Why our economy is a giant Ponzi scheme

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    • #434468
      eridani
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      • Total Posts: 9,978

      https://moneyweek.com/economy/global-economy/601657/why-our-economy-is-a-giant-ponzi-scheme

      The rapid recovery of equity and credit markets has surprised most investors and commentators. It is due to the extreme measures implemented by central banks and governments to support their financial markets and stimulate their economies. This has allowed prices for risk assets to become detached from underlying trends in the global economy. This is not a new phenomenon. For about 30 years central banks have become increasingly active in financial markets. Central bank activism has been instrumental in suppressing financial market volatility. This has made financial assets seem less risky than they otherwise would be, driving prices higher and encouraging excessive accumulation of debt.

      Central banks have successfully inflated asset prices, but all their interest-rate cuts and money printing have not – yet– given consumer prices a significant boost. Why not? One thought experiment that can shed some light on this conundrum is to think about the dynamics and consequences of a hypothetical enormous Ponzi scheme – perhaps similar to Bernie Madoff’s infamous one, but much larger. In a simple Ponzi scheme, the organisers mark up clients’ accounts to reflect apparently consistent good returns. But the returns are not genuine. Clients’ withdrawals are simply met from new client inflows. The result is “phoney wealth”.

      In this case those who withdraw their funds will end up with newly created money in return for their notional holdings in the Ponzi scheme. The money supply (the amount of money in the economy) will jump. But is that necessarily inflationary? The Ponzi scheme customers now have money in the bank where they previously had what they believed were funds in a safe and secure investment scheme. It is not clear that they will rush out to spend this money. In fact, their “financial near-death experience” – when it looked as though the scheme was about to collapse – may make them particularly cautious.

      This Ponzi scheme analogy helps to explain why post-crisis central bank purchases of assets at inflated prices relative to fundamentals does not, in itself, necessarily create generalised inflation, even when money is created in the process. But in the real world of today there are other things going on too. Central banks and governments are also subsidising lending to, and creating money to support, businesses that may ultimately fail.

      Jesus: Hey, Dad? God: Yes, Son? Jesus: Western civilization followed me home. Can I keep it? God: Certainly not! And put it down this minute--you don't know where it's been! Tom Robbins in Another Roadside Attraction

    • #434486
      jwirr
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      • Total Posts: 1,917

      The last two articles here have mentioned when all this sh-t started. Thirty or forty years to build to the failure we are seeing now!! People had better learn right here and now that Republican (and NeoDemocratic) policies are totally geared to make the rich richer at the expense of all the rest of us.

      jwirr

    • #434499
      Mr. Mickeys Mom
      Moderator
      • Total Posts: 6,209

      The dollar I used then is laughable. Not everything has been inflated, but the construction costs for a single room renovation to our small abode that we put off will show that some things have come down.

      Yet, the money printer continues to still go, “Br-r-r-r-r-r-r-r–r-r-rrr”

      Hell, no... I'm not giving up...

      • #434600
        eridani
        Participant
        • Total Posts: 9,978

        –given that most money in circulation happens to be ones and zeros in computer records.  Traditional specie accounts for 5-10% of money these days.

        Jesus: Hey, Dad? God: Yes, Son? Jesus: Western civilization followed me home. Can I keep it? God: Certainly not! And put it down this minute--you don't know where it's been! Tom Robbins in Another Roadside Attraction

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