Federal Reserve Chairwoman Janet Yellen used her bully pulpit on Oct 17, 2014 to sound the alarm about rising economic inequality (see Dallas Morning News article).
The cause of this rising inequality in compensation for the American workers is the dramatic distortion in our economic and financial system created by USAPonzi. For the last 46 years we have been dramatically undertaxing the top earners by using Cash Accounting vs. the proper GAAP Accounting and therefore the "reported" pay (and wealth) of these top earners is nominally 7X (see U.S. Total Assets Bubble) what rational accounting and a sustainable fiscal policy would warrant.
The U.S. Government has been covertly incurring GAAP basis Deficit Spending that is undertaxing U.S. citizens and U.S. businesses by an exponentially increasing amount ($6.2 Trillion in FY2013, an estimated $6.4 Trillion in FY2014 and a projected $6.9 Trillion in FY2015 for a total of $98.1 Trillion since FY1969) and of course most of this undertaxing is benefiting the top earners (see USAPonzi Fiscal Model). As a result these top earners are being dramatically over compensated due to this Ponzi scheme.
USAPonzi has made the highly paid people look dramatically highly paid because our fiscal policy is not taxing the U.S. citizenry and U.S. businesses nearly enough to pay our current bills and certainly not nearly enough to pay our future social benefit commitments. This is what makes our economy appear to be performing so well right now; we have had GAAP basis Deficit Spending of $98.1 Trillion over the last 46 years and that $98.1 Trillion is now in the pockets of these top performing citizens and businesses since they did not have to pay these taxes. The current fiscal policy is giving these top performers a massive tax break while at the same time giving the U.S (and global) economy a massive economic stimulus (see U.S. "Real" GDP FY2015).
The 99%ers have to work for their money and get some benefit of this undertaxing, but the 1%ers are getting paid about 7X (see U.S. Total Assets Bubble) what they would earn if they paid the taxes that are required to adequately finance the U.S. Government's spending and committing. And all because of a simple little accounting trick by LBJ when he presented his FY1969 "Unified Budget " to Congress which called for the use of Cash Accounting rather than the appropriate GAAP Accounting and thereby choosing to not fund the social benefit trust funds and instead creating $80.3 Trillion of Unfunded Liabilities (see Introduction to USAPonzi).
The following commentaries further explain this distortion in compensation:
Rich get Richer/Poor get Poorer
USAPonzi-A CEO Pay Bonanza
Oswald made Buffett, Gates, Jordan, and Woods richer
U.S. Total Assets Bubble
The Buffett Investing Genius Magnified
One of the striking examples of this over compensation of the top performers is Warren Buffett. As the above commentary details; on May 9, 2014 Warren Buffett had an estimated net worth of $65.2 Billion but $55.9 Billion of that net worth is due to Buffett's portion of the now $98.1 Trillion of undertaxing that USAPonzi has already caused. But Warren Buffett is just the most prominent example of this over compensation. All of the 1%ers are getting this kind of lift to their net worth. The people that pay the most taxes get the most benefit when the U.S. Government chooses to dramatically undertax the general population and the $98.1 Trillion of counterfeit money created by the undertaxing of USAPonzi has covertly made a lot of people appear to be very wealthy.
This is why the rich and the powerful refuse to acknowledge that the U.S. Government is running a Ponzi scheme. USAPonzi is making them more rich and more powerful.
But this is just a giant "head fake"!
While it looks like the 1%ers are getting paid a lot and it looks like they are getting very wealthy, they are being largely paid with the counterfeit money that is being created by USAPonzi. $98.1 Trillion of the perceived U.S. private wealth of $112.3 Trillion is counterfeit money created by the 46 years of deficit spending by the U.S. Government with the financial responsibility for these deferred commitments passed off to future taxpayers which they will not be able to pay, so most of this accumulated wealth of the 1%ers will evaporate when USAPonzi implodes.
Fixing Fiscal Policy
This problem will be resolved when the U.S. Government finally comes to grips with the financial crisis that they have created and starts operating with a sustainable fiscal policy (see Fixing Fiscal Policy).
The current fiscal policy (USAPonzi) is creating a massive stimulus to the U.S. (and global) economy, is giving preferential treatment to the top performers by not taxing them enough to pay the bills, and is cheating the common man by not funding the social benefit promises that the U.S. Government has made (see Favoring the Rich and Cheating the Common Man).
The income inequality, that Chairwoman Yellen is referencing, is due to the dramatic compensation distortion caused by the undertaxing of USAPonzi that is in turn caused by the use of Cash Accounting rather than the appropriate GAAP Accounting.
As I said in Fed Chairmen Co-conspirators in USAPonzi, Chairwoman Yellen may not yet understand the impact that USAPonzi is having on the U.S. and Global economy and financial system!!!
Next page: Stock Buybacks-A Byproduct of USAPonzi