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

U.S. "Real" GDP FY2014
Jun 8, 2014

(45% of our current economic activity is created by Government induced stimulus due to our GAAP basis Deficit Spending)

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 thru 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 FY2014 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 the most recent estimates by the Congressional Budget Office, our FY2014 GDP will be $17.0 Trillion and our Income will be $3 Trillion. The USAPonzi estimate of our FY2014 GAAP deficit is $6.4 Trillion up $0.2 Trillion from $6.2 Trillion in FY2013. This $6.4 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, $10.6 Trillion.

Current FY2014 GDP                    $17.0T
"first order" deficit spending           -$6.4T
"first order" estimate of GDP       =$10.6T

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. Our current FY2014 Income is estimated to be $3T which is 17.6% of GDP ($3T/$17T=0.176). Which means that by not having that $6.4 Trillion of artificial GDP, we would not have tax revenue (income) on that stimulus induced GDP and that would amount to 17.6% of $6.4T or $1.1T. This loss of tax revenue due to the "first order" reduction of GDP would then create a further GAAP Deficit of $1.1T meaning that the "second order" effect would yield the following:

Current FY2014 GDP                     $17T

"first order" deficit spending          -$6.4T
"first order" estimate of GDP      =$10.6T
"second order" deficit spending    -$1.1T
"second order" estimate of GDP  =$9.5T

Third Order Effect of Deficit Spending

Following the same logic as above, the "third order" effect of deficit spending would be 17.6% of "second order" deficit of $1.1T or $0.2T and would yield the following:

Current FY2014 GDP                     $17.0T

"first order" deficit spending            -$6.4T
"first order" estimate of GDP        =$10.6T
"second order" deficit spending      -$1.1T
"second order" estimate of GDP    =$9.5T
"third order" deficit spending           -$0.2T
"third order" estimate of GDP         =$9.3T

U.S. "Real" GDP in FY2014 is about $9.3 Trillion vs. the reported $17.0 Trillion

(45% 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 causing a GAAP deficit of $6.4T that is also generating artificial tax revenues, the total impact is causing our GDP to appear to be $17T when a more realistic estimate of naturally occurring economic activity would be on the order of $9.3T or 55% of the currently reported GDP.

Author's Note:  The above analysis could be continued ad infinitum but as you can see the "third order" effect is only $200 Billion of reduction to GDP and the subsequent reductions in GDP would not be material in the grand scheme of things. In theory, our "Real" GDP would converge to $9.231 Trillion.

Next Page: The TINA Economy