The Entire Economy Is a Ponzi Scheme

Ponzinomics

Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky, the Wall Street Journal and many others say that our entire economy is a Ponzi scheme.

Former Reagan budget director David Stockman just agreed:

So did a top Russian con artist and mathematician.

Even the New York Times’ business page asked, “Was [the] whole economy a Ponzi scheme?

In fact – as we’ve noted for 4 years (and here and here) – the banking system is entirely insolvent. And so are most countries. The whole notion of one country bailing out another country is a farce at this point. The whole system is insolvent.

As we noted last year:

Nobel economist Joe Stiglitz pointed out the Ponzi scheme nature of the whole bailout discussion:

Europe’s plan to lend money to Spain to heal some of its banks may not work because the government and the country’s lenders will in effect be propping each other up, Nobel Prize-winning economist Joseph Stiglitz said.

“The system … is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government,” Stiglitz said in an interview.

***

It’s voodoo economics,” Stiglitz said in an interview on Friday, before the weekend deal to help Spain and its banks was sealed. “It is not going to work and it’s not working.”

[The same is true of every other nation.]

Credit Suisse’s William Porter writes:

“Portugal cannot rescue Greece, Spain cannot rescue Portugal, Italy cannot rescue Spain (as is surely about to become all too abundantly clear), France cannot rescue Italy, but Germany can rescue France.” Or, the credit of the EFSF/ESM, if called upon to provide funds in large size, either calls upon the credit of Germany, or fails; i.e, it seems to us that it probably cannot fund to the extent needed to save the credit of one (and probably imminently two) countries that had hitherto been considered “too big so save” without joint and several guarantees.***

As Nouriel Roubini wrote in February:

[For] problems of that magnitude, there simply are not enough resources—governmental or super-sovereign—to go around.

As Roubini wrote in February:

“We have decided to socialize the private losses of the banking system.

***

Roubini believes that further attempts at intervention have only increased the magnitude of the problems with sovereign debt. He says, “Now you have a bunch of super sovereigns— the IMF, the EU, the eurozone—bailing out these sovereigns.”

Essentially, the super-sovereigns underwrite sovereign debt—increasing the scale and concentrating the problems.

Roubini characterizes super-sovereign intervention as merely kicking the can down the road.

He says wryly: “There’s not going to be anyone coming from Mars or the moon to bail out the IMF or the Eurozone.” [Others have made the same point.]

But, despite the paper shuffling of debt at the national level—and at the level of supranational entities—reality ultimately intervenes: “So at some point you need restructuring. At some point you need the creditors of the banks to take a hit —otherwise you put all this debt on the balance sheet of government. And then you break the back of government—and then government is insolvent.”

Peak Demographics?

Indeed, population may be the biggest ponzi scheme of all. Specifically – as we’ve pointed out for years – rapidly-aging populations in the developed world will exert a big drag on the economy.

The Global Mail notes:

Half the world, including almost all the developed world, now is reproducing at below replacement level. A generation from now, according to United Nations Population Division projections, less than a quarter of the world’s women – most of them in Africa and south Asia – will be reproducing at above replacement rate. And those UN forecasts are probably on the high side, for reasons we’ll come to later.

And as the birth rate has plunged in developed nations, and the native-born population has begun to shrink and rapidly age, governments and business have sought to make up the numbers by importing people to prop up their economies. It’s all they know how to do, for our economic system is, at its base, a giant Ponzi scheme, dependent on ever more people producing and consuming ever more stuff.

But what happens if that all stops? What happens when you get an ageing, shrinking population that consumes less?

“The answer to that question is that we don’t know because it’s never happened before,” says Peter McDonald, professor of demography and director of the Australian Demographic and Social Research Institute at the Australian National University.

***

“We’re certainly operating a Ponzi scheme in Australia,” says Dr Bob Birrell, an economist and migration expert from Monash University.

“Our growth is predicated on extra numbers… [and] more of our activity is going into city building and people servicing, which do not directly produce many goods that can be traded in overseas markets.

***

Half the world is facing the problem of low fertility, and Australia, with its massive program of importing people, is providing an extreme example of one approach to the conundrum.

In a nutshell, the problem is this: lower fertility rates mean older, less innovative and productive workforces. More importantly to the Ponzi economic order, older, stable or declining populations consume less. So growth requires either importing people, or exporting stuff, or a combination of the two. Orthodox economics simply can’t cope otherwise.

Europe as a whole has been reproducing at well below replacement rate for close to 40 years. The last period for which UN data showed Europe’s total fertility rate above the replacement rate was 1970-75.

Europe’s contemporary demographics give new meaning to the descriptor ‘the old world’. The continent’s average person is over 40 now. By 2050, if things continue on trend, the average European will be 45.7. If one takes the UN’s “low variant” projection, he/she will be over 50 years of age.

And the low variant now looks closer to the mark. Fertility rates had actually rebounded a little over recent years, the result of a bit of “catch-up” after a shift over several previous decades in which women delayed child-bearing. But the European recession has set fertility rates plunging again.

<p>Jamie Ferguson/The Global Mail</p>

Jamie Ferguson/The Global Mail

The recession’s effects will likely linger for decades, in lower rates of earnings and savings, and also in reduced fertility.

***

Last year, Forbes magazine, that most reliable voice of the economic orthodoxy, laid the blame for Europe’s economic decline squarely on its citizens’ failure to reproduce in adequate numbers, in an article headlined What’s Really Behind Europe’s Decline? It’s The Birth Rates, Stupid.

The Forbes piece was unequivocal: the biggest threat to the European Union was its low fertility rate.

***

The piece ended with a dire warning that unless Club Med managed to induce people to have more babies, catastrophic economic consequences would flow for all of Europe and maybe the world.

***

As Thomas Sobotka, one of the authors of a 2011 study on population trends by the Vienna Institute of Demography, told the Guardian newspaper, massive cuts in social spending would only exacerbate the problem.

“This may prolong the fertility impact of the recent recession well beyond its end. It could lead to a double-dip fertility decline,” he said.

But when it comes to fertility declines, Asia takes the cake.

Japan, Singapore, South Korea, Taiwan, Macau, Hong Kong, and most importantly China currently all have fertility rates lower than those of Europe.

***

China’s and Korea’s are about to start falling, if they haven’t already.

“I’m pretty pessimistic about the east-Asian situation,” says McDonald. “I think those countries find it very difficult move in the right direction of supporting work and family, in particular, reducing work hours.

“We are now talking about some 30 per cent of Japanese women not getting married.”

“I saw a couple of people from the Japanese government give a paper recently, essentially accepting this as an inevitability – a low birth rate forever,” he says.

It’s the same all over Asia.

***

Hong Kong has a birth rate of 1.09, which is on track to see its population almost halve in a generation. Taiwan is at 1.10; China, 1.55; Thailand, 1.66; Vietnam, 1.89. Even Indonesia’s fertility is just above replacement rate, at 2.23, and is falling fast. Malaysia and the Philippines are still growing pretty quickly, as are the south-Asian countries, which may give them a competitive edge for a few decades – and a growing export industry of people. But it is not projected to last more than a few decades.

Let’s return to America. The United States also is reproducing at below replacement rate, and its birthrate has declined sharply in recent years.

***

The US birth rate not only fell to its lowest level ever in 2011, but the greatest decline was among immigrant women.

***

In the longer term, the world will have to adjust its economic system to cope with the novel concept of less. Fewer people, less consumption, lowered need for resources, energy, housing, roads, you name it.

Indeed, smart curmudgeons like Jeremy Granthan and Chris Martensen think that we have not only “peak” demographics, but also peak resources.

There’s HOPE

The above is admittedly depressing. But the reality is that there’s hope.

We can have a very bright future, indeed … if we switch from the status quo to something smarter. For example, see this and this.

For example, we can cut out the middlemen in the banking and political realms … and prosper.

And as we’ve previously noted about energy:

The current paradigm is that energy is produced expensively by governments or large corporations through gigantic projects using enormous amounts of money, materials and manpower. Because energy can only be produced by the big boys, we the people must bow our heads to the powers-that-be. We must pay a lot of our hard-earned money to buy electricity from them, and we can’t question the methods or results of their energy production.

Our life will become much better when we begin to understand that energy is all around us – as an ocean of electromagnetic forces and as a byproduct of other processes in the form of heat, pressure, etc. – and all we need do is learn how to harvest it.

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  • http://www.facebook.com/people/Zaharia-H-Hoyeru/1477194526 Zaharia H Hoyeru

    But but but, are you admitting Capitalism as a whole economic system is a fake??? Didn’t Marx already say that like 200 year ago????

    • nveric

      Marx was a long time ago and is irrelevant. Followers of Marx are likewise of a bygone era. And, to your question, I’ve known Capitalism is a Ponzi scheme, but it’s not fake. Capitalism was OK for a growing country, but by 20th Century it was already past it’s worth.

      • Dube

        “Capitalism was OK for a growing country.” Good point.

      • Red Scourge

        The places in the world which are currently the closest to real capitalism today, such as India, Singapore, and Hong Kong, are experiencing the highest growth. The places which used to be but which are no longer, such as Europe and North America, are no longer experiencing real growth.

    • aidankirby

      Capitalism and Communism are twin brothers.
      Both use a J E W owned Central Bank and ‘finance’ based on the TALMUDIC money loan.
      Neither promote a sound economy or currency, both are wealth swindles from Gentiles TO J E Ws.

      • truth

        You sir are absolutely correct! It’s telling that nobody here has addressed THE real problem as you have. I commend you for speaking the truth.

      • Red Scourge

        There has never been a point in time when real capitalism has existed. The definition of capitalism is private ownership of the means of production. That would require no regulations on business, because regulations infer that the owners are limited in what they can do, thus inferring limited ownership. What we have today is most accurately called state-capitalism, also known as crony capitalism. Since we’ve never had capitalism, anyone citing Marx or anyone else to try to discredit it has failed before they have began.

        • SRD

          You are absolutely right. This isn’t capitalism, this is cronyism. When the central banks are in bed with the government to gain wealth while the government gains power, that is not capitalism. It is not twin brothers with communism. You have never in your life in the USA seen real capitalism. It cannot exist when the government steps in and makes deals with any of the players. That is all we have ever known and for some reason people think that is capitalism. Incorrect.

    • http://www.facebook.com/people/Abinico-Warez/100002657822528 Abinico Warez

      Marx did one and only one thing – he criticized capitalism. His criticism is as valid today as when originally formulated. Marx made the point that capitalism is great, if you are a capitalist – not so great for the rest of us. And what is most reprehensible about capitalist economics is that the worker is treated just like another input factor – hence workers get a standard minimum wage and do not share in the wealth they create.

      • Dave Kimble

        Exactly. And notice how it is only when US citizens are doing it tough that they start to question Capitalism. The First World never bothered about the Third World while the going was good for themselves. They allowed the poor nations to be exploited by the rich nations without a second thought, and didn’t bother too much about the inequality in their own societies.

        And when the poor of the rich nations started getting poorer, they happily went into debt to keep on consuming – based on a simple promise to pay the money back (with interest) later out of future wages. But when the wages dry up, they lose everything.

        It is a Ponzi scheme, but a better label would be a game of Monopoly, and we all know how those end.

      • Red Scourge

        You might have a point there, if not for the fact that what we have today is actually more like socialism than like capitalism. All of the tenets of the communist manifesto have been met or exceeded, even in the most capitalistic countries today.

  • nveric

    Whether the “system” is insolvent or not depends on the massive accumulations of money – Physical money is one piece, savings and checking accounts another. These are the most real, with I suppose Treasury Bonds and notes coming next, but my banking and finance is sketchy in this area. The rest of the “wealth” is what’s not yet known, because the value of the other stuff depends on a buyer.

    It’s this buyer thing which makes the system a Ponzi Scheme. Seems the idea was for “it” to go on “forever,” so there was “always” another buyer in time who would sustain the system.

    Greed, hubris, whatever. What eventually happens is the more and only thing to focus on. Oh, PANIC won’t be fun. People jumping out windows, throwing themselves in front of trains, brains splattered in the foyer, and so on. Besides PANIC, the next would be RIOT. RIOT wouldn’t be fun either. Bodies torn into little pieces, structures burned, and other un-fun stuff.

    But then, however, reason is in short supply, seeing there’s this PANIC and RIOT coming our way. Maybe some of the PANIC and RIOT would do some good, but…….

    • Red Scourge

      Treasury bonds are not money, because they are promises to pay which can no longer be kept, unless perhaps they’re paid by making larger promises further down the road, but that’s been the going strategy for decades and too many people are starting to realize this. What I’m worried about is that we will get something even more socialist than what we’ve got today, because when things collapse, all we will have left are armies of people who were trained by the public schools to be economically ignorant, who will have a great mistrust for the people who were private schooled and understand economics but who by and large only used that knowledge to rip them off.

      • nveric

        OK, thanks. I’m no socialist, but Capitalism has too many drawbacks since it was De-Criminalized over the past 30+ years. Economics is not a science. The variables are from many to astronomical.

        Hey, I’m from public schooling, but have done my share of learning since then, reasoning how an economy starts from scratch, and over time money gets invented, then it seems exploitation increases, and more so once profit is the goal. Markets are snapshots of imperfection. There never can be perfect information or knowledge to make the correct decisions. If the goal is to acquire wealth through competition in free markets, civil society goes away, thus government fails its purpose.

        How can Happiness be pursued when violence of the market rules over reason and the greater mutual necessity required by civilization? People form into these groups for mutual protection, not to be thus forced into battle by market forces solely to receive wealth and what wealth can purchase. That outcome is individualism, not self-interest. Self-interest is mutually beneficial, as the health of all provides the greatest gains possible. If people are healthy and educated, reason points to mutual beneficial society being the shared pursuit of shared Happiness. Individual gain and and individual pursuits must be strictly limited, preferably by the person, or an imbalance grows. I never went for the selfishness in “Ideas have Consequences” by Weaver. If people want to be left alone, fine. By aiming to acquire vast amounts of wealth solely to do as one pleases goes against decent and civil society.

        • http://www.facebook.com/jordan.breon Jordan Breon

          Markets are not inherently violent. When I sell an object to my neighbor, we both walk away happier than before. I wanted the intermediate good more (often called ‘money’) than the object, whereas my neighbor preferred the object to the money. We both satisfied a set of conditions through voluntary means. This assumes I was not pointing a gun at my neighbor or misrepresenting what the object was or its other properties, of course.

          Now, what if I sold those objects with the sole intent of accumulating money (again, an intermediary good I value more than having that number of objects)? In other words, profit? Does this somehow make my neighbor’s subjective value of the object go down? Is he less happy with the object because my goal is to sell more objects in the future?

          This is the very basic example of voluntary exchange, free markets, and capitalism.

          • nveric

            Yes, you’re correct, however, the violence is from its imposition and secondly, when citizens reach maturity they’re not given an equal share in starting money.

            Thirdly, the notion of having perfect information before making a decision. Information can never be perfect, for the long-term consequences are never known before hand, and information is withheld by both parties to gain in their bargaining positions.

            Fourthly, capitalism is for a rapidly growing country where sums are needed to do stuff as needed. Those days ended 100 years ago.

            “…voluntary exchange, free markets…”

            Voluntary exchange is very old, before civilization.

            Free Markets as defined for the World of today sounds fine and dandy, in theory, but doesn’t work to benefit the people of any country, just those who are able to do it.

            The fundamental basis for our economic system is profit. This is inherently violent, because of the many parts which go into our economic system were devised long ago and without our consent.

            Money – What is it?
            Profit – What is it?
            Wealth – What is it?

            We don’t start out equally, so the game is against us, and it is a game – a deadly game – because it’s a fight to get more than anyone else. This is the goal of Capitalism. Call it what you want, but it still boils down to an uneven struggle to take something extra from people. It worked OK long ago, but not in modern life. This was when people left their only safety net – the farm. Without an inherent source of food, people today are dependent on this Capitalism system. Their bargaining position is nothing when there’s a surplus of people able to work. So, the ones who accept less, get the work. The others go without and or die. This is violent. People are dying from this economic system we have. Not everyone has the wherewithal to operate independently, in fact most people don’t. People now have to rely on a system set up before they were born. While the theory is we all have a shot at “making it” the violent truth is we all can’t make it. It’s absolutely impossible for everyone to gain from our global system, because it requires inputs.

            So, with a system with imperfect information, a goal of getting more from others, unequal starting conditions, and so on, the purpose of having government – that of protecting the people – is lost to market violence.

          • RedScourge

            Your understanding of capitalism is flawed if you think “it’s a fight to get more than anyone else”. It’s not a fight at all, it is simply an economic system, and all an economic system does is offer a vehicle through which people attempt to satisfy their needs and desires by working together through voluntary exchange. Above all, comparing economic systems requires understanding the basic economic fact that wealth is not a zero sum game.

            Capitalism says nothing about forcing people to participate in capitalism, no economic system does, thus it cannot be “violent”. What is violent is for a third party to forcefully redistribute another person’s property, which socialism always historically seems to have to do, because strangely enough, even the most hardcore socialist when asked doesn’t seem all that willing to have their home reallocated for a half dozen needy Africans to share, and that says it all.

  • marvin nubwaxer

    quack quack quack, stockman is a quack.

  • michael mazur

    Problem; 46% of the US labour force is unemployed. Solution; no one may work more than 30hrs a week. Amongst many evils ended, homelessness amongst 1,000,000 public school graduates would end.

    • Red Scourge

      So your solution to a lack of prosperity is to ban people from working harder? If this is the kind of economic thinking prevalent in the world, no wonder everyone’s going broke. These sorts of policies are already hurting enough poor people as it is by forcibly preventing everyone too uneducated to be worth $7.25/hr from working if they wish. And then we wonder why crime is so out of control and why people are so willing to join gangs to help the mafia resell drugs.

      The truth of the matter is that I could solve the world’s economic issues in twenty years if given dictatorial power, but so long as the world is stupid enough to look to others like me for solutions to their problems rather than looking to themselves, then they deserve all the dictatorships they end up with as a result.

  • hvaiallverden

    hehe
    So the f…. are waking up to the reality of this insane monetary policy.

    This is not about soscial sec. wellfare, infrastructure, educations a.s.o. all the talk about or the consequences of warious parts of this in any term is just a f…. divertion from the real issue, the thefth of a nation and the values the people represents and have.
    Its the people that is the driving force bahind any comers, and the parasittic banking system is just that, a parasitt.
    With no inherent value at all, its just the current monetary policy that alows this insane behaviour and thinking.

    This is not about, of against capitalism, thats a fals asumption, the problem is this Fraud and direct swindling of an intire nation, the to bigg to fail, thats the problem, wack them and eraze the debth, give people back their houses, and the military ind. complex.
    But of course, to stopp killing, plundering and destroying other lands and people IS the policy of the UssA and their cheifs, the RobberBarons.

    If I was in charge I could turn the shipp within Hours.
    And the first thing I would do is to build a massive dungeoun, where they all can reside and the just thorw away the keys.
    When capital crimes are involved, we the people must induse capital punishment.
    No mercy, becuase thats the name of Their game.

    And then there will be peace on our earth.

    But all this is just pipe dreams, for whats going to happened next, well, the downfall of the UssA is the key, and the welth transfer is soon completet, the power to be have already relocated their wealth so thats the biginning of the downfall.
    China and Russia is both controlled by the wery same force that is destoying the UssA.
    And the Ponzi sceem will continue, just a reshuffeling of power.
    And we all know why, private own sentral banks.’
    Like the fact that NOBODY mentions the real dragon in this sceem, the Bank of International seltlements, in Basel.
    Nobody.

    This is also the reason for the Gun regulations, and the close down of the UssA will probably be forfilled with in this year.

    No we are as humans indeed deeply and thruoutly b…f…. and will continue to be b…f….

    Otherwise, the article and its reports are correct, its just that nobody wants to talk about the future, and that future looks grim.
    Wake the f.. up.

    peace

    free Palestina

  • http://www.youtube.com/user/01DOGG01 01DOGG01

    Finally, someone tells us that constant mandatory growth is an unsustainable venture.

    Basic mathematics applied to reality would tell us this. But we all live on a dream of getting rich quickly.

  • John

    Protect your family!

    Put your savings into “PHYSICAL” Gold & Silver!

    Do NOT use a bank deposit box, they are not safe!

    Don’t wait, do it now! We are almost out of time.

    • Red Scourge

      If things get bad, they’ll just come for your gold like they did a hundred years ago. Sorry to burst your bubble but once the “assault rifles” are gone there will be no safety left from the con artists in Washington and their hired guns.

  • gozounlimited

    USA’s “Ponzi Scheme” Kills Global Economy!….. see here: http://www.youtube.com/watch?v=WhwUiBGxufM

  • Ken

    He who creates a system by which the whole world adopts, gains all the wealth. Of course greed is a great means of consuming one’s self. It will be interesting to see into the future. My bet is, as always with greed, Empires turn back to sands, or in case of the Mayan Empire, back to the jungle.
    Money is a concept, it is not real nor easily quantifiable. Many things represent it’s units of exchange which ebb and flow based on the whims of what a culture values. As greed increases, idiocy and stupidity increase and loosing the great knowledge of the societies ensues. No empire has ever been immune to self-destruction. The great tragedy is the loss of the Library of Alexandria, the general knowledge of what is good and healthy. Mayan, Roman, Mongol, British, American, Chinese, all empires grow and die, it is as cyclical as the rise and set of the Sun.

    Most Empires last about 250 years, that is not exceptional and the course of the USA seems not to be exceptional at all. America has been sold out, turned into a morass of sickness, perversion and destruction of the innocent and hard working. Alas, pride will find contention in my statements and pride is sold over and over to the masses by the elite to our ever ending destruction.

    It amazes me that a so-called Christian Nation buys into a system of usury as the Bible itself derides usury which is defined by loaning money at interest and giving the creation of money to private interests which then charge the people interest for loaning it to the government. If a country sells bonds, it puts it’s people in Bondage to these private interest. That’s slavery my friends.

    Hence the dumbed down average person accepting this normalization as the heard stays together following the wolves that consume it will most likely continue to do so. That is why the end is inevitable for empire, that is why the people who can and understand this paradigm have become ‘expats’.
    Expect unprecedented changes in the near future as those who understand and prepare may very well survive well, the ignorant, indoctrinated and followers of this insanity will suffer in horrific ways yet to come and be seen.
    Stay tuned, ignore mass media and I hope I am wrong. Meanwhile, live well, keep it simple and be with people, not technology.

  • olde reb

    The Ponzi bubble started in 1913. The money to pay off the U.S. National Debt does not exist. The National Debt of $16 trillion will have the same affect on the U.S. as the debt in Cyprus, Greece, Spain, etc. The same “financiers” who control the IMF and WB (i.e., Wall Street) have already bankrupt the undeveloped nations and are now working up the food chain. The U.S. is next. Already austerity is a media ploy. This is the New World Order that David Rockefeller touted as utopian control by elite bankers. It is funded from the $4 billion hidden daily by the FRBNY from the auctions of Treasury securities. Ref. http://www.scribd.com/doc/115919607/FUNDING-OUR-OWN-SELF-DESTRUCTION

  • snatchhat

    problem with printing money is some are much closer to the PRESS

  • http://www.ferrocement.com/ Garrett Connelly

    Exactly why catholics and republicans are so adamantly against birth control.

    The elegant riddle is how to prosper with world-wide justice during a decline of economic intensity that allows the earth to heal. This subject has been patiently brought up and aggressively suppressed for over a century.

  • Libertas !

    “We can have a very bright future, indeed … if we switch from the status quo to something smarter. For example, see this and this.”

    We can be even more prosperous if we do this: http://www.geopolitics.us/?p=1645 (Toward a Flow Economy)

  • leviajack

    Good to hear about this issue! Bail Bonds Los Angels

  • James

 

 

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