Saturday, November 23, 2013

Ponzi Schemes have to keep on Growing

 The thing about Ponzi schemes is that they have to keep on growing and if they don`t grow, they implode because you need a bigger supply of new investors to cash out the old investors.

Look at the U.S. Treasury Bond market. We have a 17 trillion dollar national debt (although that is just a tip of the iceberg, we actually have 100 trillion plus in total debt. 17 trillion is just where there are U.S. treasuries outstanding but the U.S. government has lots of obligations beyond the treasury debt).

But if you just focus on that, where does the U.S. government get the money to retire all the maturing bonds every year, trillions of dollars worth of Treasuries mature. The government does not have that money. It relies on new buyers to cash out the old buyers. And in many cases its the same holders, people that hold the debt, just roll it over, so we never have to pay it back.

But nobody wants to acknowledge the simple truth that repayment is impossible. All we can do is borrow more money to pay out the maturing debt but the debt stock keeps getting bigger and bigger because of the compounding interest and because the government borrows more more money every single year.

Peter Schiff

Peter Schiff is a well-known commentator appearing regularly on CNBC, TechTicker and FoxNews. He is often referred to as "Doctor Doom" because of his bearish outlook on the economy and the U.S. Dollar in particular. Peter was one of the first from within the professional investment field to call the housing market a bubble. Peter has written a book called "Crash Proof" and a follow-on called "The Little Book of Bull Moves in Bear Markets". He is the President of EuroPacific Capital, which is a brokerage specializing in finding dividend-yielding, value-based foreign stocks.

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