Was whole economy a Ponzi scheme?

LONDON: It was perhaps inevitable that we ended 2008, the year we learned we were up the creek, with a great financial scandal: the Madoff Ponzi case.

The main difference really is that the purported victims, or enablers, or co-fantasists of the trader Bernard Madoff say they found out their wealth was illusory all of a sudden, whereas for most people in the English-speaking world, this is happening little by little.

. . .

"The financial system as a whole has had the characteristics of a Ponzi scheme if we look at it fundamentally," said Lee, who was very early in warning about deflation.

"By this I mean that . . .if market prices of financial and real estate assets rise a lot but there is no increase in the ability of the economy to provide goods and services in the future, then the apparent increase in wealth is illusory."

That means that savings must rise, and expectations about the kind of growth and income that capital can safely command must fall. The process of everyone's figuring that out over the next year or so will be a continued hole in the side of the stock market.

There are a lot of individuals, pension funds and nonprofits out there that have penciled in benchmarks for returns on assets that are probably too high for the coming cycle, and I am talking about people thinking of a modest 8 percent.

Those people and institutions will be forced to take steps to right that, and this time not by searching for risk or yield but by saving more and cutting back on expenditure.

This will cascade through the economy, and until the savings are replenished and productively deployed, higher government spending will be a balm on a burn, at best.

http://www.iht.com/articles/2009/01/01/business/col02.php

From Day One with "It's YOUR money and I'm returning it" to "remedy" the surplus "problem" to now. Instead of strengthening the economy, bit by bit via policy whether it be war or tax breaks, it became obvious to me that it was a larger scheme of redistribution of wealth and the incremental destruction of the middle class.

And now, we must take it back ... by any means possible.

to get people to transfer their funds to the rich on an even faster pace.


Ponzi scheme, seems that way to me too.

We print you buy. We pay back later.

because it's been that way for nearly 30 years...

All bubble economies are Ponzi schemes, relying on the bigger fool coming in later to keep prices rising. Once they run out of fools and prices level off, the early investors who made their whack get out fast, leaving the later investors stuck holding an empty bag as the prices plummet.

Tax cuts for the rich always result in bubbles. Add to that the destruction of sensible regulations and you have a prescription for utter disaster after a few heady years of seeing numbers rise into the stratosphere.

Everything about the economy of the past 8 years was fake. There was no real wealth being created, just paper being shuffled back and forth to drive up fantasy numbers.

And that is basically what a Ponzi scheme consists of.

Whaddya mean, "was'?
You do know how fractional reserve banking works, don't you?
Everything about the economy IS a giant ponzi scheme, and has been for a long time.,,

Massive leverage and debt fueled a very long equities bubble and now the air in the bubble is gone. From the perspective of an outsider looking in this looks like desperate pumping to replace all that notional wealth:

http://www.investmenttools.com/thefed/federal_reserve_monetary_base.htm

and this:

http://www.investmenttools.com/thefed/total_fed_reserves.htm

Hopefully we have a resident fed expert who can explain why this might end well.

zeitgeistmovie.com

There are two movies, the original Zeitgeist movie and the addendum. The first deals with issues other than the economic system and is very interesting and enlightening, but the addendum deals with the banking/financial system and corporatism. Well worth the time it takes to watch.

Go pop some popcorn and sit back.

The SS system was set up pretty well, actually. The problem with it is that congress has "borrowed" from the fund over and over. "Borrowed" is used in the loosest possible way, of course - we don't have a Social Security crisis if the money is paid back. Congress won't admit that they'll never pay it back, so we talk about the "broken" system and how we'll soon be out of money.

and never pays it back.

Social Security not only pays its own way, it pays for all the pork and warmongering our congresscritters keep pushing.

pay what is owed to the early investors. If it "pays its own way" you could stop it at any time and give people their money back. That certainly can't happen with SS.

I agree that Congress stole the money and left an IOU, but it still is a Ponzi scheme anyway.

One gets the farm, and one can marry out. Even if 4 or 5 die before adulthood, what are the other 3 or 4 supposed to do

money coming in from young workers to pay off the retired workers. It's ok as long as it keeps going. Maybe I am stretching the definition of Ponzi scheme a little, but my point is that IMHO, having no economic background, our whole economy is a giant Ponzi scheme. If properly regulated it can run for a long time. But when individuals get greedy, it has to crash.

Payroll taxes were raised in 1983 in anticipation of baby boomer retirements.

I wouldn't classify SS as self-sufficient, but I know what you mean. I would classify it as a non-destruction form of Ponzi. Most Ponzi schemes are pyramid schemes that are destined to crash. SS, if well managed, can continue to operate.

will be able to take it out when you are sixty two, how is this not a ponzi scheme?

and Paulson and his cronies want another spin of the wheel, too.

We have no economy, haven't had one since Reagan. It's all smoke and mirrors and fraud.

The rest of the world followed suit, in many cases.

Now we all have to do the boring, subsistence kind of work, and put all the fraudsters in chains.

When was it that they stopped tracking the actual indicators that showed how healthy our economy was? 2001?

They stopped tracking that in 2006, IIRC

I'm not a big financial whiz about this stuff, but then again, I guess the people who are supposed to be aren't either!

People saw this coming, but they were making so much money everyone turned their head to the risk. The smartest people I know convinced themselves that through these instruments they effectively eliminated their exposure to risk. It was an orgy, in every sense of the word.

I earned my money through good old fashioned hard work. I didn't dip into my house and kept my credit cards in check. I think a lot of people would say the same thing.

It's the speculators who messed up the economy.

ponzi scheme we call our economy.

Did they privatize that without me knowing?

Oh, wait I forgot... that is the reality-challenged group. But a little thing like that never bothered them. What a good idea for them to have so much influence over the economy. :sarcasm:

I remember last summer, when all the financial know-it-alls were insisting that speculation wasn't a problem in the markets, and were calling those trying to do something about it tin foil hatters.

They're simply thieves. And we let them write all of our financial laws. As Dr. Phil used to say, "how is that workin' for us"?