzi (see The Fed is NOT the Problem!).
Alan Greenspan surely knows about the fiscal crisis that has been created by USAPonzi; he just does not want to be the one that triggers the catastrophe.
Ben Bernanke surely knows that the Government is running a massive Ponzi Scheme. Ben Bernanke, on numerous occasions, has stated that the Federal Government must get it's fiscal house in order. But he has also been careful to say that the Government should not get it's fiscal house in order too quickly as that would slow the recovery. He has also been careful not to say whether this should be done by raising taxes or lowering spending. This is politically correct but not very helpful in providing guidance to Congress.
What even Ben Bernanke may not realize is that when the Federal Government gets it's "fiscal house in order" this Ponzi scheme will implode, creating the financial catastrophe of epic proportions that I predict. But Bernanke's recommentation is do it but do it slowly. That does not help; it just extends the life of the Ponzi scheme.
The problem is that neither the Congress or the U.S. Citizenry will like the answer to the question of what actions the Government should take to get our fiscal house in order. The answer has got to be 1) dramatically lower social benefit commitments, 2) significantly lower government spending, and 3) significantly higher taxes.
My most recent concern with Ben Bernanke's assessment of our Government's fiscal policy is that he professes that fiscal policy is too tight when in fact it is dramatically too loose. This of course is further evidence that even Ben Bernanke does not fully appreciate the impact that USAPonzi is having on our economy and financial system.
What Ben Bernanke seems to be missing when he thinks fiscal policy is too tight, is that in actuality we have deficit spending of $6.4 Trillion a year. Yet even with deficit spending of $6.4 Trillion a year, Ben Bernanke says that fiscal policy has not been as agressive since the 2008 Recession as it was in response to prior recessions. U.S. Government spending is totally out of control and is covered up by corrupt and fraudulent accounting. I estimate that 45% of our current economic activity (GDP) is created by the Government stimulus introduced by our GAAP basis deficit spending (see U.S. "Real GDP June 2014). If we increased our deficit spending even more we would see our GDP be overstated even more than it is now but we would also see the dollar plummet in value even more rapidly. We would make the wealthly appear to be even wealthier but we would also increase the rate at which our GAAP Obligation (and eventually our debt) is expanding.
Ben Bernanke surely knows about the fiscal crisis that has been created by USAPonzi and even though he may not yet appreciate just how serious the fiscal crisis really is, he still does not want to be the one that triggers the catastrophe.
Janet Yellen surely knows that the U.S. Government is running a massive Ponzi Scheme. I do not yet have a confident reading as to just how clearly Janet Yellen understands USAPonzi. Up until the time when she assumed the role of Fed Chair, she seemed to be reading and talking out of the same playbook as Ben Bernanke so the above comments related to Ben Bernanke could also apply to Janet Yellen. However, during her Congressional confirmation hearing she did make a comment that makes me think she does not have a full appreciation for just how much impact USAPonzi is having on our fiscal and monetary policy.
Janet Yellen claims that she does not see an equity bubble or a real estate bubble forming. I contend that USAPonzi has been creating a bubble in all U.S. private assets for the last 46 years while it has been simultaneously creating a public liability that is measured by our GAAP basis Obligation of $96.5 Trillion. USAPonzi, with its massive GAAP basis deficit spending, is creating phantom money at the rate of $535 Billion a month and therefore is causing asset prices (in particular stock prices and real estate prices) to inflate quite rapidly. This $96.5 Trillion of GAAP basis deficit spending has been the "hot air" that has been pumped into the "U.S. Total Assets Bubble" over the last 46 years.
So while Janet Yellen claims that she does not see an equity bubble or a real estate bubble forming, I contend that the value all U.S. private assets could be overstated by as much as 7X solely because of USAPonzi. That is a huge bubble!
Janet Yellen surely knows about the fiscal crisis that has been created by USAPonzi and even though she may not yet appreciate just how serious the fiscal crisis really is, she still does not want to be the one that triggers the catastrophe.
What should the Fed Chairmen say?
The Fed Chairmen should tell the truth. They should expose USAPonzi by telling Congress and the U.S. Citizenry that the U.S. Government should be using GAAP Accounting and that they should reduce social benefit commitments to a level that is affordable within a balanced GAAP basis budget. The only reason that our economy looks as good as it does right now is because the U.S Government has "spent" $96.5 Trillion that we do not have and is continuing to spend $535 Billion a month that we also do not have.
The Fed Chairmen are not the only Co-conspirators
While this commentary has been critically directed toward the Federal Reserve Chairmen, many others are equally at fault for not exposing this Ponzi scheme. Since almost every one in a position of power, authority, and/or wealth seems to benefit in the short term from USAPonzi, no one is prepared to expose the Ponzi scheme. The losers in this Ponzi scheme will be the potential recipients of the social benefit promises when it becomes evident that these promises cannot possibly be met, the direct and indirect employees of the U.S. Government when their jobs are diminished or vanish, and the asset owners when it becomes evident that the value of their assets has been massively overstated by USAPonzi.