Bernard Madoff has been widely excoriated for running the largest Ponzi scheme of all time. If only it were true.
Bernie took money from investors while promising solid, but not spectacular returns. He used money from later investors to pay off earlier investors and skimmed off a bit for yachts, jets, villas, and other goodies too numerous to mention as his take for keeping it all afloat for years.
Now, I understand that fifty or sixty-five Billion dollars seems like a lot of money to most folks but it is chump change compared to what is actually the world's largest Ponzi scheme. Congratulations, because you are part of it!
It is called Social Security. The government took money from early workers (beginning in the 1930's) and gave them great returns. Among the first was a woman who paid in less than fifty dollars and then collected benefits until she died at the age of 100.
Bernie Madoff skimmed off money for his personal expenses; your government has effectively done the same thing. Your dollars have paid for national defense, welfare, food stamps, roads and bridges, waste, fraud, and abuse, and a host of other things. Bernie didn't put IOU's in the till for the things he bought. Your government did put in IOU's, but the money is gone, accounted for, and spent.
Bernie made a lot of people happy with the fine returns he provided for many years. FDR and successive congresses have made voters very happy by providing lots of goodies from the federal treasury for many years.
Bernie has gone to jail because he could not find enough new investors to keep it all going. The same thing will happen eventually to Social Security. Younger workers will revolt.
The Trustees just told us the money will be gone sooner than they thought it would last year. They are talking about when the IOU's run out. But there are only tax payers to pay the IOU's and those same taxpayers will have to pay for current government expenses at the same time they begin paying off the IOU's in just a few years.
This is what is known as a train-wreck and it will happen sooner than you expect. The only difference is that no one will go to jail. The guilty parties are voters who have kept on, and keep on, electing politicians who rob them of their freedom while promising "security" in return.
Those who make this bargain end up with neither. Bernie Madoff is probably collecting his Social Security payments while in jail. If only we could lock up Congress with him!
Much has been made of supposed "green shoots" in the economic reports that indicate things are getting better. Banks actually made profits in the first quarter. Housing numbers are not as bad as they seem. New claims for unemployment came in lower than expected.
These are actual reports but are better seen as "spin" than as signs that things are turning around. Bank profits were based on silly things like this: Banks could repurchase their debt for pennies on the dollar and the difference between par and pennies is thereby booked as a profit even though they did not actually repurchase any of their debt.
New claims for unemployment are made weekly and the numbers are well known to be quite volatile. Economists are pretty much universal in their agreement that unemployment will continue to rise even after a recovery has actually begun. That is the normal pattern of every recession. The rate of unemployment can be expected to rise for at least a year and will probably reach 12%, if not higher.
Housing starts are the lowest they have been in the fifty years records have been officially recorded. Sometimes I think we might be better off without all of the government and private institutional reports telling us what is going on. The spin says most of the drop in housing was in multi-family, not single family units. Gee, don't you feel better now!
One of the great questions I still wrestle with is whether we will have inflation or deflation. I believe the reality is that we cannot yet know the answer to that question. Some economists believe we need to encourage inflation to help debtors to be able to repay their debts. The pressure on prices is now downward because more people are inclined to save and fewer people are borrowing and buying. Housing, automobiles, and many other things, especially durable goods, are falling in price.
Niels Jensen believes governments worldwide will need to borrow at least to 33 Trillion Dollars because massive government borrowing has always followed banking crises. That is about fifty times the amount set aside by the original TARP bill. The massive borrowing will crowd out private sector borrowing and that will mean very slow economic growth in the private sector economy for at least the next several years.
Massive borrowing needs may mean high interest rates for savers, or it may mean that the slow economic growth will leave interest rates at low levels for years to come as we try to grow out of these problems while starving the economy of investment capital. Either result will not be good for the stock market.
The green shoots of the economy should have two words written on them: Caveat emptor!
I grew up in Kansas in the 1950's - 60's. I attended Kansas State (B.S. in Soc. Science) and Washburn Law School (J.D.). My wife and I have been married for over thirty years and are the parents of three grown sons.