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The Forum > Article Comments > Ponzi scheme > Comments

Ponzi scheme : Comments

By Puru Saxena, published 24/2/2010

Governments in the west are running mind-boggling budget deficits and printing money like there is no tomorrow.

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I guess if you are selling magazine subscriptions, you need to make your offering sound exciting, dynamic, iconoclastic and (shiver)... daring.

But to describe - in the headline, even - the government bond market ("the"?) as a Ponzi scheme, is stretching the term beyond any useful purpose.

"It is our contention that similar to Mr Madoff's hedge fund, the sovereign debt markets in the West have now become gigantic scams."

Contention is a good word.

Contentious would be even better, to describe the article as a whole. In fact, if it weren't so clearly a sales document, it would be objectionable.

Definition time. 'A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.'

Apart from one fleeting reference, nothing in the article justifies this label

"In our view, in the not too distant future, the interest payments on the outstanding national debts in the overstretched “developed” nations will become so large that their central banks will need to create money"

No numbers. No graphs. No detail. No analysis.

Just "in our view".

All this hyperventilation, simply in order to justify its investment advice that...

"Accordingly, we are not investing in sovereign debt and we suggest that you refrain from lending money to dubious governments"

Which they immediately hedge (this is of course the "advisor's retreat") with:

"we are aware of the possibility of a near-term rally; especially if there is another round of risk aversion in the financial markets"

In other words, we could be wrong, especially if things we predict don't actually happen.

I'm genuinely surprised that this level of blatant spruiking is considered of interest to OLO readers.

They could find more balanced views in the Pyongyang Times.
Posted by Pericles, Wednesday, 24 February 2010 9:30:43 AM
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Does 'quantitative easing' (QE) equate to a Ponzi Scheme? I guess it doesn't qualify if the motives for QE by Reserve Banks are 'in the public interest'. It does however, if people like Mugabe dictate the production targets of currency printing presses.

But hyperinflation could well be the outcome for world currencies if printing money is not quickly countermanded with nimble policy instruments to effectively take it all back when concerns over inflation replace present fears of deflation.

The massive size of sovereign debt is the 2010 legacy of ill conceived decisions to wage war, overlayed with decades of successive tax cuts to the wealthiest and all national deficits have been compounded by the failure of federal governments to restructure their inefficient 3 tier structures to deliver on-going productivity gains for the 21st Century.

We are facing a global financial crisis of historic proportions unless concerted national and global action is not taken promptly to overhaul lax financial regulation, broker peace where there is war, fix rorted and broken taxation systems, achieve a global currency and restructure the way governments govern. Can it be done? Yes it can - but with the current calibre of political leaders? No - they will wait till disaster strikes, frozen in fear.
Posted by Quick response, Wednesday, 24 February 2010 4:18:18 PM
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'Economist- an expert who will know tomorrow why that he predicted yesterday did not happen today.'

It astounds me post GFC, economics analysis from current market players never aspires to consideration beyond short term position. And long term position appears to be short term projection predicated upon that short term position.

As Dr Lacy Hunt of Hoisington Investment Management, Austin, Texas. perceptively quantifies, future western macro economic position is to be observed principly according to two significant factors;

- the expentiture multiplier rate observed from Western economies stimulus responses to the GFC, and,

- comparatives with the rising economies of the eastern tigers, specifically pertaining to GDP rates, that translates to standard of living comparative between those economies, and those in the West.

Ultimately, the key will rely upon economic management, the latter half of that term consistently apparent as receiving comparable consideration to that it receives from the IT industry currently, with ethical integrity and required balance effectively non existent.

I retain no confidence this culture will be remedied in the time frame required. For management is a science, and whlie the west continues its intransigent colonial cultural monopoly upon the application and practice of management, that as the western inheritors of the science, its principles are for everyone else to observe but not incumbent upon itself, we will doubtless observe no change realised.

Alike experience of the GFC, by the time the west is aware of its negligence and duplicity, it is doubtless global warming will probably have reduced the planet to the appearance of a thermowave.

For economic management in the west appears a contradiction in terms, its reminiscent of watching the League of Nations after World War I, conducting consultation for aversion of further global conflict.
Posted by Ngarmada, Wednesday, 24 February 2010 9:02:43 PM
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Back in the old days when Mum and Dad still lived in Snake Gully an edicated fello came down to explain ekonomixs. After a big speach Mum turned to Dad and said "what did he say" as she couldn't understand, Dad said "if your outgo exceeds your income your upkeep will be your downfall." So what has changed.
Richie 10
Posted by Richie 10, Thursday, 25 February 2010 6:46:13 AM
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The author demontrates that they have NO understanding of the most basic nuts and bolts functioning of our modern monetary economies.

The author believes that we are still on the gold standard and that all the rules and limitations that applied before 1971 actually still apply today.

Governmemt budget deficits will now be a permanent feature - perfectly sustainable - as they always were.
Posted by Fozz 2, Saturday, 27 February 2010 5:56:05 PM
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Actually the situation is worse than Puru indicates.
He as well as a number of the respondents here have assumed that
governments can simply work their way out of their monetary situation
by recovery and growth.
Growth is needed to provide the resources to pay the interest bill.
However, what if there is no growth ?

No growth, I can hear you say, impossible !
Growth only comes when you have the energy and resources that can be
expanded to provide the extra goods and services to repay loans and

You should understand we are now up against maximum energy, ie what
is commonly known as peak oil and peak many other resources.
The economy is already showing the strains of the limits being reached.
China and India have already strained the system and will
also feel the restraints of supply.
What do you think kicked off the sub-prime loan crash in the US and
started us all down the giddy GFC slope ?

You should understand that after the plateau will come the decline
in just a few years.
The massive US debt cannot be repaid.

You need to understand the current economic stagnation in Europe and
the US and eventually the world is permanent.
Posted by Bazz, Tuesday, 2 March 2010 9:29:49 AM
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