USAPonzi-The Biggest Ponzi Scheme on the Planet-The U.S. Government

                    Copyright Declaration                                                                                                                                       John W. White    March 29, 2013

Why Stocks Outperform Bonds!
Bonds pay next to nothing because the Federal Reserve says so!

Stocks are a Ponzi scheme because the U.S Government says so!
That's why!
Sep 15, 2014
As posted on

The following is a link to a Reuters news article posted on Sept 13, 2014.

Fed change unlikely to blunt equities' appeal over bonds

I read this article with interest and I agree with the conclusion; the proposed actions by the Fed will not reduce the appeal of Stocks over Bonds at least in the near term.  That's because the Fed's actions are NOT the problem!  The U.S. Government's Ponzi scheme is the problem! 

The Fed will not be able to quit printing money for very long, unless the U.S. Government quits printing money with its GAAP basis deficit spending!

As this website details; the U.S. Government has been running a massive Ponzi scheme (USAPonzi) for 46 years by using Cash Accounting rather than (accrual) GAAP Accounting.  By using Cash Accounting, the U.S. Government does not assess and collect the tax revenue required to be able to pay future social benefits.  Because of this undertaxing of U.S. citizens and businesses over the last 46 years the U.S. Government has created $79.8 Trillion of Unfunded Liabilities.  This yields a total  GAAP Obligation of $97.5 Trillion as of Sept 1, 2014 (GAAP Obligation = National Debt of $17.7 Trillion plus these Unfunded Liabilities).   This GAAP Obligation has been passed forward to be paid for by future taxpayers rather than being accrued for, on an annual basis, as GAAP Accounting would specify.  As a result of this $97.5 Trillion of undertaxing of U.S. citizens and businesses, the U.S. citizens and businesses appear to be $97.5 Trillion wealthier than they really are.

The good news for current and previous taxpayers is that they did not have to pay these taxes so they have an extra $97.5 Trillion lying around that they can use to buy groceries, gas, tennis shoes, cell phones, sports tickets, movies, jeans, T-shirts, motorcycles, cars, boats, homes, airplanes, yachts, jewelry, art, casinos, malls, sports venues, apartment buildings, office buildings, islands, etc. or they can invest it in the stock market or other assets.  That is what deficit spending does, it puts phantom money into the economy to stimulate economic activity and in FY2014 the U.S. Government is incurring GAAP basis deficit spending of $6.4 Trillion.  And because of the way USAPonzi works, the amount of this annual GAAP deficit spending tends to go up exponentially so U.S. citizens and businesses will have even more phantom money to spend and invest next year than they had this year.  The USAPonzi Financial Model projects that the U.S. Government's GAAP basis deficit spending in FY2015 will be $6.9 Trillion.

Because of the economic stimulus of this GAAP basis deficit spending, I estimate that our GDP is artificially overstated in FY2014 by 1.8X (see U.S. "Real" GDP).

U.S. businesses appear to be profitable and valuable because the U.S. Government is creating what will become, with current fiscal policy, an infinite supply of dollars with which the customers can buy stuff, which makes the businesses look very profitable and successful, which makes the businesses look very valuable.   At the same time, investors also have an exponentially increasing stream of investment dollars to invest in the stock of these artificially successful companies.

As a result of USAPonzi, the U.S. Government is a two fisted (counterfeit) money machine.  With one hand it is passing out money to the U.S. citizens and businesses by not taxing them and with the other hand it is passing out social benefit money to the elderly and the underprivileged and promising to pay a whole lot more to them in the future.  As a result of these actions, the U.S. citizens and businesses have a lot of extra money ($97.5 Trillion) to buy stuff and stocks and buying stuff makes the businesses that supply this stuff look very prosperous.

The problem is that the whole $97.5 Trillion (now our GAAP Obligation) is counterfeit money since the future taxpayer can never catch up with the U.S. Government handouts because the size of the handouts is growing twice as fast ($6.4 Trillion our GAAP Deficit) as our Government income ($3.0 Trillion) in FY2014 (see USAPonzi Financial Model). 

By using this corrupt and fraudulent accounting the U.S. Government is pretending like it has invented the perpetual motion machine for creating money.

The U.S. Government cannot have it both ways.  Either tax the U.S. citizens and businesses so you can pay the social benefit promises or withdraw the promises.

But in the mean time, equities (stocks) look very attractive because the U.S. Government is printing money to buy the stock and printing money to buy the stuff.   $97.5 Trillion will buy a lot of stock and a lot of stuff. 

The Federal Reserve System is a cooperating co-conspirator in this Ponzi scheme by not exposing the use of corrupt and fraudulent accounting and by coming up with a scheme to help paper over the money the U.S. Government has already spent.  But the Federal Reserve and the U.S. Government will eventually have to deal with the $79.8 Trillion (and growing) of Unfunded Liabilities since, with current fiscal policy and the future taxpayers inability to pay, these liabilities will transition to debt as the social benefits come due.

So the bottom line is; own stocks if you don't mind investing in a Ponzi scheme.  Because of the U.S. Government's GAAP basis deficit spending, the owners of assets have seen the apparent value of their assets increase by nominally 5% every year (see Inflation-A Byproduct of USAPonzi) over the last 46 years, and as long as USAPonzi continues to operate we will see asset prices continue toward infinity (see Asset Prices to Infinity).

I estimate that, because of USAPonzi, the U.S. private assets are currently overvalued by about 7X based on the following simple analysis.  According to the value of our Total National Assets (U.S. private assets) is $112.7 Trillion as of Sept 13, 2014 but we have public liabilities (our GAAP Obligation = National Debt + Unfunded Liabilities) of $97.5 Trillion as of Sep 1, 2014.  The current U.S. Government fiscal policy assumes that this GAAP Obligation will be paid by future taxpayers but this is just not possible because the U.S. Government is already "spending", according to GAAP accounting, 3X their income from current taxpayers.  Therefore the only way to pay for this public liability is to assess the current U.S. citizens and businesses.  If we were to do that then the value of our Total National Assets would be reduced to $15.2 Trillion ($112.7 Trillion-$97.5 Trillion=$15.2 Trillion).  That implies that the value of our Total National Assets (our private net worth) is overstated by 7.4X ($112.7 Trillion/$15.2 Trillion=7.4X) (see U.S. Total Assets Bubble for a more detailed analysis).

The only reason U.S. citizens and businesses look so wealthy and prosperous and the U.S. businesses look so profitable is because of USAPonzi and its corrupt and fraudulent accounting.

P.S.  It is also not a good idea to own bonds right now either because many of these bonds (federal, state, local, or corporate) are in the end backed, either directly or indirectly, by the U.S. Government and the over burdened future taxpayer which now owes $97.5 Trillion.  And many of these future taxpayers are not yet born.  When the U.S. Government finally admits to this corrupt and fraudulent accounting, or the financial market does it for them, this free flow of counterfeit money (our GAAP deficit of $6.4 Trillion in FY2014) from future taxpayers to current citizens and businesses will stop and a lot of (maybe most) people, businesses and governments will not be able to pay their bills.

Next Page: USAPonzi is Tilting the Playing Field