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A giant ponzi scheme?

by Greg Krehbiel on 3 February 2010

A friend (who knows more about finance than me, which means that he knows something about it) told me last night that the entire international financial system is a giant ponzi scheme. The U.S. is a mess, but we’re better off than most other countries.

I don’t know if this is true, but I think it’s time for me to finally start being smart about my money — which means I need to speak with a financial advisor.

-- 2010-02-03  »  Greg Krehbiel

Talkback x 4

    3 February 2010 @ 5:05 pm

    That assumes that your financial advisor has a clue. Good luck.

    It is a ponzi scheme because finance is divorced from production; it has become an end in itself, rather than a means to an end. We need finance because there is a lag between planting a seed and reaping a harvest, between opening a production line and selling a product. Apart from this, finance has little meaning. But instead of going into production, most finance goes into speculation.

    And yes, internally we are better off then most countries. However, the external debt is the fly in that ointment.

  2. Greg Krehbiel Greg Krehbiel
    3 February 2010 @ 5:21 pm

    Thanks for the comment. I took a peek at your blog. Can you give a quick summary of distributism, and what it means?

  3. John Krehbiel John K
    3 February 2010 @ 5:45 pm

    I guess in the sense of the Building and Loan in It’s a Wonderful Life, yes, the financial system is a Ponzi scheme.

    “You don’t understand, you’re money’s not here. It’s in Mr. Jones’ house, and in Joe’s Drug Store, and all the other places you’ve helped to finance.” (or words to that effect)

    The thing is, it’s OK so long as everybody doesn’t want their cash at once. Or as long as the investments are for something substantial (unlike the current escapades of the “quants” (link to audio from NPR)

  4. pentamom pentamom
    4 February 2010 @ 1:35 pm

    Actually, the Building and Loan wasn’t a Ponzi scheme in the real sense. In a Ponzi scheme, more obligations are taken on and more promises made than are supported by the equity. The Bailey Building and Loan had all the equity, they just couldn’t foreclose and sell everybody’s house in five minutes to give everyone their money. The value was all there, it just wasn’t liquid.

    What we’ve got now is more obligations than equity, distributed over a large number of people so no one really notices. That well describes a Ponzi scheme.