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

The Implosion of USAPonzi 5/26/15
May 26, 2015
Updated July 9, 2015 to correct Debt double count.  After further research of the usdebtclock GAAP Unfunded Liabilities, I have determined that this number includes the National Debt.  In my prior commentaries I had separated money spent (debt) from money promised to be spent (unfunded liabilities).  I will maintain that terminology on this website but recognize that the usdebtclock Unfunded Liabilities = Debt + Unfunded Future Liabilities.


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, as of May 26, 2015 USAPonzi has created Public Liabilities/counterfeit money of $96.5 Trillion (Debt of $18.2 Trillion and GAAP basis Unfunded Future Liabilities of $78.3 Trillion) and these Public Liabilities are increasing by our GAAP Deficit of $5.5 Trillion in FY2015.


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 cost of the liabilities for the "net new" recipients that qualified for social benefits during the fiscal year, and

3) the interest expense on our Unfunded Liabilities for the current recipients of social benefits.


Unfunded 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 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 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 interest expense at 3.9% on our Unfunded Liabilities of $78.3 Trillion is $3.05 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) that 44% 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 Liabilities would exceed our tax revenue by nearly 2X next year if we were operating with honest accounting and a balanced budget.


According to www.usdebtclock.org, as of May 26, 2015 our Total National Assets (Private Net Worth of all U.S. Households, Corporations, and Small Businesses) are valued at $116.2 Trillion.  This means that 83.0% of our Private Net Worth has been created by the GAAP basis Deficit Spending of USAPonzi ($96.5T/$116.2T = 0.83).   Most 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 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 one third to one half or even more (see U.S. "Real" GDP FY2015).


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 Liabilities) of $96.5 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 $96.5 Trillion of Counterfeit Money in our financial system!


See The Distortions of USAPonzi for further discussion on this topic.