Busted: Bankers and The Global Economy

April 3, 2011

The World’s Greatest Ponzi Scheme

Filed under: central bank, credit, economy, government, inflation, money, recession — Tags: , , , , , , , — digitaleconomy @ 9:11 pm

house of cardsIn the month of March, the U.S. government spent more than eight times its monthly tax receipts, including money spent for maturing U.S. treasuries.

The U.S. treasury cleared $128.18 billion in tax receipts during the month of March, but paid out a total of $1.05 trillion, which included $49.8 billion in Social Security benefits, $47.4 billion in Medicare benefits, $22.58 billion in Medicaid benefits and $37.9 billion in defense spending. The real financial beating springs from maturing U.S. treasuries where the U.S. paid out $705.3 billion.

In order for the U.S. government to stay afloat with only $128.18 billion in tax receipts, it had to spend $72.5 billion from the balance of cash on hand. This closed the month at $118.1 billion, including the sales of $18 billion worth of TARP assets. Most importantly, the U.S. treasury had to sell $786.5 billion in new treasury bonds, which it will be required to mature at a still higher in the future in order to keep the shirt of its’ back. Surely this is the greatest Ponzi scheme ever executed on the world as the government endlessly seeks to outrun the debt that it creates. The nation is able to fund government expenditures and pay off maturing debt instruments by issuing new and larger amounts of debt. Up to now the Federal Reserve interest has made this debacle survivable.

At this time the interest payments on the United States national debt is the government’s largest monthly expenditure. The world is waking up to the fact that the U.S. government is truly insolvent and that the benefits of propping up the U.S. dollar will no longer be worth the expense to foreign creditors. The U.S. government Ponzi scheme is being exposed for the world to see.

China is becoming more reluctant to continue buying U.S. treasuries as it positions the yuan to be the world’s new reserve currency. Japan needs to raise $300 billion to rebuild parts of their country that were destroyed by the earthquake, tsunami, and nuclear disaster. They will be unable to invest handily in the U.S. or may opt to invest outright in China as money is available. The U.S. desperately needs Japan and the Arab world to roll over national treasuries into larger amounts of new ones. With Arab revolutions taking place across major Saudi states and the U.S. occupying Libya for no good reason at all, the nation is likely see a global disdain for its previously valued treasures that it must sell to cope with the runaway spending and deficits of Congress.

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April 1, 2010

Don’t Get Taken by Pyramid & Ponzi Schemes

What are some of the similarities and differences between ponzi and pyramid schemes?

Pyramid schemes and ponzi schemes are closely related. They both involve paying longer-standing members with money from new participants, instead of actual profits from investing or selling products to the public. Here are some common differences:

Pyramid Scheme
Ponzi Scheme
Typical “hook” Earn high profits by making one payment and finding a set number of others to become distributors of a product. The scheme typically does not involve a genuine product. The purported product may not exist or it may only be “sold” within the pyramid scheme. Earn high investment returns with little or no risk by simply handing over your money; the investment typically does not exist.
Payments/profits Must recruit new distributors to receive payments. No recruiting necessary to receive payments.
Interaction with original promoter Sometimes none.  New participants may enter scheme at a different level. Promoter generally acts directly with all participants.
Source of payments From new participants – always disclosed. From new participants – never disclosed.
Collapse Fast.  An exponential increase in the number of participants is required at each level. May be relatively slow if existing participants reinvest money.

What steps can you take to avoid schemes and other investment frauds?

When you consider your next investment opportunity, start with these questions:

  • Is the seller licensed?
  • Is the investment registered?
  • How do the risks compare with the potential rewards?
  • Do I understand the investment?

Many ponzi schemes share common characteristics. Look for these warning signs:

  • High investment returns with little or no risk. Every investment carries some degree of risk. Investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
  • Overly consistent returns. Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.
  • Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
  • Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most ponzi schemes involve unlicensed individuals or unregistered firms.
  • Secretive and/or complex strategies. Avoiding investments you don’t understand or for which you can’t get complete information is a good rule of thumb.
  • Issues with paperwork. Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Also, account statement errors may be a sign that funds are not being invested as promised.
  • Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out your investment. Keep in mind that ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.

June 30, 2009

No Excuses for Bernie Madoff

Filed under: economy, investment, money — Tags: , , , , , , — digitaleconomy @ 10:21 am

madoff slammer What has been described as a contrite Bernie Madoff appeared in court with an apology to his victims. Madoff expressed that he believed that he would be able to work his way of his financial scheme, but was never able. Madoff was sentenced to 150 years in prison, according to the judge, symbolic for a crime of “extraordinary evil.” Madoff was perceived as a powerful financial advisor because he was able to create double digit returns for his clients in all financial weather.  For more than a decade, even the SEC overlooked the fact that he was running a ponzi scheme, using new investors to pay off old ones as he lived the high life.

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