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Posts Tagged ‘Ponzi scheme

Dear Ben, please print us more money

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by testosteronepit
Posted August 30, 2011 

Please print us more money. We want you to prop up the stock market. Everybody knows it’s a Ponzi scheme that will collapse without your support. You don’t want us to end up like Bernie Madoff’s clients. No, Ben, we love Ponzi schemes. We get in early and get out before they collapse. That’s why we’re rich. The bad thing is that they sometimes collapse before we can get out. But you already bailed us out twice in the last couple of years through printing trillions of dollars. Why not a third time?

That will also keep the bond-market bubble inflated. We have to admit that you’ve done an excellent job there, hands down. Negative real yields all the way up the yield curve! Awesome. Now if you could just print a few trillions and buy up the sovereigns from the PIIGS. Euro crisis over. End of story. And we’d get richer because we’d sell them to you at face value though we bought them at fifty cents on the dollar.

And why not forever? Just keep printing. Because as soon as you stop, stock markets will crash again, and credit markets will seize, and then we’re back on this awful ride to hell.

Of course, it’ll cause inflation, which is good. You yourself said that. You stated many times that you want inflation. In fact, you said that one of the goals of the Fed, after propping up the markets, is to create inflation. So stick to it, Ben. Don’t slack off suddenly just because some cowboy threatened you.

Inflation, in conjunction with your near-zero yields, has all sorts of benefits. For example, it will eat up the Social Security trust fund, whose $2 trillion balance is invested in treasuries. Fixed-income investors, retirees, and everybody who has any savings will also be demolished. And homeowners. But don’t worry. They won’t figure it out. They don’t get a statement every month that shows how much inflation cost them. It’s a quiet way of stealing from them, and it’ll impoverish them over time, but it’ll make us, the recipients of the money you print, richer.

You see, Ben, we can charge higher prices for our goods and services. And even if we have to pay more for raw materials, we look good. Our inventories increase in value, and we can claim sales jumped 10% because we raised prices by 10%. Analysts dig that.

Recently, Ben, you’ve done a decent job on inflation. In July, we were running at an annual rate of 6%. Not bad. But you need to preempt any cooling off. So keep printing.

Now, we’re not talking about wage inflation. Oh no. We have to keep wages down. We need cheap labor, or else we’d have to send these jobs to China—which we’re doing anyway. And not just to assemble iPhones. Heck, our lawyers in India are doing the same work as our local lawyers for one-tenth the pay. So, if our local lawyers want to be competitive…. Just think how much more profit we could make if wages collapsed!

Real wages have been declining for ten years and fell another 1.7% since July 2010. But that’s not enough. So get with it, Ben. Print more. And don’t worry about the wusses out there who say that choking the middle class like that will put us into a permanent recession. Just get the banks to loan them lots of money so they can buy our stuff, and when the loans blow up, you buy them from the banks at face value. Full circle, Ben.

The trillions you’ve printed and handed to us, well, we put them to work, and we created jobs in China and Mexico and Germany, and we bought assets, and it inflated prices, and now we’re even richer. We’re proud of you, Ben. Think of the influence you have. And not just here. Around the world, Ben! Look at the Middle East and North Africa. See the food riots, rebellions, and civil wars it caused? Thousands of people died and entire governments were toppled…. Oh, wait. That’s a bad example.

And then there is Congress. We invested in them through campaign contributions and other mechanisms to get them to spend trillions of dollars every year on our products and services, and they even started a few wars, and it made us richer—without taxing our companies or us. It’s a wonderful system.

But the deficits have become so huge that they exceed what the Treasury can borrow. So we’re glad, Ben, that you stepped up to the plate and printed enough money to monetize the deficit. But Ben, you can’t just stop now! You’ve got to keep at it. Or else, the whole system will blow up. Well, it’ll blow up anyway, but we don’t want it to blow up now. So, Ben, you don’t have a choice. Otherwise, we’d lose a lot of money in our schemes, and nobody wants that.

We’ve just breached the debt ceiling… Next comes the default

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by Graham Summers
Posted Phoenix Capital Research on May 25, 2011

WHILE BARACK OBAMA IS CHUGGING Guinness and Congress is doing… well not much of anything, we’ve breached the US debt ceiling.

That’s correct, the US now has more debt than is legally permitted. We’d crossed the “more debt than is healthy” as well as the “more debt than is sane” levels long ago. However, it wasn’t until the last few weeks that we cleared the legal debt limit. You’d think that the world’s largest economy (and home of the world’s reserve currency) exceeding its debt limits would be big time news. But we’ve yet to hear a peep about it from the mainstream financial media.

It’s even stranger that we haven’t heard mention of the fact that the US is in fact RAIDING pension funds to continue to fund its debt.

That’s correct, Tim Geithner, who aside from being a tax dodger has managed to make US Treasuries (formerly the ONLY risk-free investment in the world) so unattractive to foreign investors that he is now using money that was promised to retirees to fund his debt orgy. Let’s think about this for a moment… US Treasuries are so unattractive that investors no longer want to buy them… so we’re using money promised to those who worked… to buy them.

Simply staggering. Aside from being morally wrong, Geithner’s moves are the usual “I’ve got no solutions so I’m just going to come up with something on the fly” nonsense we get from the DC crowd. Even Geithner himself has admitted that his latest scheme will only buy the US about three months’ time before we start defaulting on our debt.

That’s not a typo… Geithner has publicly stated that barring any sudden changes in the demand for US Treasuries, the US will DEFAULT in August 2011.

In some ways this doesn’t matter. The US was going to default soon anyway. The US Federal Reserve is the primary buyer of Treasuries now. And it’s simply buying 50+% of all new debt issuance back from Wall Street (usually within a week or two of the debt being issued).

In other words, the entire US debt structure is now a giant Ponzi scheme.

Travesty of a Mockery of a Sham, Phase II

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by Charles Hugh Smith
Originally posted in Of Two Minds
February 10, 2011


The U.S. economy has become increasingly dependent on asset bubbles, financial legerdemain, credit expansion, Federal borrowing and the manipulation of risk trades to maintain the illusion of “growth.” Compared to an economy based on organic demand and productive growth, the current U.S. economy is a travesty of a mockery of a sham, and has been since 2001.

There are a number of factors at work, but let’s start with two: the ratchet effect, and the Keynesian Project.

In the ratchet effect, increases are easy and resistance-free: it’s incredibly easy to hire more employees in bureaucracies, for example. But once the ratchet has advanced, it is nearly impossible to return to the previous tooth in the gear.

So for a city government to expand payroll from 10,000 to 20,000 employees was effortless, to reduce a 20,000 person payroll back to 10,000 is exceedingly painful.

The ratchet effect is a key feature of addiction. When one beer no longer creates a “buzz,” then the consumer drinks two, and so on, until a six-pack is the new baseline. Below that level of consumption, the addict gets panicky, for the entire necessity of creating a buzz is at risk of catastrophic failure.

The U.S. economy is now addicted via the ratchet effect to unprecedented levels of Federal borrowing and Federal Reserve credit creation and manipulation. Let’s set aside the fact that America’s Central State has by some calculations guaranteed some $13 trillion in private financial assets via TARP, AIG’s backstop, the takeover of Fannie Mae and Freddie Mac, etc. – roughly the size of the entire GDP of the nation.

Let’s focus instead on the fact that the Federal government must borrow and spend 11% of GDP ($1.5+ trillion) every year, and the Fed must buy $1 trillion in impaired private assets or new Treasury debt annually (another 7% of GDP) just to create an illusory GDP growth of 2.5% a year. So we’re spending/injecting 18% of the GDP to conjure a “growth” of 2.5%.

That means we’re spending/injecting $7 to create $1 of “growth” in GDP. And thanks to the ratchet effect, there’s no going back now without systemic disruption. Does anyone seriously believe spending $7 to birth $1 of “growth” is sustainable? If so, then let’s eliminate that $1.5 trillion deficit spending and the Fed’s $1 trillion-a-year purchases of impaired debt and Treasury bonds, and see if GDP “grows” via organic demand and production.

Everybody knows what would happen: the wheels would fall off the illusory “recovery.” The “recovery” is precisely analogous to an alcoholic who claims to be sobering up but who is actually drinking seven beers a day to get a buzz when a few years ago he only quaffed two or three a day.

Here is the Keynesian Project in a nutshell. Unfettered Capitalism works in straightforward cycles: the organic business cycle of expansion, overcapacity and overleverege inevitably leads to a credit bust in which those whose borrowing exceeds their ability to service their debt go broke, and the dominoes of overcapacity and credit expansion topple as losses mount and consumption based on increasing debt falls.

Bad debt gets wiped out, along with “pyramid-scheme” type assets (mortgaged assets are leveraged to buy more mortgaged assets) and excess capacity. As production declines, workers are laid off and consumption declines, further pressuring impaired financial assets.

As Marx had foreseen, these cycles increase in depth and severity. Though Marx invoked dialectical theory and history rather than the ratchet effect, the basic idea is the same: Capitalism becomes increasingly dependent on financial capital, and the resultant crises eventually become severe enough to take down Capitalism as a sustainable productive system.

Keynes’ proposed to counter these worsening business cycle implosions with massive injections of Central State borrowing and spending. The atmosphere of fear as assets, credit and consumption all contracted would be replaced by a revival of “animal spirits” (the magical elixir of Capitalism), consumption would be stimulated by direct government spending on capital projects and welfare (fiscal stimulus), and banking credit would be restored via stimulative Central Bank credit expansion (monetary stimulus).

But Keynes failed to grasp what Marx had intuited: the ratchet effect. Once the Central State ramped up deficit spending and expansive credit, then the organic economy became dependent on that new level of Central State spending and credit expansion.

As I described in the Survival+ analysis, in effect the central State rescued Monopoly Capital by partnering with it. This results in a financial/State Plutocracy which “saves” the organic economy by taking control of its income streams, credit creation and financial assets.

That is the U.S. economy in a nutshell: a travesty of a mockery of a sham. The consumer became dependent on easy, cheap credit and home equity extraction to maintain his/her consumption. The student became dependent on easy, cheap credit to fund his/her increasingly costly college education. Monopoly capital became dependent on financial slight-of-hand, the debauchery of credit, fraudulent mispricing/masking of risk, stupendously leveraged bets on risk assets, etc. for its swollen profits. Politicans became dependent on unlimited borrowing and spending to keep the illusions of competence, sustainability and “growth” alive.

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The Bernank, Frankie Pentangeli and a Ponzi Scheme

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by J. Saluzzi
Originally posted Feb 09, 2011

At 10 am today, Ron Paul will convene a sub-committee hearing with the topic “Can Monetary Policy Really Create Jobs?“.  It really is too bad that Ben Bernanke will not be at this hearing.

But if he was, we have a feeling the hearing would be like a scene right out of “The Godfather II” with Bernanke playing the part of Frankie Pentangeli. In fact, we just happen to have a transcript of how that hearing would have sounded:

CHAIRMAN: State your name, please.

BERNANKE: Ben Bernanke

CHAIRMAN: And where were you born?

BERNANKE: Augusta, Georgia

CHAIRMAN: And where do you live now?

BERNANKE: I live — uh — in Capitol Hill with the Fed guys.

CHAIRMAN: We have here finally a witness that will further testify to the fact that the Federal Reserve has been manipulating the currency of the United States. This witness will confirm that the Federal Reserve, for the past two years, has been operating a Ponzi Scheme known as Quantitative Easing or QE. This QE has effectively stolen billions of dollars from the savers of this country and transferred that money to the big banks. Only the Federal Reserve can inflate the currency, creating new money and credit out of thin air, in secrecy, without oversight or supervision. Inflation facilitates deficits, needless wars and excessive welfare spending.

CHAIRMAN: Mr. Bernanke — Mr. Bernanke, are you the boss of the Board of Governors of the Federal Reserve?


CHAIRMAN: There is something fishy about the head of the world’s most powerful government bureaucracy, one that is involved in a full-time counterfeiting operation to sustain monopolistic financial cartels, and the world’s most powerful central planner, who sets the price of money worldwide, proclaiming the glories of capitalism. Has the Fed been actively engaged in so called “quantitative easing”  which essentially means you are just “printing” money?

BERNANKE: I-I-I never know no money printing.  I’m just an academic, Mr. Chairman.

CHAIRMAN: Mr. Bernanke, you are contradicting a sworn statement that you previously made to “60 Minutes” and signed. I ask you again sir, you are now under oath – are you engaged in money printing?

BERNANKE: I don’t know nothin’ about that… Oh — I was a professor at Princeton but that was a long time ago, that’s all.

CHAIRMAN: We have a sworn affidavit — we have it, your sworn affidavit, that you printed money because you couldn’t lower interest rates any further. Do you deny that confession, and do you realize what will happen as a result of your denial?

BERNANKE: Look, the bankers promised me a deal. So I made up a lot of stuff about the money printing ’cause that’s what they wanted — but it was all lies — uh, everything. And I kept saying  the Federal Reserve did this and the Federal Reserve did that — uh, so I said yeah, sure, why not?

SENATOR #2: Mr. Corleone, would you kindly identify for the committee the gentleman sitting to your left?

TOM: I can answer that. His name is Timothy Geithner.

SENATOR #2: Is he related to the witness?

TOM: I believe he was the President of the New York Federal Reserve when the financial crisis hit in 2008.

SENATOR #2: Will he come forward and be sworn sir?

TOM: Senator, this man does not understand economics. He has been a lifelong bureaucrat. He came here at his own expense to aid his partner in his time of trouble. He’s not under subpoena. And due to his past tax cheating problems, he is afraid of incriminating himself if he speaks.

SENATOR: Are you saying that he knows nothing about these matters?

TOM: To my knowledge, nothing. This man is clueless on the workings of an economy. All he knows how to do is to orchestrate large government bailouts for his banker friends. His only strategy now is to just hope things get better.

CHAIRMAN: I’m gonna find out what the hell happened here! Alright, this committee is now adjourned. The witness is now excused.

TOM: Senator! Senator! This committee owes an apology, this committee owes an apology — an apology, Senator!

Can’t see the Forest for the Trees

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by Miss America
Originally posted February 3rd, 2011

Five years ago, when I showed up on the doorstep of Nouriel Roubini’s RGE Monitor, I was in the minority of macro economists who saw a financial tidal wave coming. For the rest of the world, including Wall Street’s financial analysts, Fed bankers, politicians, or even Moses himself, none of them could see how the contagion from subprime loans could cascade into a systemic crisis. A crisis that would then expose larger problems that would eventually lead to a complete financial meltdown.

Similar to the subprime loans and the subsequent credit crisis, we face a new tsunami of what on the surface appears to be of minor financial relevance, but what will be the final straw that breaks the camel’s back if not politically achieved. What it is, is ownership and accountability, from a political standpoint, for ALL of the politically- fueled economic decisions being made as well as their side effects.

For investors, it would be a catastrophic misjudgment to not escalate these macro political views into the analysis of economic work. (This is starkly different from a political debate, but rather a true non-partisan skyview of policies and rhetoric and their overall effects on the psyche of the economy.) For a financial system that is running on the fumes of confidence, we need to properly analyze this new dynamic.

Quite simply put… The cross pollination of politics and economics is not only the #1 factor in investing right now…  IT’S THE ONLY FACTOR!

We are not facing a credit crisis. (The printers solved that.) We are facing a confidence crisis. Papering over financial voids, changing accounting rules, socializing loses, removing moral hazards: these are the death throws of a ponzi scheme that is allowed to continue through the TBTF virus of our worldwide interrelated financial systems. The current green shoots are nothing but weeds of “well if we’re all screwed, then none of us are screwed.” When that’s the good news, what’s the bad?

It doesn’t take a rocket scientist (or a high frequency trade algorithm) to see that stocks are now all trading within a standard correlation with one another. From an analytical standpoint, fundamentals are dead. (Yes, there can be momentary exceptions, which is what keeps the addicted gamblers coming back, but from a macro standpoint, nothing withstands the tsunami.)

In Egypt right now, no one is looking at the p/e ratio of the Egyptian Company for Mobile Services S.A.E.! No one is looking at what the likelihood of the National Bank of Egypt paying a dividend! No. Instead what is driving that market is civil unrest. The results of events like these can be easy to see in hindsight. We can accurately dissect them afterwards, but the warnings are almost always unseen in forethought. I guarantee you that no current investment models place the proper risk management weighting on this tsunami.

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The Tipping Point has Arrived

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by Mike Krieger of KAM LP
Originally posted 28 Oct, 2010

Our age is retrospective. It builds the sepulchres of the fathers. It writes biographies, histories, and criticism. The foregoing generations beheld God and nature face to face; we, through their eyes. Why should not we also enjoy an original relation to the universe? Why should not we have the a poetry and philosophy of insight and not of tradition, and a religion by revelation to us, and not the history of theirs? Embosomed for a season in nature, whose floods of life stream around and through us, and invite us, by the powers they supply, to action proportioned to nature, why should we grope among the dry bones of the past, or put the living generation into masquerade out of its faded wardrobe? The sun shines today also. There is more wool and flax in the fields. There are new lands, new men, new thoughts. Let us demand out own works and laws and worship.
– Ralph Waldo Emerson, Nature

I BELIEVE WE HAVE FINALLY BREACHED THE TIPPING POINT IN THE SOCIO-POLITICAL LANDSCAPE of the United States of America. There will be no going back from here. Everyone on all levels of society including the elites must make a choice. Will you stand for real reform and an end of the feudalistic rule of the oligarchs and their paid-off puppets that line the streets of Washington D.C., or will you keep your mouth shut and play the old and dying game in the context of a completely different cultural environment?

While many will disagree with what I am about to say, I believe the oligarchs and the Federal Reserve have already lost.

This will not be clear to the vast majority at this time because the powerful institutions that dominate and rob us will continue to fight for survival but the wind is already blowing in a different direction and cannot be reversed.  The smart elites are starting to see this and are hedging their bets. The dumb or stubborn ones may want to start looking at countries with non-extradition treaties or start blowing the whistle on someone above them and fast. The window of opportunity to make the choice is closing quickly. “I was just following orders” will not cut it when the dollar collapses and Disneyland shuts down.

There have not been any major arrests and people have seemingly gotten away with all their frauds and crimes. This too will change and 2011 will represent a change in trend in this regard. We have entered the terminal phase of this ponzi scheme economy and those responsible for its creation and its continued support at the expense of the vast majority of the populace will see their foul deeds rise to the surface.

Earlier this year I wrote two pieces that I think are worth re-reading and I have attached links to them. The first was “A Time to Speak Out” http://www.zerohedge.com/article/time-speak-out and the second was the “The Elites Have Lost the Right to Rule” http://www.zerohedge.com/article/elites-have-lost-right-rule. When I wrote these articles many of the themes addressed were completely out of the mainstream, yet in an amazingly brief period of time many of the frustrations I voiced are now popping up everywhere I look. It’s strange and rewarding to see the topics I and countless others have been discussing on the “fringe” break into the light of day.

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The Collapse of ‘The Great American Ponzi Scheme’

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By Lorimer Wilson, 17 Apr 2009


MANY AMERICANS, and indeed many people the world over, have lived in a Ponzi bubble economy for more than a decade. The American economy, for one, became a house of cards of leverage over leverage by households, financial firms and corporations that has now gone bust.

A Ponzi bubble? Yes, after Charles Ponzi, a Bostonian with an eye for get-rich quick schemes who, back in 1918, identified an arbitrage situation which he promoted as being able to generate sizeable returns for those who invested with him. He delivered on his promise by making his close friends and a small circle of investors very rich, very quickly, and, as word spread among the wealthier citizens of Boston, they began lining up to invest. Regretfully, when anything looks too good to be true, it probably is and it was. As a result of his infamy his name has been immortalized to describe any fraudulent investment scheme where the money from later investors is used to pay the early investors and so on right up until the moment the whole thing collapses on itself. Sound familiar? Yes, 90 years later the 50 billion dollar Madoff pyramid collapsed – a Ponzi scheme if ever there was one! Now may well be the time to lay the Ponzi name to rest and replace it with the infamous word ‘Madoff.’ Time will tell.

But Ponzi and Madoff were not the only ‘investors’ who were conning those around them. We must not forget the tens of millions of Americans who were participating in ‘The Great American Ponzi Scheme’ or, as some would more accurately characterize it, deploying their own ‘greater fool theory” that there was really nothing to worry about because there always would be a ‘greater fool’ than them out there somewhere who would still lend them money, buy their over-priced house, over-valued stocks, etc. to keep their financial house of cards from collapsing. Below is my edited, paraphrased and enhanced version of how Nouriel Roubini once described it:

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Written by aurick

24/04/2009 at 10:24 pm