Carlo Ponzi, Alias Uncle Sam
by Gary North: Saint
Ponzi was a con man who was the Bernie Madoff of his era. For two
years, 1918 to 1920, he sold an impossible dream: a scheme to earn
investors 50% profit in 45 days. He paid off old investors with
money generated from new investors. The scheme has been imitated
scheme involves five elements:
- A promise
of statistically impossible high returns
- An investment
story that makes no sense economically
- Greedy investors
who want something for nothing
- A willing
suspension of disbelief by investors
angry rejection of exposures by investigators
most Ponzi schemes involve a sixth element: the unwillingness
of the con man to quit and flee when he still can. Bernie Madoff
is the supreme example. But Ponzi himself established the tradition.
once begun, moves toward its statistically inevitable end. From
the day it is conceived, it is doomed. Yet even the con man who
conceived it believes that he can make it work one more year, or
month, or day. The scheme's designer is trapped by his own rhetoric.
He becomes addicted to his own lies. He does not take the money
me to a set of conclusions. Because all Ponzi schemes involve statistically
impossible goals, widespread greed, suspension of disbelief, and
resistance to public exposure,
reserve banking is a Ponzi scheme.
All central banking is a Ponzi scheme.
All government retirement programs are Ponzi schemes.
All government-funded medicine is a Ponzi scheme.
All empires are Ponzi schemes.
All Keynesian economics is a Ponzi scheme.
But there is
a difference between a private Ponzi scheme and a government Ponzi
scheme. The private scheme relies on deception and greed alone.
A government Ponzi scheme relies on deception, greed, badges, and
in the mainstream media get very upset when somebody speaks of the
sacred cow of Social Security as a Ponzi scheme. They go gunning
for any political figure who uses the phrase "Ponzi scheme"
in relation to Social Security. This is because they know that such
a politician is a conservative, and they want to see him defeated
at the next election.
matter whether politicians say the naughty words or not; the Social
Security system is a Ponzi scheme, and it will go bust.
a vastly larger Ponzi scheme, and it, too, will go bust. In fact,
it will go bust with such an impact on the federal budget that it
will pull down the Social Security system with it. In fact, if the
promises are not broken to the oldsters who are dependent upon Medicare
and Social Security, the deficits in the Medicare system will bring
down the entire federal government. The government will default
on all of its debts. Anybody who bought that debt will then wind
up as helpless as the people who have become dependent upon Social
Security and Medicare.
who are dependent upon Social Security don't want to hear this.
They want to tell us that they paid into the system, fair and square,
and therefore we owe them the money. Well, I am in the system, and
I paid into the system, and I'm going to cash my checks from the
system, but I will be glad when the system goes belly up.
CAUSE AND EFFECT
the thought of the bankruptcy of these Ponzi schemes cheer me up?
Because I believe in ethics. I am horrified by the thought of a
completely unethical system being successful over time. The longer
the day of reckoning is delayed, the more people will be lured into
it. I wish the system would go belly up sooner than later, because
fewer people will become dependent on it if the system goes belly
up sooner rather than later.
people who believe that it is ethical to stick a gun in the belly
of one man and take his money, in order to support someone else,
are in favor of the Social Security system. They want it to keep
going forever. They want the moral corruption of coercion to continue.
motivation for sticking the gun in a man's belly was political rather
than charitable. Chancellor Otto von Bismarck in the 1880s rammed
the first old age retirement program down the throats of German
politicians because he knew that this would undercut the liberals,
which it did. The reasons were not based on charity. The reasons
were political. They were justified by arguments favoring state-funded
charity, but it was all a con job, as all Ponzi schemes are.
Security is vastly more corrupt than a Ponzi scheme, because a Ponzi
scheme involves no coercion and a lie, whereas Social Security involves
massive coercion and a much bigger lie. I will shed no tears when
the system goes down.
C. S. Lewis once described as totally evil a world in which food
would make people hungry. In other words, food would have the same
kind of addictive power as heroin. The more you eat, the more you
want. This is what Social Security and Medicare do. These systems
are addictive, and the longer they operate, the larger the number
of people who become addicted to them. The more you are dependent
on the system, the more dependent you will become on the system.
The weaker you get because you are dependent on the system, the
more you are dependent on the system. This is the equivalent of
Lewis's food that makes people hungry.
Social Security system, like the Medicare system and Medicaid, has
the characteristic of addiction, politicians cannot break it. Neither
can the people who are dependent on the programs. Inevitably, the
systems will continue to grow until such time as they threaten the
bankruptcy of the entire government. At that point, there will be
a political revolt. Younger people, meaning voters who are paying
into the system, will send people to Congress specifically to cut
the spending on the three Ponzi schemes. They will make it clear
to elected representatives that if they do not find ways to cut
spending, they will not be re-elected. Politicians will get the
The first people
to be cut will be physicians. The government will cut payments to
hospitals and physicians. This will create a shortage of medical
care. The lines to get treatment will get longer. The quality of
the care will be reduced. But, at some point, the government will
have to find other ways to cut the expenditures. It will be political
criteria that decide exactly how the various programs will be cut.
But they will be cut.
One of the
most amusing phrases that we hear today about the evils of Social
Security is this one: "We are placing a burden on our children."
This slogan is so nonsensical that I find it difficult to believe
that anyone could believe it.
First, we are
not placing a burden on our children. We are placing a burden on
ourselves. The government is borrowing money to pay for the systems.
We are therefore raising our level of indebtedness. Our children
are not going to be burdened with this; we are going to be burdened
with it when the kids get smart enough to pull the plug. They are
going to stiff the creditors who have bought Treasury bonds and
Treasury bills, and that means the banks that have bought them,
the money market funds which have bought them, the retirement funds
which have bought them, and anyone else who has bought them, including
the Chinese central bank, the Japanese central bank, and the other
central banks of the world.
the other central banks will be playing the same game, and all the
other voting blocs in foreign nations will be moving against the
geezers. Around the world, the same Ponzi system is in operation,
and around the world they are all going bankrupt. There is not one
of them that will survive. So, it will be a question of who pulls
the plug first. Who stiffs the creditors first?
hear the phrase about the immorality of burdening our children and
grandchildren, and they know that the phrase is nothing but political
hype. If they really tried to cut spending on the Ponzi schemes,
and justified this by the fact that they were doing something effective
to keep from stealing from children and grandchildren, they would
be out of office after the next election. It's all crocodile tears.
The geezers want the money, and they don't give a hoot about the
children and grandchildren. They're going to get their checks, one
way or the other, by hook or by crook they will stick their hooks
into Congress, and Congress will do their work for them.
We can't pass
on any obligations to our children and grandchildren if our children
and grandchildren will be in a position to reject the transfer.
There is nothing legally that compels our children and grandchildren
to continue to pay into the system. We can scream bloody murder
about how we paid in, and how the kids owe us, and how we are going
to make certain that the kids fork over the money, but the kids
already have the votes.
Here are the
reasons why the kids don't simply pull the plug now. First, the
kids want to pretend that somebody else is going to pay for their
parents, especially the parents who are in retirement homes, or
need costly medical care. The Ponzi schemes seem like good ideas,
because those voters who think that somebody else is going to pick
up the tab are willing to increase the tab. They still think that
somebody else is going to pay for the free lunch of Social Security
The next reason
why they pay is that the government threatens to send out IRS agents
to compel them to pay. They're afraid of dealing with IRS agents
who carry guns. They don't want to go to jail. They don't want to
be fined. So, they keep paying into the system, because they think
they have no choice but to stay in the system.
have the illusion, which a lot of them are losing, that someday
they will be the beneficiaries of the system. But it is getting
clearer to larger numbers of them that this is not going to be the
when the day finally comes when the burden of paying into the system
is greater than the expected benefits to be received, younger voters
are going to instruct Congress to pull the plug. There is no way
around this statistically. The present value of the unfunded
liabilities of Social Security, Medicare, and Medicaid is $222
trillion. There is no way that this is ever going to be paid
off. It is statistically impossible for the government to continue
to pay off the systems.
be great weeping and gnashing of teeth when the plug gets pulled.
The Gray Panthers will be outraged. The AARP will organize campaigns
to get the geezers' noses back into the trough. But, ultimately,
there are more young voters than old voters, and the young voters
will ultimately vote their economic self-interest. They're going
to pull the plug.
the rest of the article
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 31-volume series, An
Economic Commentary on the Bible.
2012 Gary North
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