Ponzi Economics

Posted: July 19, 2014 in Debt
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A Ponzi Scheme; the name of a financial swindle, originated from Charles Ponzi in 1919, who operated such a scheme which is defined as follows by Investopedia;

A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.

To reiterate, at its roots lies a pattern of transactions which are based on a lie, whereby a pool of money, is supposedly invested in order to generate sustainable returns for investors. Constant flow of new money is needed to fund the entire scheme, and to keep the whole enterprise liquid, allowing redeeming parties to cash in when they require.

This very pattern can be seen in government debt issuance, otherwise known as Gilts/Soverign Bonds; The ruling power taps the finanical markets (ie. national and international instituional investors) in order to raise money to fund expenditure (on Wars and Welfare). They pay an annual rate of interest, and then at the end of a 5/10/20 year maturity period, for example, the Treasury must repay the principle sum back to the invested parties – a form of loan, it works in a similar way.

The only problem is…that it can only repay existing investors by raising new cash/ issuing new bonds, thereby never repaying the principle national debt, just adding more to it. And where do all the proceeds go…governments spend it…essentially on whatever they like, in the guise of provided ordinary citizens with ‘essential’ social services.

Wasn’t Bernard Madoff sentenced to 150 years in prision for doing exactly the same thing?? His was clearly illegal fraud, but what of national governments, is their ponzi scheme legal, and on what basis?

What does this mean for ALL governments that issue debt….they are all insolvent, borrowing money to make repayments on existing loans….any individual that ends up in this state would clearly need severe financial guidance, if an entire nation is in this position, let alone the biggest economies in the world..what will the end game be to all of this?

See these posts for more insight into this legal government fraud



This following piece sheds light on the actual costs needed to cover the US governments’ ponzi debt





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