The Theory of Imaginary Money
March 8, 2016
As Posted on www.usaponzi.com
|GAAP Deficit in FY2016
|US Unfunded Future Liabilities
|US Unfunded Liabilities (GAAP)
|Total National Assets
Source: www.usdebtclock.org March 8, 2016
On my website (www.usaponzi.com) and in my book ("USAPonzi"), I repeatedly use the term counterfeit money to describe the money that this Ponzi scheme is producing out of "thin air" with GAAP basis deficit spending. In this commentary I will try to better explain the meaning of this terminology. The planet thinks it is getting rich by borrowing imaginary-counterfeit money, with GAAP basis deficit spending, from the future U.S. taxpayers.
As I have studied this Ponzi scheme (USAPonzi) and have attempted to explain it, I am reminded of a field of mathematics called “the theory of complex numbers”. A "complex number" is a number with two parts, a real part and an imaginary part. The real part is a number as we commonly know them. The imaginary part is based on an imaginary number called “i” that is the square root of -1. A complex number then takes the form of “a + bi” where both “a” and “b” are real numbers. This was a difficult concept for me to grasp when I took a course called “The Theory of Functions of a Complex Variable”. I found it difficult to understand the value of exploring complex numbers, that is until I started studying and writing about USAPonzi.
Our financial system is similar to this concept of complex numbers. We can buy things with two kinds of money; 1) money we have already earned or 2) money we have borrowed with the anticipation of earning it. The money we have earned, by expending labor or producing a product, we think of as real money. We earned it with honest labor or by creating a product that had a perceived value to the buyer. But the money that we borrow to complete a purchase is not “real money” it is a promise to pay “real money” at a future time. This is imaginary money. We imagine that we will be able to pay the real money at some point in the future.
When we buy things and pay “cash” we have (or should have) a solid transaction. But if we are buying something with borrowed money the transaction is only as solid as the source of the borrowed funds. But what if the money that the buyer uses to buy a service or product is part cash/real money and part borrowed/imaginary money. That is when it becomes complex money.
complex money = real money + imaginary money
In the case of the USAPonzi economy, the U.S. Government is borrowing imaginary money from the future U.S. taxpayers so that we can buy things we could not otherwise afford, partially with our real money and partially with the imaginary money the U.S. Government is borrowing from the future U.S. taxpayers.
Every dollar of deficit spending becomes an imaginary dollar in the global financial system but since it is released by the U.S. Government the global economy treats it like it is a real dollar. We can use that imaginary dollar the same way we use our real dollars; we can buy food, clothing, football tickets, smartphones, cars, houses, etc. with that imaginary dollar. We can invest it in the stock market. We can deposit it in the bank. Banks can loan it to other entities so they can buy food, clothing, football tickets, smartphones, cars, houses, stocks, bonds, etc. with that imaginary dollar. We can use these imaginary dollars to pay Tony Romo’s $107M contract to play football or to pay Tiger Woods what now appears to be a Billion dollars to play golf and endorse products.
The only way that we can pay our professional athletes, movie stars, and other entertainers as much as we do is with the imaginary money that the U.S. Government is creating with GAAP basis deficit spending. And as I will show you later in this section, this imaginary money is what is making the U.S. upper class appear to be so wealthy.
We now have $101.4 Trillion of imaginary dollars that the U.S. Government has released into the global financial system with GAAP basis deficit spending that are masquerading as real dollars. But they have no value because U.S. Government expects (imagines) the future U.S. taxpayers to come up with that money someday in the future which obviously they cannot.
The U.S. Government, with the current fiscal policy of deficit spending, is borrowing money from the public to get the cash to pay government workers and buy products and services to “operate the government”. The future U.S. taxpayers are expected to pay back that borrowed money someday. The U.S. Government is also committing to pay pensions, veterans benefits, and social benefits in the future but the U.S. Government is not properly funding these commitments, creating what is called Unfunded Future Liabilities.
Because the U.S. Government is not taxing the current U.S. taxpayers enough to pay for either the current expenditures or to fund the future commitments, the current U.S. taxpayers, as a group, are getting to keep that deficit amount ($5.82 Trillion in FY2016) as imaginary dollars and the future U.S. taxpayers are expected to pay it sometime in the future. We have been deferring these liabilities for 47 years to now a total of $101.4 Trillion as of March 8, 2016. The current U.S. citizens and businesses now have real money that they have already earned but they also have $101.4 Trillion of imaginary money that the U.S. Government “imagines” that the future U.S. taxpayers will be able to pay in the future.
The total private net worth for all U.S. citizens and businesses as of Mar 8, 2016 is estimated to be $116.4 Trillion (Total National Assets as reported on usdebtclock.org) but $101.4 Trillion (US Unfunded Liabilities (GAAP)) as reported on usdebtclock.org) of that is the imaginary but counterfeit money that the U.S. Government has produced by borrowing it from the future U.S. taxpayers creating public liabilities.
total private net worth = $116.4T
public liabilities = $101.4T
real private net worth = total private net worth - public liabilities
real private net worth = $116.4T - $101.4T = $15.0T
total private net worth = real private net worth + public liabilities
total private net worth ($116.4T) = real money ($15.0T) + imaginary-counterfeit money ($101.4T).
87% of the U.S. total private net worth is imaginary-counterfeit money: $101.4T/$116.4T=0.87
Most of this total private net worth is held by the U.S. upper class and most of it is imaginary-counterfeit money produced by the GAAP basis deficit spending of USAPonzi that has borrowed this imaginary money from the future U.S. taxpayers.
This is why the U.S. upper class is appearing to get rich from U.S. Government fraud! The U.S. Government has given the U.S. upper class $101.4 Trillion of imaginary-counterfeit money simply by undertaxing them. The more the U.S. Government overspends and overcommits, the richer the U.S. upper class appears to be.
This is what has created the "Wealth Gap".
Therefore, the term counterfeit money that I use in my explanation of USAPonzi might better have been called imaginary-counterfeit money. The global economy is accepting the imaginary-counterfeit money that the U.S. Government has created with USAPonzi as if it is real money. We are buying a lot of stuff with imaginary-counterfeit money. The money created by USAPonzi's GAAP basis deficit spending is both imaginary and counterfeit.
The future U.S. taxpayers of course can never pay this $101.4 Trillion of public liabilities that are increasing by $5.82 Trillion this fiscal year and $16.0 Billion every day. Therefore, the money that was gained by undertaxing the current U.S. taxpayers, i.e. borrowed from the future U.S. taxpayers, is like the “i” in the complex number that I described earlier, it is imaginary. Deficit spending in the USAPonzi economy is the theoretical equivalent of the square root of -1 in the theory of complex numbers. I have just chosen to call this imaginary money, "counterfeit money" because it has no value. It is money that citizens and businesses appear to have but it has no real value because the entity from which it was borrowed, the future U.S. taxpayers, is incapable of paying that commitment. The U.S. Government is “imagining” that the future U.S. taxpayers will find a fountain of money that will pay an infinite amount of taxes at sometime in the future.
The U.S. Government is creating this imaginary-counterfeit money out of “thin air” by pretending to borrow it from the future U.S. taxpayers who can never pay these ever increasing public liabilities. The nice thing about imaginary-counterfeit money is that you can create as much of it as you want because it does not cost much to produce it as long as it is done digitally.
The reason the ruling class and upper class like this fiscal policy so much is because the ruling class can pay the social benefit, pension, and veterans benefit recipients a relatively fixed amount with some real money and some imaginary-counterfeit money, the ruling class can continue to increase the pay for the ruling class with some real money and some imaginary-counterfeit money, and the upper class gets to keep the exponentially increasing residual amount of imaginary-counterfeit money that this Ponzi scheme is producing. The global upper class is appearing to get rich from U.S. Government fraud but mostly with imaginary-counterfeit money that the U.S. Government has phantomly and fraudulently borrowed from the future U.S. taxpayers.
The U.S. and global upper class is getting rich on imaginary-counterfeit money. We are buying things we cannot afford with imaginary-counterfeit money. We have built too many real banks into which we have deposited more and more imaginary-counterfeit money. We are buying/building houses, condos, apartment houses, office buildings, skyscrapers, cars, trucks, airplanes, boats, smartphones, TVs, sports arenas, universities, food, clothes, TV subscriptions, telephone subscriptions, etc. etc. with the imaginary-counterfeit money produced by USAPonzi.
Even though Janet Yellen says she does not see any bubbles forming in the stock market or in real estate, the U.S. Government has been creating a $101.4 Trillion bubble of imaginary-counterfeit money with GAAP basis deficit spending for the last 47 years. This massive bubble of imaginary-counterfeit money creates bubbles in all other asset classes: stocks, bonds, banks, gold, oil, houses, automobiles, airplanes, smartphones, TVs, restaurants, malls, sports arenas, skyscrapers, etc. etc. We can buy things that we cannot afford with the imaginary-counterfeit money that the U.S. Government is pretending to borrow from the future U.S. taxpayers.
GAAP Accounting, appropriately applied, can keep track of how much imaginary-counterfeit money the global financial system is accruing, it just cannot readily identify which money is sound and which is not. But with the current U.S. Government fiscal policy; 87% ($101.4T/$116.4T=0.87) of the perceived U.S. private net worth is imaginary-counterfeit money as of March 8, 2016.
We have a global economy and financial system that according to usdebtclock.org now (March 8, 2016) contains $101.4 Trillion of imaginary-counterfeit money that has been produced by the GAAP basis deficit spending of USAPonzi. And now the future U.S. taxpayers are expected to pay for all of the stuff that we have bought with the imaginary-counterfeit money that we have already spent. Fortunately, we have not spent it all yet, some of it is still phantom, imaginary, counterfeit wealth(?) retained mostly by the global upper class.
We have an economy that is operating with two kinds of money; real money and imaginary-counterfeit money and the U.S. Government is producing more of this imaginary-counterfeit money every day with GAAP basis deficit spending.
The Imaginary Economy
This imaginary-counterfeit money that USAPonzi has produced has not only artificially magnified the money supply it has magnified economic activity. The imaginary money that USAPonzi produces, creates purchasing power and therefore economic activity. The new imaginary money that is introduced each year ($5.82 Trillion in FY2016) provides direct stimulus to the economy but in the case of banks, Wall Street, and other financial institutions the increased money supply itself creates the opportunity for them to increase their earning power by having more money to manage and lend (See The Bank Bubble).
The hedge fund managers, venture capitalists, financial advisors, etc. really love this Ponzi scheme because they make money from both the new imaginary-counterfeit money the U.S. Government produces every year but they also often get a percentage each year of this pool of imaginary-counterfeit money that has been produced that they manage. And they don't have to pay taxes on the “carried interest” gains.
This imaginary-counterfeit money can be used to buy cars and trucks which has produced The Automobile Bubble.
This imaginary-counterfeit money can be used to buy airline tickets which has produced The Airplane Bubble.
This imaginary-counterfeit money can be used to buy houses, condos, and apartment buildings which has produced The Housing Bubble.
This imaginary-counterfeit money can be used to buy smartphones which has produced The Smartphone Bubble.
This imaginary-counterfeit money can be used to buy all kinds of stuff and the companies that sell this stuff look successful and profitable because of these imaginary-counterfeit purchases so the investors use their imaginary-counterfeit money to buy stock in these imaginary-counterfeit companies which is what has produced The Stock Market Bubble.
One could even make the claim that we have two economies, a real economy and an imaginary economy. My concern is that when this stash and flow of imaginary-counterfeit money vanishes, i.e. when USAPonzi implodes, we will see a dramatic contraction in the global economy, possibly even more severe than the 39% contraction that Creating Counterfeit Prosperity predicts.
One of the problems that we have is that we have no really good way to distinguish between the real money and the imaginary money because it all blends together in the global economy. This is because of U.S. Government fraud. The U.S. Government is making financial commitments that sound accounting principles clearly show are not supportable but yet the U.S. Government releases these imaginary-counterfeit dollars as if they are sound money.
That is the fundamental cause of the USAPonzi fraud; the U.S. Government is willingly and knowingly releasing imaginary-counterfeit money into the global financial system by using an improper accounting system, Cash Accounting rather than the proper GAAP Accounting, and by operating with a dramatically unbalanced budget.
Let me say one more time how this imaginary-counterfeit money is created. The U.S. Government has undertaxed the U.S. citizens and businesses by $101.4 Trillion over the last 47 years, giving the U.S. upper class $101.4 Trillion and leaving the future U.S. taxpayers a $101.4 Trillion tax bill (reported on usdebtclock.org as US Unfunded Liabilities (GAAP)) which they cannot pay. The U.S. upper class appears to be $101.4 Trillion richer with imaginary-counterfeit money simply because the upper class U.S. citizens and businesses did not have to pay these taxes.
U.S. Government fiscal and accounting fraud is alive and going strong in Washington D.C.
The financial data presented in this commentary was sourced from www.usdebtclock.org as of March 8, 2016.