The Implosion of USAPonzi 7/13/15
July 13, 2015
As posted on www.usaponzi.com
The Fiscal Policy of the U.S. Government (USAPonzi) is a classic Ponzi Scheme that is deferring Public Liabilities (Debt and Unfunded Future Liabilities) to the future U.S. taxpayer with GAAP basis Deficit Spending. This Fiscal Policy is creating an artificially accelerated consumption rate for the U.S. economy and in fact the global economy and is creating counterfeit wealth for U.S. citizens and businesses and also for global citizens and businesses.
The artificially accelerated consumption rate is created by GAAP basis Deficit Spending and the counterfeit wealth is created by the cumulative effect of this GAAP basis undertaxing of the U.S. citizens and businesses and expecting the future U.S. taxpayer to eventually pay these ever expanding Public Liabilities. The fact that the future U.S. taxpayer can never pay these Public Liabilities is what makes this apparent new wealth, counterfeit wealth, and makes our Fiscal Policy a Ponzi scheme.
According to www.usdebtclock.org (GAAP basis Unfunded Liabilities), as of July 13, 2015 USAPonzi has created Public Liabilities/counterfeit money of $97.1 Trillion (Debt of $18.3 Trillion and GAAP basis Unfunded Future Liabilities of $78.8 Trillion) and these Public Liabilities are increasing by our GAAP Deficit of $5.5 Trillion in FY2015.
The U.S. Government has simply given the U.S. citizens and businesses a gift of $97.1 Trillion of counterfeit money by not collecting the tax revenue required to pay for the U.S. Government's overspending and overcommitting and claiming that the next generation(s) of U.S. taxpayers will pay for it (see Is the U.S. Government Overspending or Undertaxing?). This year (FY2015) the U.S. Government is giving out $5.5 Trillion more counterfeit money and the amount that is being gifted each year is increasing exponentially.
Most U.S. citizens do not have to work for a living since the U.S. Government is now producing enough counterfeit money, with this corrupt and fraudulent Fiscal Policy (USAPonzi), to pay their bills. And every year it appears to get better and better for U.S. citizens and businesses because our GAAP Deficit, as time goes on, tends to increase exponentially (see The $100 Trillion Counterfeit Money Machine).
There are three major components to our GAAP Deficit:
1) our Cash Deficit, as reported by the U.S. Government, which includes the interest expense on our Debt,
2) the "present value" of the cost of the social benefit liabilities for the "net new" recipients that qualified for social benefits during the fiscal year, and
3) the interest expense on our Unfunded Future Liabilities for the current recipients of social benefits.
Unfunded Future Liabilities are measured at "present value" which assumes that these funds will earn interest income each year to accumulate the funds required to pay these social benefits as they come due. Therefore, each year the "present value" of our Unfunded Liabilities increases by the assumed earned interest rate ("present value" discount rate) much like how the unpaid balance on your credit card bill increases when no principal payment is being made.
Item 3, above, is what is causing our GAAP Deficit to increase at a compounding rate. This is causing our Public Liabilities (Debt + Unfunded Future Liabilities), our counterfeit money, and our perceived Private Net Worth to all increase at an exponentially increasing rate.
This is why the Federal Reserve Bank cannot rationally increase interest rates to "normal levels" until the U.S. Government adopts GAAP Accounting, balances the GAAP basis budget, and thereby extinguishes USAPonzi. According to my USAPonzi Fiscal Model, the interest expense on our Unfunded Future Liabilities will approach our total tax revenues in FY2016 with my assumed interest rate on the long bond(30 year treasury) which was 3.9% in December of 2013 when I developed this financial model. The virtual interest expense at 3.9% on our Unfunded Future Liabilities of $78.8 Trillion is $3.07 Trillion which is nearly as much as our expected tax revenues next year.
Warning: It should also be noted that because of the GAAP basis Deficit Spending of USAPonzi our economic activity is artificially stimulated. I estimate (see U.S. "Real" GDP FY2015 with $5.5T Deficit) that 37% of U.S. GDP is created by this Deficit Spending and as a result our expected tax revenues are overstated by a similar amount. Therefore the interest expense on our Unfunded Future Liabilities would be nearly 1.6X our tax revenue next year if we were operating with honest accounting and a balanced budget.
According to www.usdebtclock.org, as of July 13, 2015 our Total National Assets (Private Net Worth of all U.S. Households, Corporations, and Small Businesses) are valued at $118.6 Trillion. This means that 82.0% of our Private Net Worth has been created by the GAAP basis Deficit Spending of USAPonzi ($97.1T/$118.6T = 0.82). Most (82%) of our perceived Private Net Worth will evaporate when USAPonzi implodes.
U.S. citizens and businesses appear to be getting rich and U.S. businesses appear to be very profitable simply because the U.S. Government is assuming massive Public Liabilities.
USAPonzi will implode when one or more of the following three things happen:
1) the U.S. Government finally admits to operating this Ponzi scheme/fraud,
2) the general population of the U.S. finally realizes that they have been hoodwinked by the U.S. Government making false social benefit promises and not funding these promises, or
3) the investing community finally realizes that they are only appearing to get rich because most (82%) of their perceived wealth is counterfeit money.
When USAPonzi implodes I predict that the following will occur:
Social benefit promises will have to be dramatically reduced.
Government spending will have to be significantly reduced.
Tax rates will have to be increased.
Economic activity (GDP) will be reduced by about 37% (see U.S. "Real" GDP FY2015 with $5.5T Deficit).
Many direct and indirect Government employees will lose their jobs or have their pay reduced.
Many individuals will suffer personal financial crises.
Many businesses will fail.
Many banks will fail.
The stock market will crash losing 80+% of its value.
The real estate market will crash losing 80+% of its value.
Much of the U.S. Total Debt (all types) will fall into default losing 80+% of its value.
Since our U.S. Total Financial leverage is 4X what it was in 1929, the resulting Depression will likely be even more severe than "The Great Depression".
The U.S. economy and in fact the global economy is operating under the fundamental assumption that the future U.S. taxpayer is going to come up with the money to pay our Public Liabilities (Debt + Unfunded Future Liabilities) of $97.1 Trillion according to www.usdebtclock.org and these Public Liabilities are increasing at an exponentially increasing rate.
This is "A Pipe Dream"!
This is "The Biggest Ponzi Scheme on the Planet"!
We now have $97.1 Trillion of Counterfeit Money in our financial system and are adding $15.1 Billion more every day!
See The Distortions of USAPonzi for further discussion on this topic.
Next eBook Commentary: U.S. Total Financial Leverage 4.1X 1929