IS the US Economy a Ponzi Scheme?

[dixonmassey]

I agree that the US should retain all the high tech jobs and services we can to help balance our trade deficit.

High tech = higher energy inputs + lesser employment + more marketing (to externally fuel those high tech cravings). Take any freaking country as an example, everybody wants to go high tech to sell software and IP instead of whatever they are selling. You cannot eat software, building economy around high tech means LOTS and LOTS of brainwashing to generate demand for myriads of new gadgets and pills, keeping people employed, while gadgets gobble up remaining resources and energy. Insanity.

 

[dixonmassey]

Technically speaking, Ponzi scheme is a scheme where funds contributed by new investors are used to pay off principal + dividends to the first comers. Largely this is done so that "old" investors, who just got their money + well above average interest back, got excited and reinvested their newly acquired fortunes back into the scheme as well as spread the word about magic investment opportunity (to boast is human). At the time X, operators of Ponzi scheme take all the cash and leave the town.

Ponzi business model consists of attracting new and new members and doing not much else under a facade of a legitimate business. Ponzi schemes are illegal. You don't want to say that US economy is illegal, do you?

Back in the times of Ponzi himself one could use postal stamps to transfer money to Europe (Italy) and back (don't ask me how). Ponzi came up with this idea and decided to run a LEGITIMATE business, Ponzi himself was not a crook, he didn't want to run a Ponzi scheme. However, banks would not finance him (depression), the only way to get start up money was to promise way above average dividends to the investors (and short payback times). Then one thing lead to another and Ponzi began paying "old" investors with "new" investors money since rare legitimate business can come up with cash flow strong enough to service compound interest formula if dividends are way above average. Ponzi did not make money on this, however his pioneering experience was not lost on the real crooks. BTW, do you know that Ponzi donated large chunk of his skin to a severely burnt woman? This sacrifice eventually did him 6 feet under.

Technically speaking, US economy is not a Ponzi scheme, however, both Ponzi scheme and US economy share one thing in common their promises of returns on investments are false. Compound interest formula is a insatiable vicious beast that even US economy cannot feed.

 

[kmguru]

Ponzi Scheme comments at http://www.economyincrisis.org/articles/show/2342

 

[dixonmassey]

Ponzi Scheme comments at http://www.economyincrisis.org/articles/show/2342

Article is BS. First, it's not "United State" that decides where to invest what, it's 0.1% of population of United States making those decisions to maximize THEIR gains. Second, I'm tired of that "compete in global economy" or die BS. Compete for what, why, for whose benefits?

A country nearly self-sufficient in food and minerals, a country wielding A bomb in the midst of oceans and having no enemies capable of conquest doesn't have to compete (a.k.a race to the bottom) in the global economy. It may shape global economy. Actually it does shape it, however its ruling class has chosen casino-like "cheap labor" global economy, where main loot is appropriated by financial speculators doing nothing useful at all.

Japan HAS to compete for minerals and food, it has to sell its arse on the global market or starve, USA doesn't have to. Hint Japan doesn't do well for the past 20 years. Did I mention that USA had technological/industrial edge just 40 years ago, the edge which its ruling class chose to forfeit in an exchange for "little" bit of extra cash by selling $2 shirt for $25 or by playing with futures and currencies.

 

[iceaura]

Ponzi came up with this idea and decided to run a LEGITIMATE business, Ponzi himself was not a crook, he didn't want to run a Ponzi scheme.

You have got to be kidding. He was a con man his whole life, and ran several with varying results both before and after hitting it big with the Postage Stamp scam.

He once said people should appreciate what he'd done- that it was worth the money just to see him pull off something like that.

But no economy is a Ponzi Scheme in itself - the money has to come from outside the scheme, as nothing is produced inside it.

The runners of cons depend on camouflaging themselves within a larger economy - one way of doing that would be to present the legitimate economy as resembling their con, if the requisite access to the media is available.

 

[nirakar]

What's the difference?

Get investors like China now and promise them they get theirs, as long as someone else pays in, namely our grandchildren.... What's the difference?

Is there a difference?

The US economy is not a Ponzi scheme but US treasury securities are a Ponzi scheme. Spending cuts and Tax increases will not be able to repay the debt without crushing the US economy therefore we have to assume that money creation will pay of most of the debt. This means repayment in inflated dollars.

For the last few decades holders of US treasury securities have been repaid with interest from the proceeds of new sales of treasury securities. The treasury does not have the ability to repay the debt in real uninflated dollars. This is a classic Ponzi scheme except that this Ponzi scheme is legal.

 

[2inquisitive]

High tech = higher energy inputs + lesser employment + more marketing (to externally fuel those high tech cravings).

If you actually read my post, you saw I referred to the loss of high tech manufacturing jobs, i.e. high value manufactured products vs. labor intensive cheaper products. Retaining a job does not equate to "lessor employment", it equates to a job not shipped overseas (no employment). "more marketing" also means more marketing jobs in the tertiary sector (advertising).

Take any freaking country as an example, everybody wants to go high tech to sell software and IP instead of whatever they are selling.

Again, I spoke of the high tech, high value manufacturing segment of the economy (the secondary sector), not just in the service sector (the tertiary sector).

You cannot eat software,

Of course not, but many people depend upon software to generate income, or improve productivity, so they can eat.

building economy around high tech means LOTS and LOTS of brainwashing to generate demand for myriads of new gadgets and pills,

There are useful gadgets and pills, there are useless gadgets and pills. Admitedly, "brainwashing" does blur the distinction for some. Is your computer, its software, and the internet useful gadgets or useless gadgets, dixonmassey? Those items are useless gadgets for my 73 year old brother, which he doesn't own. For me, they are virtually indepensable gadgets today that I didn't think I would have a use for 30 years ago. Am I brainwashed, or is my brother still living in the past?

 

[2inquisitive]

kmguru,

For starters why does our factory costs so much? I do not think that is true because several years ago I designed a Titanium Plant for China.

Why do our factories cost so much? For starters, high labor costs and meeting stringent US enviromental regulations. Even in the US, it costs 60% more to build a factory in New York City than it costs to build a comparable factory in Dallas, TX. In China, labor is cheap and plentiful and enviromental regulations are lax.

We wanted to duplicate the same in the USA. We felt the price was on par with the Chinese plant. When selling the equipment to the Chinese, we added a 20% fee which we would have saved in our domestic plant.

I don't know if you were designing a titanium sponge production plant or a titanium ingot production plant, but neither are very high tech as I understand it, mostly vats, chemicals, minerals, and a lot of energy. What equipment did the Chinese need to import in large quanities that could not be produced locally in China?

Our electricity was a lot cheaper than the Chinese.

I was not aware of the cost of electricity in China, but given their known supply problems, it does seem logical.

The only variable was the amount of people we would hire. The Chinese planned to hire 600 to 800, we planned to hire 60 to 80 which is equivalent to established plants of that size about 200 miles away.

Ten times the number of workers for the same output?? I didn't think the Kroll process was very labor intensive, mostly energy intensive. Regardless, the Chinese are today one of the world's largest producers of titanium and net exporters of the metal. Their production has caused an oversupply on the world market, driving down prices.

You have to come up with some other explanation why we do not produce high tech products.

I don't know if I would call titanium a high tech product in itself since it has been in production since World War II, but the Chinese's success at quickly ramping up production and oversupplying the world market is testament to their competitiveness and success. I stick to my original arguement that it cost much less to build a factory in China than the US mainly because of much lower labor costs, lax enviromental regulations, weaker worker safety regulations, the speed at which the factory can be approved and constructed, and further pricing benefits due to the undervalued Chinese currency. Most economists think the Chinese yuan is undervalued by about 40% compared with the dollar. That gives them a huge advantage in pricing structure for exporting. They then loan the dollars back to the US to finance our excessive consumption. In the present recessionary world economy, China is facing a huge problem. Billy T predicts the US economy will collapse by 2012, I predict the Chinese economy and the Communist control of the government will collapse within two years. They will regroup and rebuild their economy of course, but the Chinese economy will have to rely more on internal consumption by their huge population than on western money from an unsubstainable export economy. I think the US will have severe inflation when this deflationary cycle ends, but not hyperinflation and collapse. A weaker dollar on the world market will increase the US's export competitiveness and limit imports, translating into more jobs for US workers. The transition will be painful for many, though.

Uh, what was the topic of this thread again? The Chinese economy built upon a Ponzi scheme, or all economies resembling Ponzi schemes as they must rely on growth?

 

[cosmictraveler]

The Social Security is a Ponzi scheme for sure though.

 

[iceaura]

The Social Security is a Ponzi scheme for sure though.

Not at all. There's no investment, no one gets a rate of return, the books are completely open, etc.

 

[cosmictraveler]

Not at all. There's no investment, no one gets a rate of return, the books are completely open, etc.

But the new taxpayers are the ones that pay the retired taxpers pensions.

 

[dixonmassey]

Not at all. There's no investment, no one gets a rate of return, the books are completely open, etc.

Social security depends on population growth. It will not work without population growth keeping SS taxes affordable. Without population growth there is no point for SS, simple as that. When population grow one may expect higher SS payments than his/her contributions. SS is a Ponzi Scheme in a way.

 

[cosmictraveler]

SS is a Ponzi Scheme in a way.

Not "in a way" but it is actually a Ponzi scheme from the start, the new players pay off the old ones with their new taxes because the old ones do not contribute any longer.

 

[dixonmassey]

If you actually read my post, you saw I referred to the loss of high tech manufacturing jobs, i.e. high value manufactured products vs. labor intensive cheaper products. Retaining a job does not equate to "lessor employment", it equates to a job not shipped overseas (no employment). "more marketing" also means more marketing jobs in the tertiary sector (advertising).

Retaining "high tech" jobs (using prohibitive tariffs, the only way) and letting everything else go free market (i.e. oversee) does mean less jobs overall. High tech economy is called "high tech" for a reason, it doesn't employ many. What will happen when a portion of economy is sheltered, charging what it pleases, enjoying higher salaries at the times when everybody else racing to the bottom? That's a recipe for unrest. Most people are mesmerized by the word high tech, it's a cultural thing to value "progress" above anything else.

What they miss that high tech = higher energy inputs, higher resource inputs, higher piles of waste, lesser levels of overall "happiness" as measured by clinical depression as the leading cause of disability in the "post industrialized" world. Don't get me wrong high tech has its place - automation of dangerous or unhealthy processes, research, and so on. However, mass high tech economy, "smart" homes, new pills&gadgets every other year, horse dose of brainwashing&marketing (sheer waste) in the world of limited energy supplies and resources ...? It's plain insanity.

Of course not, but many people depend upon software to generate income, or improve productivity, so they can eat.

Productivity so they can eat? Productivity = less people employed. "Extra" people are pushed out into economy of "wants". They have to generate a new want keeping them employed and fed. A hint, a person has just 24 hours to consume and please all his wants. A "want" is a tricky thing, today I want it, tomorrow I don't want it, a person depending on that particular want for his paycheck want to eat every day. There is saturation point for wants, there is revulsion point too.

Let's talk about productivity more. If a human converter of sun energy into work is replaced by automated something in 90% of the cases it means higher energy inputs per unit of output + lesser inputs of labor = lesser dollar cost per unit of output = higher profits (for very few) . There is no lack of labor in this world, there is lack of energy though.

Take industrial farming, for example. Extremely productive as far as output per unit of labor is concerned, at the same time, it's extremely wasteful, if not suicidal, if one will consider outputs per unit of energy and soil loss. Less "productive" small farmers are forced to sell off their land and to join economy of wants as Wal-Mart greeters, burger flippers or truck drivers hauling loads of crap. All in the name of what? Cheaper, tasteless, saturated with chemicals junk delivered from 1000 miles away? It's just an example.

 

[kmguru]

Wal-Mart greeters, burger flippers or truck drivers hauling loads of crap

Higher productivity = Wal-Mart greeters, burger flippers or truck drivers hauling loads of crap

That is because the executive branch of our government is a load of crap left the nation on auto-pilot while we are heading to a mountain, leaking fuel.

 

[Billy T]

cosmictraveler said: "The Social Security is a Ponzi scheme for sure though." I agree with him, but you do not as you replied:

Not at all. There's no investment, no one gets a rate of return, the books are completely open, etc.

Certainly, there is an investment, a manditory one for all who work to earn money. It is called the Social Security tax.

There is a rate of return also if you have your "forty quarters" of contribution to qualify for pay out. The sums you contributed (as investments) in the early years are corrected for inflation and I am almost sure with compounding and that the correction is generous.

Yes the books are open, but who is looking? Essentially no one, but an occasional Congressional review.

SS meets the fundamental definition of a Ponzi scheme - everyone is promised much more than they contributed and the sums curently collected are used to payout money to the "investors" who got in earlier. - I have already gotten back much more than the nominal amount I contributed and probably I am about even on the inflation correct basis.

If you are young you probably will not get even a fraction of your purchasing power back, even if you collect SS for 30 years. You will be the "come late" payers to the SS Ponzi scheme.

BTW, Thanks for financing my SS payments. For 2009, the step up (inflation correction) was 5.8% increase. Did your salary and investment income go up as much?

 

[cosmictraveler]

the step up (inflation correction) was 5.8% increase. Did your salary and investment income go up as much?

But the gas went up over 10 percent average or mnore, food prices went up over 15 percent and almost everything went up over 10 percent.

So that 5.8 percent doesn't really help out that much.

My car insurance went up 20 percent, my home insurance went up 30 percent!

 

[iceaura]

Certainly, there is an investment, a manditory one for all who work to earn money. It is called the Social Security tax.

It's not an investment. There is no investment account, no rate of return, no place where your money is invested, in the basic setup (there was deliberately created surplus account, auxiliary to the basic setup, created to handle the baby boom generation). It's a transfer payment. You might as well call Aid To Families With Dependent Children an investment, or the money sent to Iraq for rebuilding the sewer system.

The sums you contributed (as investments) in the early years are corrected for inflation and I am almost sure with compounding and that the correction is generous.

There are no "sums contributed as investments". Your contributions qualify you for enrollment as recipient of transfer payments - welfare - not returns on invested monies.

And the "correction" for inflation is not generous - it is based on the US government's artificially depressed and dishonest inflation estimates. SS payout corrections have been falling behind inflation for years now.

everyone is promised much more than they contributed

No, they aren't. In the original setup, they were promised much less even without time discounting. In the current one, they may receive more as an artifact of increased lifespan, if the time discounting is calculated favorably.

The presentation of SS as an investment or insurance of some kind (Ponzi or otherwise) is an error of perception that is seriously hampering attempts to straighten it out and balance its books. It is a transfer payment - welfare.

 

[Billy T]

It's {Social Security} not an investment. There is no investment account, no rate of return, no place where your money is invested, in the basic setup. ...

That seems like a good discription of a Ponzi scheme. The contributor of the funds only thinks he is investing for a future return, but you are correct there is no investment of the funds in a Ponzi scheme, just like none in Social Security.


Are you trying to switch POV? Now when describ Social Security, you just point out another way it resembes a Ponzi schemes?

 

[iceaura]

That seems like a good discription of a Ponzi scheme. The contributor of the funds only thinks he is investing for a future return

There is no good reason for anyone to think they are investing for a future return in SS. It is not set up that way, and its setup is completely open and public.

You might as well describe AFDC as a Ponzi scheme.