Gary North’s Remnant Review (Jan. 7, 2013)
I want to discuss an article. I may be exaggerating, but I regard this article as the most sophisticated exercise in terminal naiveté that I have ever read. It is an intelligent article with respect to the problems that it lays out. It is dealing with the Ponzi scheme economics of the modern world. Certainly, I am in favor of articles that discuss modern government economic policies as Ponzi schemes. I have been doing this for over 45 years, and I see no reason to stop now, especially since we are 45 years closer to the end of the Ponzi schemes.
Yet at the same time, I am always dismayed to see an article written about the inevitable Ponzi scheme collapse of the modern economic world that begins with some version of this assurance: if we act now, we can solve this. It is not too late. The article begins as follows:
Fortunately, there is still time to act. But leaders from all social sectors–government, business, organized labor, environmental and other stakeholder groups–need to act decisively and quickly in order to secure future economic prosperity, social cohesion, and political stability. It is in the nature of Ponzi schemes to collapse suddenly, without warning. No one knows what event may send the developed world and the global economy as a whole back into crisis.
I have heard some variation of this assurance for over 45 years. In fact, if a book on Social Security, Medicare, and the unfunded liabilities of the U.S. government is published by a major publisher, or if an article appears in a journal aimed at establishment intellectuals, it will have the obligatory disclaimer. It will not be published unless there is this assurance somewhere in the article. There are no articles published by respectable scholars or respectable columnists on the Ponzi scheme economics of the modern world that do not include such an assurance. Anyone who insists on the fact that there is going to be a collapse, that these schemes will end in default, and that there is no possible statistically way of avoiding this, will not get his article published in a respectable magazine, newspaper, or book.
This is why I always look for the disclaimer. If there is the disclaimer, I know that I am about to read utter poppycock. It may be highly footnoted poppycock. It may have lots of charts. If it is written by somebody trying to get tenure, it will be filled with arcane mathematical formulas. But it does not matter what the content is, or what the structure is, the article is total poppycock.
WHAT YOU MEAN “WE,” PALEFACE?
The key poppycock indicator is the word “we.” Readers are assured that if we take immediate steps, courageously, systematically, and if we continue to implement the writer’s recommended program of reform, there is still hope to avoid the chaos and devastation that is the inevitable result of every Ponzi scheme in history.
Why is this poppycock? First, because of the nature of every Ponzi scheme. The scheme that Charles Ponzi invented was doomed from the beginning. There was no way statistically that that scheme would not collapse, leaving devastation in its wake. Whether we are talking Charles Ponzi or Bernie Madoff, from the day the deception began, there was no possible way that the scheme would not run aground on the shoals of statistical reality.
The scheme could not have been stopped at any time. The participants in the scheme, from the day they got into it, would not consider the possibility that they had been completely conned by someone who sold them a story that was based on a statistical impossibility. This is a true Ponzi scheme. A Ponzi scheme must end with losses for all but the participants who got in early and got out early. The only people to win in a Ponzi scheme are the people who recognize it as fake, who get in early, get out early, take the money and run. They spot it as a fraud from day one; therefore, they have an exit strategy.
The astounding thing about Ponzi schemes is not that there is an endless supply of suckers, including sophisticated investors, who believe in it. The astounding thing about Ponzi schemes is that their originators seldom disappear with the money, never to be seen again. Charles Ponzi is the classic example. If he had taken the money, which was in the tens of millions in an era in which the dollar was worth 20 times as much as it is today, and if he returned to Italy, from which he had arrived, he would have made out like the bandit that he was. But he stayed in the game until the bitter end. So did Bernard Madoff. The originators know that the thing cannot possibly end well, and yet they are unwilling to take the money and run. They believe their own impossible promises. This, I do not understand.
(For the rest on my article, click the link.)