**U.S. "Real" GDP FY2015 with $5.5T Deficit**

**(37.3% of our projected economic activity in FY2015 will be created by Government induced stimulus due to our GAAP basis Deficit Spending)**

Jul 19, 2015** **To reflect GAAP Deficit of **$5.5 Trillion**** **

In my April 26, 2013 commentary (U.S. "Real" GDP), I made an estimate as to how much the deficit spending of **USAPonzi** was stimulating the U.S. Economy. My "first order" estimate was that the GAAP basis deficit was creating about one third of our economic activity. My thesis is that the U.S. Government, with this deficit spending, is spending money that we do not have and therefore is creating economic activity that is not sustainable i.e. artificial. We can clearly see that our Cash basis deficit spending is artificial but since the U.S. Government is using corrupt and fraudulent accounting our "Real" deficit is our GAAP deficit which resulted in the April 26, 2013 estimate that about one third of our economic activity is artificial.

In this commentary, I will update that estimate based on our projected GDP in FY2015 and I will also extend the analysis to look not just at the "first order" effect of this stimulus but also the "second order" and "third order" effects of this GAAP basis deficit spending stimulus.

First Order Effect of Deficit Spending

According to www.usdebtclock.org, our FY2015 GDP will be **$17.8 Trillion**, our Income of **$3.1 Trillion** will be 17.7% of GDP and our GAAP deficit will be **$5.5 Trillion**. This **$5.5 Trillion** of GAAP deficit is "spending" money that we do not have so I contend that our "Real" GDP is, as a "first order" estimate, **$12.3 Trillion**.

Projected FY2015 GDP $17.8T

"first order" deficit spending -$5.5T

"first order" estimate of GDP =$12.3T

Second Order Effect of Deficit Spending

But if we were operating the finances of the U.S. Government with proper accounting and a balanced GAAP basis budget as this "First Order" effect implies, then our income would also be reduced. The www.usdebtclock.org estimate of our FY2015 tax revenues is **$3.1 Trillion**, 17.7% of GDP, which means that by not having that **$5.5 Trillion** of artificial GDP, we would not have tax revenue (income) on that stimulus induced GDP and that would amount to 17.7% of **$5.5T** or **$.97T**. This loss of tax revenue due to the "first order" reduction of GDP would then create a further GAAP Deficit of **$.97T** meaning that the "second order" effect would yield the following:

Projected FY2015 GDP $17.8T

"first order" deficit spending -$5.5T

"first order" estimate of GDP =$12.3T

"second order" deficit spending -$.97T

"second order" estimate of GDP =$11.33T

Third Order Effect of Deficit Spending

Following the same logic as above, the "third order" effect of deficit spending would be 17.7% of "second order" deficit of **$.97T** or **$0.17****T** and would yield the following:

Projected FY2015 GDP $17.8T

"first order" deficit spending -$5.5T

"first order" estimate of GDP =$12.3T

"second order" deficit spending -$.97T

"second order" estimate of GDP =$11.33T

"third order" deficit spending -$0.17T

"third order" estimate of GDP =$11.16T

U.S. "Real" GDP in FY2015 would therefore be estimated to be about $11.16 Trillion vs. the projected $17.8 Trillion. ($11.16T/17.8T=0.627)

(37.3% of our economic activity is created by Government induced stimulus)

As this analysis indicates, deficit spending generates artificial economic activity and since **USAPonzi** is currently projected to create a GAAP deficit of **$5.5T** that is also generating artificial tax revenues, the total impact is causing our GDP to appear to be **$17.8T** when a more realistic estimate of naturally occurring economic activity would be on the order of **$11.16T** or 62.7% of the currently projected GDP.

Author's Note: The above analysis could be continued ad infinitum but as you can see the "third order" effect is **only** **$170 Billion** of reduction to FY2015 GDP and the subsequent reductions in GDP would not be material in the grand scheme of things. In theory, our "Real" GDP in FY2015 would converge to **$11.12 Trillion**.