Tuesday, February 24, 2009

the economic ponzi scheme 1/21/09

all the talk about bailouts & economic recovery is necessary within the context of the political reality...but the reality of the public debt is over 10 trillion; do the math, thats $100,000 of debt per taxpaying household...and the reality of western capitalism is that its the largest pyramid scheme on earth...those that got in first, & control the reserve currencies, make out because their money & central banks run the scheme...those at the bottom feed those on top...but in the most recent extension of the scheme, china & india were added to the bottom of the pyramid...now the pyramid has run out of people to add to the bottom...so like any ponzi scheme, there wont be any new investors in it to pay off the old investors getting out...and this system will collapse as sure as madoff"s scheme had to eventually...

the government used to fund its operations thru revenues; taxes, tariffs, etc...the first big deficits were WWII, but that was mostly funded by the savings bonds held by citizens...& i think some of that debt was being paid off thru kennedy...then johnson's expansion in vietnam & great society started the govt deficit spending in earnest...but still, most of US debt was held domestically, by foundations, retirement plans, and by banks here & in europe

i first became alarmed when george bush sr called reagan's plan "voodoo economics" during that 1980 primary...as i recall, the highest tax bracket at that time was 78%...then reagan cut taxes in half & the result of that was that instead of taxing the richest americans, the US treasury was borrowing from them & paying them back over time, with interest, which had become nearly 15% on 30 year bonds...and in addition, with our trade deficit, mostly to OPEC, meant that we were also borrowing from those country's banks to fund government operations...maybe you remember the interview with david stockman, head of Reagan's Office of mgmnt & budget, when he admitted "none of us (the reagan team) knew what any of those numbers meant"...& even when the first bush ran on a promise of "no new taxes", he was at least aware enough to know they had to be higher...

the current decade has been a financial debacle, and enuf has already been written about individuals use of credit to live beyond their means, and the real estate bubble that ill avoid comment on that...the biggest problem has been the multi-trillion dollar market in derivatives, in which the money-changers were betting on future prices in stocks, commodities, & mortgage-backed securities, and the investment banks & brokers exposure to credit default swaps, by which they were effectively writing insurance policies on packages of shaky debt (like mortgages)--that they would swap treasuries for that debt if there was a default on it: these, in addition to packages of bad mortgages, are the "toxic assets" on the bank balance sheets...estimates ive seen on the amount of these "swaps" outstanding range from $64 trillion to 530 trillion (put that in perspective: U.S. GDP for 07 was $13.8 trillion)

so the treasury, under paulson, panicked the congress into passing a $700 million bailout for the banks -- similar bailouts were simultaneously being engineered in other big economies, who'd also been caught in the mess of the US mortgage debacle & derivatives therein...congress thought that money was going to be leant to small businesses & homeowners in an attempt to unlock the credit market, but it seems the banks just used most of that bailout money to buy the treasury notes that were issued to bail them out! estimates ive seen of the total amount of imaginary money put into various domestic bailouts ((including FDMC,FNMA,AIG,countrywide,bearsterns,etc) to be $10.4 trillion...most of that is from the federal reserve, which can "print money" (loan to banks), but the treasury deficit looks like it'll be a trillion per year for the foreseeable future, which -do the math --is $10,000 debt per year per taxpaying household. there is no political will to raise the taxes to even balance the budget, much less pay down the debt, much of which is now owed, with interest, to arabs, chinese, russians, japanese, & other countries which are running a surplus in trade or in their treasuries...so in what has become "fiscal child abuse", we are committing future generations to continue paying interest on our debt, till it reaches a point where that interest will will be one of the biggest items in the federal budget

the recent downturn exacerbates the problem...as prices fall in commodities & real estate, the banks "toxic assets" become even worth less...furthermore, unemployment, underemployment, & falling payrolls & personal assets all contribute to decreasing tax collections, thus widening the deficit...if we should fall into a deflationary spiral during this crisis, i cant imagine a way for the current ponzi scheme to survive...the only way to i can imagine of continuing to prop up keynesian economics is by some kind of hyperinflation, increasing the money supply by such multipliers as to make the current dollars of debt to be worthless by comparison, allowing for some future paydown of the debt in future inflated dollars...how to control this to avoid a weimar republic type hyperinflation is beyond me...

1 comment:

Pressin On said...

when u lay it out like this, it does seem hopeless. i am quite certain there wld be major flap over tax hikes. tho, it works in other countries.
places like Germany have high taxes, short work weeks, and mandatory vacations.
but...they don't reproduce as much as Americans. a connexion?
we are all playing from behind. not only do we leave future generations with our debt, but they will accrue in addition, debts from higher education, and the whole "living above our means" i.e. owning cadillacs when we can barely afford those much-needed little pills doc 'scribes.
what if we all tried living within our own means?