Wall Street, the Greatest Ponzi Scheme

The Mechanics of Economy

We all watched the evening news as Bernie Madoff was indignantly hauled off to jail to begin his sentence for investment fraud in what would be called a Ponzi scheme. Many people hear these terms and don’t pay much attention to what a Ponzi scheme is but the general public needs to understand these things. Don’t depend on your political representatives to sort out the economy, because without you understanding how the economy works, they never will. If anything ever changes for the good in this country or any other for that matter, it will be because all of us know what they do and how they do it.

A stable economy is built on what it produces; every dollar should represent the market value of a real product. However, a Ponzi scheme does not represent a real product; it is a pool of money from investors which depends on other investors in order to make a profit.

For instance, if I come to you, being a person of means and tell you about the greatest investment ever, does it matter to you what it is I’m selling? It should! Sometimes, profit comes at a very high price! For you, the investor, it doesn’t matter what product is produced to generate the income. The organizer of the Ponzi scheme is selling widgets, an imaginary product with no basis in reality. The way you, the investor makes money, depends on the organizers ability to sell the investment scheme to others. When someone new comes into the pool, they can pay you! As long as there are new investors, a profit is made. The problem with a Ponzi scheme occurs when the investment pool begins to run out of investors and the income stops. If this were to only affect rich investors, it would be one thing but when the public, becomes unwittingly the investor, it is the public that suffers. When the government loans corporations money to invest in the market, the tax payer becomes the duped third party. The stock market is the biggest Ponzi scheme that has ever existed but they don’t go to jail like Bernie Madoff; however, they should. It isn’t corruption that is selective. One level of corruption is as bad as another. No, corruption is the same for the U.S. Government as it is for Mr. Madoff. Selectivity is derived at the highest level of government by those who are entrusted to enforce the law.

When a company goes public, they are in reality asking the public for a loan that will be paid back as the company expands. This works well as long as the money which is being invested into the market pool is money which represents a real product or service. This in turn, creates real wealth and makes its way back to the source, the place where the product is manufactured or sold! The problem begins when the market becomes more profitable than the business that brought them success. This is when the money stops supporting original product production and begins supporting widgets!

As long as, a real corporate entity is cycling their profits from their perspective businesses back into the business, the corporate entity expands, the economy expands and there are jobs available. When the corporate entity begins to cycle their profits into the market, as long as they take the profits from the market and put it back into their businesses, we still have corporate expansion. However, when they begin pooling their money for even larger loans, from money loaning entities such as foreign investors, the problems begin and will only end in depression and war!

Greed has no boundaries, no nationalities and no loyalties. It only makes sense, that when the Ponzi pool begins to run short of investors, we have to do something, to get more capitol to pay the other investors and to keep the money flowing and this results in the establishment of foreign investors and international markets.

Economic development depends on new money. For instance, every city, attempts to draw in outside money in order to keep their economies vibrant. If they were not to do this, all of the money in the city, would wind up in the hands of one person and the economy dies. Just like in the game monopoly, eventually someone winds up with all of the money and the game ends. Our economy works in exactly the same way. The difference between our economy and the game is that, the product we can produce is not limited and in the game, the properties that one can own are limited.

These huge investors, who are making money in the market… have turned a corner and they are all now bankrupt because they owe more money than their perspective businesses produce but keep their balance sheets in the black from borrowed money either from other investors such as the Chinese or from the U.S. government!

The U.S. government has no business bailing out these huge corporate entities. It doesn’t matter what country is involved with loaning them money. However, this is the role that the Bush and the Obama administrations played. In a free market system, a business must stand on its own merit or fall. This is what the free market system is all about. Business is about risk and hard work.

To make matters worse; when this economic ship begins to sink, it becomes a matter of damage control when the government monetizes corporate debt by printing money which of course devalues the currency. The government needs to stay out of it and allow the free market system to take care of itself! Business is a matter of producing or selling a product and money is not a product! An investment pool is the business of money production and the more money we produce, the less value it has. Money is not a commodity!

This bubble is going to burst and when it does… the U.S. government will have no choice but to tell the Chinese that we will no longer co-sign for big business and then they, the Chinese, as well as other investors who have built their economies around U.S. dollars, are going to go bankrupt.

As far as the U.S. is concerned, this world wide depression will affect us less than anyone in the world but it will not be easy for us either. Because of the financial foundation that we in the U.S. have established over the years, we will emerge eventually from all of this in comparatively good condition.

When we the people understand the mechanics of economy, these types of Ponzi schemes will stop. When we educate ourselves, we will begin sending those who can understand “the mechanics of economy” to Washington. Our representatives need to finally understand that, we the people will not stand for their corruption, pettiness and greed any longer! After all, we the people, are the ones that actually produce the products which define our economy. We are the engine that drives this country. We are in charge and we need to act like it!

2 comments for “Wall Street, the Greatest Ponzi Scheme

  1. Krista
    July 1, 2011 at 4:14 am

    While I agree with the content in Wall Street-the Greatest Ponzi Scheme, the Mechanics of Economy | Divine Advanced Human Beings , I think the buoyant sentiment around today is a concequence of a politically engineered set of circumstances. The demand for consumer loans is still weak and there is no significant improvement in the housing sector. The developed countries are surviving on their governments ability to just borrow and spend into their economies which is unsustainable. Regards, Krista Pekas.

  2. July 10, 2011 at 1:07 pm

    I completely agree. For banks, the profit margin for loans to the general public up to a level is not enough to sustain market involvement. As the economic situation declines, “options for profit” decline as well. Government uses taxpayer dollars to sustain itself while deflating the dollar and synthesizing appraisal value of commodity. Economy must expand or contract, there is no such thing as a static condition.

    The international market which supersedes nationalistic boundaries, result in predatory behavior. In other words, nations feed on themselves by importing their own goods. As options for growth narrow, the large corporations end up loaning each other money. The natural economic circuit goes from the bottom of the pyramid to the top and then recycles back to the bottom. However, now the circuit is from the top of pyramid to top of pyramid and the engine that drives economy, those who actually produce something, find themselves with less and less to operate as the fuel (money which is supposed to represent fair market value) is slowly siphoned off to the top, to top money circuit.

    In the game of monopoly, the game ends when one person winds up with all of the money but if you want the game to continue, you begin to pay other players to roll your dice or do chores for you. In the real game of monopoly, when there is no place for economic growth, you take a flamethrower to the weakest players who still have assets such as property or oil, redistribute the assets to the strong players, and start the game over. In other words…war!

    Great comment… I really appreciate your response!

    J.S. Thompson

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