Economic System a Legal Ponzi Scheme on the Verge of Collapse!

Countries around the world, particularly in the West, are hopelessly in the red, with debt rising every day. Even worse, politicians seem paralyzed, unable — or unwilling — to do anything about it. It is a global disaster that threatens the immediate future… [Let me explain.] Words: 1132

So says Alexander Jung (www.spiegel.de) in edited exerpts from his original* article.

[Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.]

Jung goes on to say, in part:

Economists use the term “Ponzi scheme” to describe a disastrous mechanism in which someone pays off old debt by constantly taking on new debt. The repayment of the debt — the most recent loans, plus interest — is deferred into the distant future, fueling an eternal process of debt refinancing. It’s the classic pyramid, or snowball scheme, practiced by thousands of con artists after Ponzi. The most spectacular case was that of New York financier Bernard Madoff, who was responsible for losses of about $20 billion by 2008. Snowballs are set into motion, becoming bigger and bigger as they roll along. In the worst case, they end in an avalanche that takes everything else with it.

Ponzi Schemes – Now

Western economies have not acted much differently than the fraudster Madoff. In 2011, they were virtually inundated with bad news and old sins. Almost everyone — in Europe and in the United States — has been living beyond their means, from consumers to politicians to entire countries. Governments have become servants to the markets upon which they have become dependent.

On an almost weekly basis, the reports have become more worrisome and the sums of money involved more staggering. Many are now concerned that, as 2012 begins, the snowballs will only get bigger — and roll faster:

• European banks will have to repay about €725 billion in combined debt in 2012, including €280 billion in the first quarter alone. With the private market largely off-limits to them, the banks have had to rely on the European Central Bank (ECB) to bail them out. The ECB is now lending them fresh money — as much as they want — at minimal interest rates.
• Italy has about €160 billion in debt that will mature between January and April; the total for the entire year is about €300 billion. The government in Rome is already having trouble finding buyers for its bonds.
• The ECB is creating billions essentially out of nothing. On an almost weekly basis, it is acquiring bonds that no one else would buy from Portugal, Spain and Italy and, in the process, it is turning into a reluctant financier of nations. This financial aid already amounts to €211 billion.
• The European Commission…supports the use of so-called euro bonds…which would be issued jointly by the countries in the monetary union [and] would amount to an accumulation of collective debt on top of national debts.
• There is the €440-billion euro bailout fund which the finance ministers have decided to “leverage”…because this amount is still not enough.
• And then there is the United States which only remains solvent because the Congress in Washington keeps raising the debt ceiling. The American government already owes its creditors about $15 trillion. Stay tuned for the next installment.

In other words, there are plenty of snowballs that have started rolling and getting larger with each rotation. Some aspects of the economic system in the industrialized countries resemble a gigantic Ponzi scheme. The difference is that this version is completely legal.

Living on Credit

Old debts are paid with new ones, with borrowers giving not the slightest thought to repayment. This has been going on for a long time, far too long, in fact. It was only with the eruption of the financial crisis in 2007 and the outrageously expensive bailouts of banks and economies that many people realized that the entire world is living on credit.

“Debt is rising to points that are above anything we have seen, except during major wars,” economists at the Bank for International Settlements (BIS) concluded in a recent study. “The debt problems facing advanced economies are even worse than we thought”…

Ponzi Schemes Eventually Collapse

The fact that nations are continually spending more than they take in cannot turn out well in the long run. The word “credit” comes from the Latin “credere,” which means “to believe.” The system will only function as long as lenders believe in borrowers. Once the belief in the creditworthiness of borrowers is destroyed, hardly anyone will be willing to buy their securities. When that happens, the system is finished. This is precisely what happened with Carlo Ponzi’s scheme and now entire countries are suffering suspiciously similar fates. They are no longer being taken seriously.

Greece is effectively insolvent. Italy and Spain are forced to offer higher interest rates to find buyers for their government bonds and France threatens to lose its impeccable credit rating. The debt crisis has arrived in the heart of Europe.

Meanwhile, it is also flaring up in the United States once again, with Democrats and Republicans blaming each other for the nation’s debts. Instead of taking responsibility and consolidating the budget, President Barack Obama prefers to rail against the Europeans’ approach to crisis management. They, in turn, refuse to tolerate any interference, especially from the United States, which they blame for being the source of the financial crisis in the first place. In this fashion, the Old World and the New World are tossing the blame back and forth, while confidence in politics and its ability to avert collapse is dwindling on both sides of the Atlantic.

*www.spiegel.de/international/world/0,1518,806772,00.html

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