For at least 4 years now I have been writing that the
US government and indeed the whole global economy is one big interconnected debt based Ponzi scheme which requires ever increasing amounts of debt to keep it from collapsing. At the time my views were considered extreme but over time they have become much more main stream. I knew I was on the right track when several months ago The Economist magazine
agreed that it is a Ponzi and later
so did Bill Gross of PIMCO. Now Bernie Madoff, Ponzi king,
is adding his experienced opinion. Don't ask me why he's decided to blab now after remaining fairly quiet on the matter throughout his trial but he's clearly pulling no punches. Perhaps his son getting suicided like that has his hackles up. Who knows? The point is that, unfortunately, he's telling the truth.
All Ponzi schemes eventually collapse but nobody can say exactly when because the timing has to do with confidence of the herd. Until the herd loses confidence it is going to doggedly stick with what has appeared to work (just like Madoff participants did). Participants in a Ponzi begin to think that winning big forever is normal. They get used to it and become dependent upon it. That's when the trap door opens.
I've written on several occasions how the recent
US government treatment of the collapsing Ponzi closely mirrors the behavior of the original Charles Ponzi as his famous scam was collapsing. Ponzi proved that he could extend the Ponzi for short periods of time through showmanship consisting of face time with the worried crowds, making additional but unkeepable verbal guarantees and promises on top of the old ones in order to shore them up, and even through the giving of coffee and doughnuts to people lined up in the cold to get their money out. His story is very instructive and
the wiki for it is well worth your read.
So if all of this is a Ponzi scheme which must inevitably collapse at some point, what do you need to know? Well, the historical characteristics you should pay attention to are:
- No Ponzi in history has ever avoided collapse.
- Not everyone in a Ponzi can get out whole. There isn't enough money in the system and there never was. Accounting entries are Wimpy Promises or as N.J. Governor Chris Christie calls them, "fairy tale promises".
- Those who get out of a Ponzi before it collapses get out whole.
- Signs and warnings can be present for a long time but the collapse often comes suddenly as a result of some trigger event which makes the herd lose confidence.
Go ahead and play along as long as you like but if you see really unprecedented things begin to happen suddenly here in the states then it might be wise to take action first and ask questions later. The last ones out of a Ponzi are left holding an empty bag.
