U.S. Economy, Confidence Games and Ponzi Schemes

Economics / US Debt Aug 07, 2009 - 12:58 AM

By: Tim_Iacono

After hearing a lot of talk in recent days about hopeful signs for the U.S. economy and how it is vital that consumers regain their confidence in order for a recovery to truly take hold, it struck me once again that the U.S. economy, more so than most other economies around the world, is really just a "confidence game".

As in ... a hustle.

As in ... Paul Newman.

As in ... not a good long-term plan (unless, of course, you're the one running the swindle) because, at its foundation, the game is fraudulent.

http://www.marketoracle.co.uk/Article12577.html

The usual nonsense of pretending that life expectancy at birth is actually relevent. I mean really--get a clue! The only real reason for large jumps in life expectancy at birth is the dramatic decrease in infant mortality. If you die before the age of two, you are totally irrlevant, because you will never contribute to nor collect from SS. What about further life expectancy for those who actually get to 65? It's increased, but only by 3-4 years. Not enough to break the bank. Lift the income cap, and problems with SS magically vanish.

The characteristic of a Ponzi scheme is that it pays off handsomely for those who get in early, but everyone whose payoff is due after the scheme's money runs out gets screwed out of everything.

As someone with at least 30 years to go before retiring, and who can do the math, there is no doubt in my mind there will be nothing left in SS by the time it comes my turn to claim benefits. The boomers will totally wipe out the surplus and then some, and once SS starts generating a YoY loss (in just a handful of years) and the Treasury can no longer borrow that money to fuel the deficit, not only SS gets destroyed but you've also got a smoking hole in the Federal budget.

Had the SS surplus actually been hoarded instead of replaced with Special Treasury Bonds, we might be talking about a different situation. But I can't see any way we actually make good on those bonds without inflating the currency to such a degree that it would constitute an effective default.

The real Ponzi scheme is the old fashioned way of providing for elders--have as many kids as possible. If you have more than two, the surplus kids can't inherit the farm.

SS will work very well when we get to the one in, one out population stabilization that we need to survive. Eliminate the income cap for FICA, and SS is solvent forever.

... regardless of what the accounting says, the money is spent the year it is collected, not "saved" until it will be needed when the worker/retiree ratio is low.

Buying Treasury Notes is not "saving". The ability of the US Treasury to issue new notes/bonds (to pay this money back) is being hobbled by the current economic mess, and it is not going to get better soon.

The FACT that SS benefits will eventually be reduced in the future is all but indisputable.

If one person is born for every one person that dies, this can go on forever. The new person pays for the old one, who kicks off. Then an evn newer person pays for the new person, ad infinitum. A Ponzi scheme requires an exponentially growing pool of suckers. An exponentially growing human population would be an utter disaster.

.. a worker/retiree ratio of 3/2 coming up. It won't work.

"SS will work very well when we get to the one in, one out population stabilization that we need to survive."

except for the small problem of SS requiring a many-to-one relationship to sustain itself. We'll get to age-limit euthanasia first before people agree to the conditions required to sustain 1:1. Remember, that one paying in also needs to pay for himself and his replacement as well as his predecessor - can't work on a mass scale at anything near current levels of technology. And if we make the great technological leap to make that possible, that leap will likely also remove the barriers to exocolonization, making the 1:1 setup unnecessary.

That's when the TPTB initiate the downturn. The people's money is being sucked into the markets, just in time for them to lose it when the market crashes.

... this is a classic pump and dump scenario. The stock market is being lifted by program trading and other manipulations, it is completely divorced from any and all fundamental conditions in the real economy.

When this "sucker goes down" it will be fast because all of the financial players know the game plan, which is simple - get the dumbass Joe Six Pack back in the market one more time for a final fleecing.

The final fleecing will probably happen in the next couple of months, but could take 12-18. As long as people are dumb enough to believe the "green shoots" bullshit from the press, this will continue.