The Greatest Ponzi Scheme in History
Recently much news has been reported, from Bernie Madoff to an attorney in Florida, about many losing vast sums of money to swindlers operating what is commonly called “ponzi schemes”. The swindle takes its name from one Carlos “Charles” Ponzi, an Italian immigrant who swindled investors out of millions of dollars in the early 1920s. The basic premise of this scam is to promise high-yielding returns on investments when there is no basis for it. Those who invest money later down the line end up losing everything because the monies they invested were used to pay returns to those who invested early on in the scheme so as to give the “investment” an appearance of authenticity. Although Madoff swindled investors out of billions of dollars that pales in comparison to the greatest swindle in the history of mankind – i.e., that which is currently being perpetrated upon us, our children, our grandchildren and who knows how many more generations by this current Congress and the Obama Administration.
In fairness, however, I cannot lay the charge of this behavior at the feet of just the current leadership in Congress and occupant of the White House – our “representatives” and presidents have been doing this for decades as they legislated one massive government program after another, piling up insurmountable debts and placing a burden upon the citizenry of this country from which we may never recover.
Perhaps the granddaddy of these scams started with Franklin D. Roosevelt and his “New Deal” socialism that included this grand new program he termed “Social Security”. When it was passed, Roosevelt presented it to the nation as an insurance retirement savings program, the monies for which would be deducted from earnings and deposited into a separate “trust” account. When the Social Security Act was challenged before the Supreme Court as being unconstitutional (which it was and is), Roosevelt’s attorneys argued to the court that there was not to be such a thing as a trust fund, but that the system was simply another form of a payroll tax. Since he had “stacked” the Court with appointees that would go along with his socialization of America, Roosevelt secured the blessing of the Justices and the rest, as they say, is history. Three decades later along comes Lyndon Johnson, another socialist democrat, and he piles the Medicare and Medicaid programs on top of the Social Security system. In all of these schemes the picture presented to the public was of a “safe” investment that would “pay for itself”, while in private those promoting it knew otherwise. However, there is no such “trust” fund – its all a shell game; the money goes into the general fund of the government and is spent as soon as it is deposited (or actually even before then)! As for these programs being self-sustaining, David Walker, the former comptroller general of the United States, testified before Congress in 2008 that the current liabilities of the federal government for these three programs in current dollars total $53 trillion – that’s $53,000,000,000,000!! (For a graphic representation of just what a trillion dollars would look like, I refer you to the pictorial display put together in the following link: http://www.pagetutor.com/trillion/index.html). So you see, those who paid into the system earlier are being paid their benefits from the monies being paid currently by us and by future generations, until the whole system collapses from under its own weight and those that are last will be left without any benefits – a “ponzi scheme” of unimaginable proportions, foisted upon us by our own government! (For an excellent, brief expose of these points I would recommend the chapter “On the Welfare State” in Mark Levin’s book Liberty and Tyranny).
Yet today we are being told that the current proposals for “health care reform”, the various “stimulus bills”, the so-called “Cap and Trade” legislation, et al, will also be self-sustaining and will reduce our nation’s debt, all of it brought to us by the same fascist-minded political party (the democrat party) that pulled the Social Security, Medicare and Medicaid scams on us. Our current national debt currently stands in the neighborhood of $12 trillion, take a few hundred billion or two, much of which is owned by foreign nations. The largest debt-holder in this category is none other than Communist China, with around $1 trillion in treasury notes (counting those purchased by Hong Kong). We need not fear the Chinese military destroying our republic; with the amount of indebtedness we owe to them, they could and may eventually crush us fiscally without ever having to fire a single shot!
However, do you know who holds the largest amount of our national debt? To learn the answer I want you to go into your bedroom or bathroom, wherever you may have a mirror and look in it – it is us, the American citizens who hold the largest amount of debt. “How is this possible?” you might ask – simple, yet another “ponzi scheme” known in economic and financial terms as “monetizing the debt.” I am far from having a deep knowledge of this subject and those that do may find my following thoughts a little simplistic, but the matter is a serious one for the future financial stability and indeed even the very existence of our republic.
“Monetizing the debt” in the most basic definition occurs when a country, unable to pay its debt, simply prints or mints more money in order to pay it; or as one financial analyst styled it, “replacing government debt with money.” The two main players in this scam are the US Treasury department and the Federal Reserve – the entity that controls our financial system, including the money supply and interest rates. It is important to remember that the Federal Reserve is not an agency of the Federal Government, but rather is independent of it (I know, a hard concept to grasp and one that most of us find somewhat confusing). In the simplest transaction when foreign and institutional investors decide not to purchase US Treasury notes to finance the proliferate spending of the leadership in Congress and the Obama administration the Treasury department turns to various hedge funds and sells the notes to them since they deal in higher risk investments. However, these hedge funds do not retain ownership of the securities but instead turn around and sell them to the Federal Reserve, which being an entity that has no cost of capital and must keep the money supply in line with a set target rate, and not having those funds kept in reserve simply cranks up the its printing presses and creates the money that it needs to purchase these notes out of thin air! And so ’round and ’round it goes until eventually it comes time to “pay the piper” and when unable to do so the entire financial system, economy and indeed our beloved republic comes crashing down like a house of cards, with future generations being the ones upon whose heads it will collapse!
I would like to offer to you as support of what I have said the following analysis published just last month by Sprott Asset Management, LP on the zerohedge website (for a full reading of their insightful analysis click on the following link:
http://www.zerohedge.com/sites/default/files/Sprott%20December.pdf).
“In the latest Treasury Bulletin published in December 2009, ownership data reveals that the United States increased the public debt by $1.885 trillion dollars in fiscal 2009.1 So who bought all the new Treasury securities to finance the massive increase in expenditures? According to the same report, there were three distinct groups that bought more than they did in 2008…. to summarize, the majority buyers of Treasury securities in 2009 were:
- Foreign and International buyers who purchased $697.5 billion.
- The Federal Reserve who bought $286 billion.
- The Household Sector who bought $528 billion to Q3 – which puts them on track purchase $704 billion for fiscal 2009.
…we were surprised to discover that “Households”…bought 35 times more government debt than they did in 2008.”
When they investigated just who makes up this “Household Sector” they learned
“…that the Household Sector is actually just a catch-all category…. So to answer the question – who is the Household Sector? They are a PHANTOM. They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.
Our concern now is that this is all starting to resemble one giant Ponzi scheme…. It serves to remember that the whole point of selling new US Treasury bonds is to attract outside capital to finance deficits or to pay off existing debts that are maturing. We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury’s ability to attract outside capital. If our research proves anything, it’s that the regular buyers of US debt are no longer buying,….
Bill Gross, who is co-chief investment officer at PIMCO and arguably one of the world’s most powerful bond investors…. Earlier this year he referred to the US as a “ponzi style economy” and recommended that investors front run Uncle Sam and other world governments into government debt instruments of all forms.12 The fact that he is now selling US treasuries is a foreboding sign.”
As you can well imagine, the creation of money “out of thin air” can have but one effect – it lowers the value of the money and inflation can (and at the rate we are increasing the debt will) run rampant. We need to take a lesson from recent history as to what happens to a country when such an approach to paying debt takes place. I take you back in time to just a little less than one hundred years ago. The First World War has ended and the victorious Allies have imposed a horrific peace treaty upon defeated Germany. The most odious part of that treaty was the imposition upon Germany of “war reparations” – i.e., they (upon the insistence of the French) forced Germany to repay them for their costs of the war. Having already been greatly debilitated by the cost of the war from their own vantage point (for it was really upon this fact which Germany lost the war and not by defeat upon the battlefield) they now had the overwhelming debt of the victors as well. So while the rest of the world enjoyed the boom commonly referred to as the “Roaring Twenties”, Germany suffered under a severe recession (or actually the beginning of what spread to the rest of the world as the “Great Depression” of the 1930s’). Unable to repay the debt through the normal means of taxation and commerce, they cranked up their printing presses to print more German marks. The result (and a sobering fact for us to consider as we face the mountain of debt being amassed by our current Congress and the Obama Administration, as we are following the same path as Germany) can be seen in how this all affected the value of the German mark (as valued against the US dollar):
Beginning with the outbreak of the war, we get a stunning picture of the decline of the value of the mark in its exchange value against the dollar:
July 1914 — 4.2:1
July 1919 — 14.1:1
July 1921 — 76.7:1
July 1922 — 493.2:1
July 1923 — 553,412:1
Nov 15, 1923 — 4,200,000,000,000:1 (yes, that’s 4.2 trillion marks to 1 US dollar!!)
This, my fellow Americans, will be our future if we do not rid ourselves of such out-of-control leaders in this government and return ourselves to fiscal sanity. In his chapter “On Public Debt”, Montesquieu in his monumental work The Spirit of the Laws had these words of wisdom as to the result of a government amassing debt:
“If foreigners possess much paper that represents a debt, they draw, every year, from the nation, a considerable sum in interest. In a nation thus perpetually indebted” [emphasis mine - Epaminondas] “the exchange should be very low. The impost” [i.e., taxes] “levied for the payment of the interest on the debt injures manufactures by making workmanship dearer. One takes the true revenues of the state from those who are active and industrious to transfer them to idle people, that is, one gives the comforts of working to those who do not work, and the difficulties of working to those who work. There are the drawbacks; I know of no advantages“ (Part IV, Book 22, chapter 17).
So that you not think me a lunatic “tilting against windmills” and playing the role of a “Chicken Little”, I leave you with the sound wisdom of perhaps the greatest of the Anti-Federalists, Thomas Jefferson:
“[A] wise and frugal government… shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.” — First Inaugural Address, March 4, 1801
“We must not let our rulers load us with perpetual debt.” — letter to Samuel Kercheval, July 12, 1816
“The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”— letter to John Taylor, May 28, 1816
The time is now, my fellow citizens, to rid ourselves of these “swindlers” in Congress and the White House before they bring our precious republic and our inalienable rights of liberty and pursuit of happiness to ruin!
-Epaminondas
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