In a Ponzi scheme, money is taken from one source to pay for another, without actually having a real foundation or solid guaranteed future store of funds. The initial returns generate excitement leading to more spending based mainly on reporting of false gains and the continuing propagation of unrealistic ideals. At some point, the scheme loses its’ viability and fails to deliver as promised resulting in collapse and loss of funds, leaving victims’ scrambling to try to make up in some way for their losses.
The most famous Ponzi scheme of modern day was run by Bernie Madoff from New York City who managed to turn $5,000 saved from a lifeguarding job and installing sprinkler systems into nearly $65 billion of accounts. During the run of the scheme he was able to amass an impressive list of clients including numerous celebrities and other well-known public figures. Arvedlund, E. (2018).
His scheme was so elaborate and well-thought out that he was able to keep it running for over two decades while offering ten percent or higher returns. In addition, his firm, Bernard L. Madoff Investment Securities, at its’ peak was handling five percent of the trading volume on the New York Stock Exchange. The scheme was exposed when his sons turned him in after he admitted to them that he was running a Ponzi scheme. Subsequently, he was sentenced to 150 years in prison. Arvedlund, E. (2018).
Perhaps the biggest example of obtaining funds based on future (potential not guaranteed) gain, scarily similar to the workings of a Ponzi scheme, belongs to the Federal Government. The Federal debt now runs over $21 trillion. How did it get there?
Federal Reserve critic, John Hussman, views the United States as a country that has over time evolved into a Ponzi economy. Expansion of debt has become the normal operating platform. Domestic investment has held steadily at a very slow rate of 1.4 percent since 1999 compared with the 4.9 percent rate consistent over the previous five decades. In addition, recent years have seen the interest of the Federal Reserve lower to stand at zero. Morgan, J. (2014)
Indirectly, this prompts the average household citizen to take on more debt, rather than storing away savings. You only need to visit a furniture store to be told that you will not have to make payments for a certain amount of time but you can still have the goods immediately. When the ‘no payment’ term is up, customers are subject to usually higher than average retroactive interest rates. Therefore, if it not possible to then pay what is owed, what seemed like a good deal at the time has turned into an even higher accumulation of debt. Immediate rewards overshadowed any thought as to how things might come tumbling down in the future.
In the same way, the Federal Government may give the superficial illusion of immediate rewards by touting successful programs as the end result of their spending. The reality, as evidenced by the current $21+ trillion and growing debt, may portray a completely different story – one of unsustainable results – much like a Ponzi scheme. The question here is where are they planning to obtain the funds to pay off this herculean debt?
In a Ponzi scheme, paying off current debts or investors relies on obtaining a constant source of new funds from payers who hope to benefit from promises. The Federal Government relies majorly on systematically obtaining new funds from tax payers and has the power to initiate increases as per their discretion. The general population is seen as a huge pool of funding to draw from without thought as to the consequences of their financial stability or future. This sort of thinking may well have an impact on weakening the economy by compromising the financial security of the workforce. The gap between income and consumption increases and debt levels rise.
As spending continues, the situation becomes impossible and as a natural result will collapse, will leave financial losses in its’ wake.
There are certainly parallels between Ponzi schemes and the way that the Federal Government sources, engages and funds their own programs. The idea that as long as people are there to pay into the system, either voluntarily or involuntarily, it can keep running indefinitely, without worrying about the initial debt-load, is very similar in both cases.
What will happen should it reach the point that the incoming sources of funds can no longer keep up with the continuing debt load of the Federal Government? What happens when the economic system of the so-called Ponzi scheme collapses? We just have to look at recent examples such as Russia in 1998, Argentina in 1999 and currently Venezuela. The fiat system is backed by essentially nothing. As consumers we value a $100 bill just as $100 but it is in essence a federal debt issue that is backed by nothing.
Continual printing of money leads to hyperinflation then most likely an economic collapse. The Ponzi scheme must come to an end as obtaining more funds comes to an end. The winner could be the astute individual who owns gold and gold backed securities. If history proves correct, and if my opinion on the stock market decreasing in late 2019 into 2020 becomes reality, then gold should be the benefactor. I hear a lot of my friends and associates whining that they should’ve invested early in the cannabis sector…to be honest, I am one of those but there is always an opportunity around the corner and in my opinion gold and gold stocks are just warming up. I’m excited to see what will unravel in late 2019 and beyond for this undervalued sector.
Dr. Kal Kotecha
TO JOIN OUT FREE NEWSLETTER, PLEASE VISIT WWW.STOCKTRENDSREPORT.COM
Arvedlund, E. (2018). A decade after Bernie Madoff’s arrest, FBI agents reveal more about his Ponzi scheme. http://www.philly.com/philly/business/bernie-madoff-fbi-patrick-duffy-paul-roberts-fbi-20181206.html
Hussman Funds (2018). Hussman: Our Entire Economic System is a Ponzi Scheme https://www.hussmanfunds.com/comment/mc180604/
Morgan, J. (2014) Hussman: The US Economy is Becoming a Ponzi Scheme https://www.newsmax.com/finance/hussman-ponzi-us-economy/2014/09/23/id/596356/
© 2018 Stock Trends Report/© 2010 Junior Gold Report
Stock Trends Report/Junior Gold Report Newsletter and website: Stock Trends Report Newsletter/Junior Gold Report Newsletter and website is published as a copyright publication of Stock Trends Report/Junior Gold Report (STR). No Guarantee as to Content: Although STR attempts to research thoroughly and present information based on sources we believe to be reliable, there are no guarantees as to the accuracy or completeness of the information contained herein (newsletter and website). Any statements expressed are subject to change without notice. It may contain errors and you should not make any investment decisions based on what you have read on here. STR, its associates, authors, and affiliates are not responsible for errors or omissions. By accessing the site and receiving this email, you accept and agree to be bound by and comply with the terms and conditions as set out herein. If you do not accept and agree to the terms you should not use the Stock Trends Report site or accept this email. Consideration for Services: STR, it’s editor, affiliates, associates, partners, family members, or contractors may have an interest or position in the featured companies, as well as sponsored companies which compensate STR as such our opinions are biased. We may hold potions in and trade these stocks of the companies we profile and as such our opinions are biased. STR and its’ owner and affiliates/associates may buy/sell and trade the featured companies from time to time. STR has been paid by the companies. Thus, multiple conflicts of interest exist. Therefore, information provided here within should not be construed as a financial analysis but rather as an advertisement. Conduct your own due diligence: The author’s views and opinions regarding the companies featured in report(s) are his/her own views and are based on information that he/she has researched independently and has received, which the author assumes to be reliable. You should never base any buying/selling/trading decisions off of our emails, newsletter, website, videos or any of our published materials. STR aims to provide information and often stock ideas but are by no means recommendations. The ideas and companies featured are highly speculative and you could lose your entire investment – consult a licensed financial advisor if you are considering investing in any of the featured companies. Subscribers/readers are encouraged to conduct their own research and due diligence. The companies mentioned are high risk and considered penny stocks that contain a high risk of volatility, therefore consult your investment advisor and do your own due diligence before purchasing. Never base any investment decision on information contained from our emails, newsletter, website, videos or any of our published materials. No Offer to Sell Securities: STR is not a registered broker dealer, investment advisor, financial analyst, stock picker, investment banker or other investment professional. STR is intended for informational, educational and research purposes only. It is not to be considered as investment advice. No statement or expression of any opinions contained in this report constitutes an offer to buy or sell the shares of the companies mentioned herein. Links: STR may contain links to related websites for stock quotes, charts, etc. STR is not responsible for the content of or the privacy practices of these sites. Information contained herein was extracted from public filings, profiled company websites, and other publicly available sources deemed reliable. Information in this report was taken on or before writing and dissemination and may not be updated. Do you own due diligence as information and events can and do change. Published reports may reference company websites or link to company websites and we disclaim and responsibility for the content and accuracy of any such information or website. Release of Liability: By reading the newsletter/website and/or watching videos by STR, you agree to hold STR, its associates, sponsors, affiliates, and partners harmless and to completely release them from any and all liabilities due to any and all losses, damages, or injuries (financial or otherwise) that may be incurred.
Forward Looking Statements
Except for statements of historical fact, certain information contained herein constitutes forward-looking statements. Forward looking statements are usually identified by the use of certain terminology, including “will”, “believes”, “may”, “expects”, “should”, “seeks”, “anticipates”, “has potential to”, or “intends’ or by discussions of strategy, forward looking numbers or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Forward-looking statements are statements that are not historical facts, and include but are not limited to, estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to the effectiveness of the Company’s business model; future operations, products and services; the impact of regulatory initiatives on the Company’s operations; the size of and opportunities related to the market for the Company’s products; general industry and macroeconomic growth rates; expectations related to possible joint and/or strategic ventures and statements regarding future performance. Stock Trends Report does not take responsibility for the accuracy of forward looking statements and advises the reader to perform their own due diligence on forward looking numbers or statements.