This Can't Really Be the Economy...

[marmar]

from OurFuture.org:



This Can't Really Be the Economy...
By Terrance Heath

December 17th, 2008 - 11:57am ET



I'm not an economist. I've never studied economics, beyond reading The Complete Idiot's Guide to Economics about a year ago. I've read about derivatives, and had my mind blown by the concept of securitization and the idea that people not only sell debt, but chop it up into little pieces, mix those pieces up, and then resell them to other people. (And, wait a minute, debt has value?)

And, all with no regulation or oversight?

Now, after following economic news this past year, it's like somebody pulled back the curtain and revealed the economy as little more than floating game of craps. And I find myself thinking, "You gotta be kidding me, right? This can't really be the economy. Can it? We gotta have something else, because you know what this sounds like to me?"

"Ponzi" Schemes

Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period—and this was 1921! Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.

Decades later, the Ponzi scheme continues to work on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses. For more information, please read pyramid schemes in our Fast Answers databank.

http://www.sec.gov/answers/ponzi.htm

But, like I said, I'm not an economist. So I thought, "Is it just me? I gotta be missing something," because even though it sounds like a ponzi scheme to me, a lot of very smart people seem to think this is a perfectly sensible basis for an economy.

Me, I always thought that to form the basis of an economy, you had to have people who make stuff — stuff that other people could actually put to use — and sell that stuff to other people. But this is so much of part of the foundation of our economy that we've got to go billions of dollars into hock to keep afloat the people who drove their companies into a ditch and took the economy with them. .........(more)

The complete piece is at: http://www.ourfuture.org/blog-entry/2008125117/cant-really-be-economy

[Kutjara]

1. It really is.

For the best part of 40 years, our economy has become less and less about making and selling things and more and more about cooking up wild n' crazy gambling schemes that make betting your pink slip on a Vegas roulette wheel look like the heights of financial conservatism. The respectable term for this sort of flimflam is "financial engineering." The less respectable term is "C'mon seven! Daddy needs new shoes!"

Clear away all the leading indicators, interest rates, money supplies, synthetic instruments, swaps, options, coupons, and basis points, and what you're left with is pure greed, fueled by irrational exuberance and an unshakable conviction that "nothing can possibly go wrong." The people at the top kept betting big because, in a rising market, how could they lose? The people at the bottom kept shoveling their life savings into the game, because the people at the top were winning big "and I want a piece of that action." Little did the people at the bottom know that the "winnings" being paid out to the people at the top was nothing more than the little guy's money. There was no growth in the economy, no new jobs were being created, no real wealth was being generated by anyone. All that was happening was a classic speculator's bubble. Prices of assets like houses and shares were skyrocketing, and people were borrowing against the increased value to finance the good life, safe in the knowledge that the gravy train would keep chugging along forever. If you house was worth 500% of what you paid for it, who cares if you haven't had a pay rise in ten years? You just borrow against the house and PARTAY!

Meanwhile, even those people who should know better (Fortune 500 CEOs, leading economists, the Chairman of the Fed) were playing the same game. Buy expensive shit, go on expensive vacations, wear expensive clothes: let the good times roll! So we did, and as they always do, the good times rolled right over us.

[Mika]

2. Its all a big casino using fiat currencies.

Money As Debt
http://video.google.com/videoplay?docid=-9050474362583451279

---

The United States Fiat Money
& The Federal Reserve System
http://www.financialsense.com/fsu/editorials/schoon/2008/0623.html

The issuance of fiat money by governments is, in truth, a white collar crime; and, as happens when white collar crimes are discovered, a highly visible paper trail leads directly back to the wrongdoers—in this case, the central banks.

Central banks are the mechanism by which society’s productivity is drained and indebted. Credit-based money issued by central banks turns into debt, debt which immediately begins to accrue compounding interest paid by productive members of society, e.g. workers, businessmen, farmers, savers and taxpayers. The interest, of course, is paid to bankers, non-productive members of society.

The motives for the co-conspirators in this crime are different but equally fulfilling. Governments get to spend what they don’t have and bankers get to collect interest on money that is not theirs—a win/win for the governments and bankers and a lose/lose for citizens and savers.

[rucky]

3. Here's a must-see film: Money As Debt

http://video.google.com/videoplay?docid=-9050474362583451279

[Mika]

4. Great minds..

:fistbump:

[PDJane]

5. The economy has been that kind of crap shoot

Since long before Charles Ponzi. Sixteenth century England. The renaissance, even.

It works AS LONG AS THERE IS SOME RESTRAINT or there are laws to make overreach impossible. It works better on a smaller scale, and it works better when the monetary system has a tangible basis, like gold.

[HughBeaumont]

6. We COULD make stuff, but rich people wouldn't be OBSCENELY rich.

And we just can't have THAT, can we?

This is what happens when you build an economy primarily around war/defense, pharmaceuticals, insurance, debt investment, technology and risky financial instruments; with the exception of technology, all of them are unstable, speculative sectors designed to concentrate wealth and security on the top of the chain.

Also, when you have a country that doesn't MAKE stuff, you're shutting out millions of workers (and potential customers of your product) who aren't meant for college who are now being forced to go into debt because there are scant few options for gainful employment. But wait . . . turns out that college degree is no longer a guarantee of entry into a new career, much less security if you DO make it. Even MBAs are getting laid off.

Here's the most galling thing about it all: The wealthy who run businesses are almost FULLY in the mindset that the way they did things under the Reagan/Bewsh era is the way they'll CONTINUE to do things, and they see absolutely nothing WRONG with this plan. They see absolutely nothing wrong with busting and crashing the economy continually, because they're largely unaffected by all of this. When the sun sets, they'll still go home to their palatial castles, driving up their brick pathways, enter their three-story foyered, climate-controlled homes and sleep tidy and sweet, because no such money problems will ever befall them.

My question to all of my fellow working/middle/poor classers: Are you all going to be docile and complacent if the Friedmanist South-Americanization of America continues or is there finally going to be a massive upheaval and enforcement that the rich WILL start playing ball and WILL not run their businesses as if it were their own personal mints?