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

Chapter 3 Introduction to USAPonzi  "Cooking the Books"!
November 22, 2015


The U.S. Government is "Cooking the Books"!  The U.S. Government is "Cooking the Books" by using corrupt and fraudulent accounting to create counterfeit wealth and counterfeit prosperity.


The U.S. Government has been running a massive Ponzi scheme since FY1969, which I have named
USAPonzi, by promising to pay dramatically more social benefits to U.S. residents than it has the financial capability to deliver and concealing the financial consequences of this Ponzi scheme by using Cash Accounting rather than proper (accrual) GAAP Accounting. I contend that USAPonzi is


"The Biggest Ponzi Scheme on the Planet"!


The Origin of USAPonzi

Lyndon Baines Johnson and the 90th Congress launched USAPonzi in January of 1968 when he presented his FY1969 Budget to Congress. This budget included a proposal, called the "Unified Budget" that would consolidate all of the social benefit program financial statements into the general operating financial statement for the U.S. Government.


This was not a bad idea it was just badly (aka corruptly and fraudulently) implemented.  The general operating budget at that time was a "cash budget", i.e. tax revenue received during the fiscal year was largely spent during that same fiscal year for general operating expenses so simple Cash Accounting was not inappropriate at that time. However, the social benefit programs that were integrated into the general operating budget collected tax revenue that was only partially expended during the current fiscal year with the remainder to be retained in trust funds to pay future year social benefits. These social benefit plans require the use of (accrual) GAAP Accounting to accurately assess the amount of funds that should be retained in the trust fund to assure the sustainability of these plans and therefore the "Unified Budget" proposal should have included a switch to GAAP Accounting when the "Unified Budget" was adopted (See What is GAAP Accounting? for a comparison of Cash Accounting and GAAP Accounting).


USAPonzi
had its genesis in the Social Security Act of 1935, that being the first major social benefit program of now many such social benefit programs. These social benefit programs, in some cases (Social Security, Medicare, Medicaid, etc.), make promises to pay future benefits often times for the lifetime of the benefiting individual. These early social benefit programs were established as independent programs each with their own funding from segregated tax revenues that were then used to pay out current period benefits with the excess held in program specific trust funds to pay future benefits. The money held in these trust funds was to be invested in conservative financial instruments to earn income for these trust funds so that these funds can meet the social benefit commitments when they come due.


This changed under Lyndon Baines Johnson in 1968 when he was forced to deal with the cost of the Vietnam War and the budget issues that war had created. LBJ proposed and got approved a new budgeting approach for the U.S. Government called the "Unified Budget". This approach allowed him to roll the cost of the Vietnam War under the rug and even claim a budget surplus in FY1969.


This "Unified Budget" rolled all of these social benefit programs into the general operating budget.  Sort of? What it did was roll all of the accrued money ($47 Billion) in these trust funds for these social benefit programs into the U.S. Treasury general fund to help finance $186 Billion of spending in the Fiscal Year 1969 budget, fold the tax revenues from these programs into the general tax revenue stream, BUT left the liabilities for these social benefit programs off budget. As a result the "Cash based" general budget gets the benefit of the income from these social benefit program revenue streams but does not reflect the changes in the future liabilities of these social benefit programs, only the current budget year payouts for these programs.


This continued use of Cash Accounting after adopting the
"Unified Budget" essentially created an "off budget" credit card on which the Government could charge these future social benefit liabilities. The U.S. Government has been using this credit card for the last 47 years for more and more social benefit programs that do not have to be justified at budget time since as these new programs are first started, they have little to no effect on current period cash expenditures and therefore they do not have to be directly discussed with the public when explaining the cash budget and cash deficit. When the "Unified Budget" was adopted the accounting methodology should have been changed from Cash Accounting to GAAP (accrual) Accounting, but if that had been done then LBJ would not have achieved his objective of paying for the Vietnam War with the "Unified Budget". GAAP Accounting for FY1969 would have reported a significant GAAP Deficit and significant Unfunded Future Liabilities.


No president since that time has dared to propose the switch to GAAP Accounting because with each year and with each president the problem (i.e. the GAAP Deficit and the US Unfunded Liabilities (GAAP) that would have to be reported to the public) gets bigger and harder to swallow.  But in any case, GAAP (accrual) Accounting is required to accurately reflect the impact of these future liabilities. In today's U.S. Government financial reporting there are budget schedules and footnotes that present and analyze these future liabilities but the bottom line budget does not show the consolidated impact of these social benefit programs as is reflected by GAAP Accounting. But more importantly, Cash Accounting does not call for the assessment of the tax revenues required to fund the social benefit trusts funds sufficiently to finance the future social benefit promises that the U.S. Government has made.  This is what causes the major portion of the undertaxing of USAPonzi.


LBJ's "Unified Budget" therefore borrowed the money from the social benefit trust funds to "pretend like" he had balanced the FY1969 budget; but worse yet he convinced Congress that it was okay to stop funding the social benefit trust funds altogether.


This is much like an individual making a decision to take out all of the money in their retirement account to pay off the mortgage on their vacation home and at the same time decide that it is not necessary to make further contributions to their retirement account. This would erase the debt on the vacation home and improve that individual's standard of living but will create a serious problem when that individual gets ready to retire.


This is what launched USAPonzi.


This means that for the last 47 years, every penny of the tax revenue that was being paid in for Social Security, Medicare, and all other social benefit programs has been spent in the current fiscal year in attempt to cover current fiscal year cash expenditures. Even this has not been enough to cover current fiscal year expenses, requiring that the U.S. Government take on more debt each year. And since the U.S. Government has put nothing into our social benefit trust funds we now have Unfunded Future Liabilities, according to GAAP Accounting, of $81.1Trillion in addition to our $18.7 Trillion of Federal Debt.


As a result of this GAAP basis undertaxing we have, as of Nov 22, 2015, GAAP basis Unfunded Liabilities (National Debt + present value of Unfunded Future Liabilities) of $99.8 Trillion and we are adding $16.1 Billion to these GAAP basis Unfunded Liabilities every day. This means that, on average, each of the 322 million U.S. citizens (every man, woman, and child) owes the U.S. Government $309,938 and that amount owed by each citizen is increasing by $50 every day.  Ironically this means that if each U.S. citizen pays the U.S. Government $309,938, the U.S. Government will be able to pay back the debt holders and would be able to pay the currently promised social benefits to the U.S. residents. We need to pay the U.S. Government $99.8 Trillion so the U.S. Government can pay the National Debt of $18.7 Trillion and can pay the social benefits, pensions, and veteran's benefits that they have promised to pay, which have a present value of $81.1 Trillion.


This is a classic shell game. Who's got the $99.8 Trillion? The U.S. citizens and businesses, primarily the wealthy, have been given the entire $99.8 Trillion in counterfeit money as GAAP basis unpaid taxes.  But, by not funding these social benefit trust funds at all, the U.S. Government can now only pay these social benefits at the currently promised levels by borrowing what is now $81.1 Trillion but what will in fact become an ever increasing and exponentially increasing amount of money. 

                  
                         


"A Citizen's Guide to the 2014 Financial Report of the U.S.Government", a report prepared annually by the "Department of Treasury", includes chart 5 (shown above) which demonstrates that with current fiscal policy our "debt owed to the public" will grow unsustainably just as described in the previous paragraph. The use of Cash Accounting vs. GAAP Accounting is the cause of this flawed (aka corrupt and fraudulent) fiscal policy, since by using Cash Accounting, the U.S. Government does not tax the U.S. citizens and businesses as required to fund the social benefit trust funds, therefore the U.S. Government must now borrow the money to pay the social benefit commitments when they come due.


The Congressional Budget Office and the Department of the Treasury, both routinely report that the current fiscal policy is unsustainable, but they along with the Securities and Exchange Commission (see Whistleblower Letters to the SEC), the Federal Reserve Chairmen (see Fed Chairmen are co-conspirators in USAPonzi), and in fact the entire leadership of the U.S. Government refuse to acknowledge the fact that the U.S. Government is using a corrupt and fraudulent accounting methodology.


Because of this corrupt and fraudulent accounting methodology, the U.S. Government is running

"The Biggest Ponzi Scheme on the Planet"!


Financial data sourced from usdebtclock.org Nov 22, 2015.


Continue to:  4 USAPonzi-"The Biggest Ponzi Scheme on the Planet"    Table of Contents