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Ponzinomics

Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky, the Wall Street Journal and many others say that our entire economy is a Ponzi scheme.

Former Reagan budget director David Stockton just agreed:

So did a top Russian con artist and mathematician.

Even the New York Times' business page asked, "Was [the] whole economy a Ponzi scheme?"

In fact – as we've noted for 4 years (and here and here) – the banking system is entirely insolvent. And so are most countries. The whole notion of one country bailing out another country is a farce at this point. The whole system is insolvent.

As we noted last year:

Nobel economist Joe Stiglitz pointed out the Ponzi scheme nature of the whole bailout discussion:

Europe's plan to lend money to Spain to heal some of its banks may not work because the government and the country's lenders will in effect be propping each other up, Nobel Prize-winning economist Joseph Stiglitz said.

"The system … is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government," Stiglitz said in an interview.

***

"It's voodoo economics," Stiglitz said in an interview on Friday, before the weekend deal to help Spain and its banks was sealed. "It is not going to work and it's not working."

[The same is true of every other nation.]

Credit Suisse's William Porter writes:

"Portugal cannot rescue Greece, Spain cannot rescue Portugal, Italy cannot rescue Spain (as is surely about to become all too abundantly clear), France cannot rescue Italy, but Germany can rescue France." Or, the credit of the EFSF/ESM, if called upon to provide funds in large size, either calls upon the credit of Germany, or fails; i.e, it seems to us that it probably cannot fund to the extent needed to save the credit of one (and probably imminently two) countries that had hitherto been considered "too big so save" without joint and several guarantees.***

As Nouriel Roubini wrote in February:

[For] problems of that magnitude, there simply are not enough resources—governmental or super-sovereign—to go around.

As Roubini wrote in February:

"We have decided to socialize the private losses of the banking system.

***

Roubini believes that further attempts at intervention have only increased the magnitude of the problems with sovereign debt. He says, "Now you have a bunch of super sovereigns— the IMF, the EU, the eurozone—bailing out these sovereigns."

Essentially, the super-sovereigns underwrite sovereign debt—increasing the scale and concentrating the problems.

Roubini characterizes super-sovereign intervention as merely kicking the can down the road.

He says wryly: "There's not going to be anyone coming from Mars or the moon to bail out the IMF or the Eurozone." [Others have made the same point.]

But, despite the paper shuffling of debt at the national level—and at the level of supranational entities—reality ultimately intervenes: "So at some point you need restructuring. At some point you need the creditors of the banks to take a hit —otherwise you put all this debt on the balance sheet of government. And then you break the back of government—and then government is insolvent."

Peak Demographics?

Indeed, population may be the biggest ponzi scheme of all. Specifically – as we've pointed out for years – rapidly-aging populations in the developed world will exert a big drag on the economy.

The Global Mail notes:

Half the world, including almost all the developed world, now is reproducing at below replacement level. A generation from now, according to United Nations Population Division projections, less than a quarter of the world's women – most of them in Africa and south Asia – will be reproducing at above replacement rate. And those UN forecasts are probably on the high side, for reasons we'll come to later.

And as the birth rate has plunged in developed nations, and the native-born population has begun to shrink and rapidly age, governments and business have sought to make up the numbers by importing people to prop up their economies. It's all they know how to do, for our economic system is, at its base, a giant Ponzi scheme, dependent on ever more people producing and consuming ever more stuff.

But what happens if that all stops? What happens when you get an ageing, shrinking population that consumes less?

"The answer to that question is that we don't know because it's never happened before," says Peter McDonald, professor of demography and director of the Australian Demographic and Social Research Institute at the Australian National University.

***

"We're certainly operating a Ponzi scheme in Australia," says Dr Bob Birrell, an economist and migration expert from Monash University.

"Our growth is predicated on extra numbers… [and] more of our activity is going into city building and people servicing, which do not directly produce many goods that can be traded in overseas markets.

***

Half the world is facing the problem of low fertility, and Australia, with its massive program of importing people, is providing an extreme example of one approach to the conundrum.

In a nutshell, the problem is this: lower fertility rates mean older, less innovative and productive workforces. More importantly to the Ponzi economic order, older, stable or declining populations consume less. So growth requires either importing people, or exporting stuff, or a combination of the two. Orthodox economics simply can't cope otherwise.

Europe as a whole has been reproducing at well below replacement rate for close to 40 years. The last period for which UN data showed Europe's total fertility rate above the replacement rate was 1970-75.

Europe's contemporary demographics give new meaning to the descriptor `the old world'. The continent's average person is over 40 now. By 2050, if things continue on trend, the average European will be 45.7. If one takes the UN's "low variant" projection, he/she will be over 50 years of age.

And the low variant now looks closer to the mark. Fertility rates had actually rebounded a little over recent years, the result of a bit of "catch-up" after a shift over several previous decades in which women delayed child-bearing. But the European recession has set fertility rates plunging again.

Jamie Ferguson/The Global Mail

Jamie Ferguson/The Global Mail

The recession's effects will likely linger for decades, in lower rates of earnings and savings, and also in reduced fertility.

***

Last year, Forbes magazine, that most reliable voice of the economic orthodoxy, laid the blame for Europe's economic decline squarely on its citizens' failure to reproduce in adequate numbers, in an article headlined What's Really Behind Europe's Decline? It's The Birth Rates, Stupid.

The Forbes piece was unequivocal: the biggest threat to the European Union was its low fertility rate.

***

The piece ended with a dire warning that unless Club Med managed to induce people to have more babies, catastrophic economic consequences would flow for all of Europe and maybe the world.

***

As Thomas Sobotka, one of the authors of a 2011 study on population trends by the Vienna Institute of Demography, told the Guardian newspaper, massive cuts in social spending would only exacerbate the problem.

"This may prolong the fertility impact of the recent recession well beyond its end. It could lead to a double-dip fertility decline," he said.

But when it comes to fertility declines, Asia takes the cake.

Japan, Singapore, South Korea, Taiwan, Macau, Hong Kong, and most importantly China currently all have fertility rates lower than those of Europe.

***

China's and Korea's are about to start falling, if they haven't already.

"I'm pretty pessimistic about the east-Asian situation," says McDonald. "I think those countries find it very difficult move in the right direction of supporting work and family, in particular, reducing work hours.

"We are now talking about some 30 per cent of Japanese women not getting married."

"I saw a couple of people from the Japanese government give a paper recently, essentially accepting this as an inevitability – a low birth rate forever," he says.

It's the same all over Asia.

***

Hong Kong has a birth rate of 1.09, which is on track to see its population almost halve in a generation. Taiwan is at 1.10; China, 1.55; Thailand, 1.66; Vietnam, 1.89. Even Indonesia's fertility is just above replacement rate, at 2.23, and is falling fast. Malaysia and the Philippines are still growing pretty quickly, as are the south-Asian countries, which may give them a competitive edge for a few decades – and a growing export industry of people. But it is not projected to last more than a few decades.

Let's return to America. The United States also is reproducing at below replacement rate, and its birthrate has declined sharply in recent years.

***

The US birth rate not only fell to its lowest level ever in 2011, but the greatest decline was among immigrant women.

***

In the longer term, the world will have to adjust its economic system to cope with the novel concept of less. Fewer people, less consumption, lowered need for resources, energy, housing, roads, you name it.

Indeed, smart curmudgeons like Jeremy Granthan and Chris Martensen think that we have not only "peak" demographics, but also peak resources.
There's HOPE

The above is admittedly depressing. But the reality is that there's hope.

We can have a very bright future, indeed … if we switch from the status quo to something smarter. For example, see this and this.

For example, we can cut out the middlemen in the banking and political realms … and prosper.

Energy

And as we've previously noted about energy:

The current paradigm is that energy is produced expensively by governments or large corporations through gigantic projects using enormous amounts of money, materials and manpower. Because energy can only be produced by the big boys, we the people must bow our heads to the powers-that-be. We must pay a lot of our hard-earned money to buy electricity from them, and we can't question the methods or results of their energy production.

Our life will become much better when we begin to understand that energy is all around us – as an ocean of electromagnetic forces and as a byproduct of other processes in the form of heat, pressure, etc. – and all we need do is learn how to harvest it.

Original source of article: http://www.globalresearch.ca/the-entire-economy-is-a-ponzi-scheme-the-global-financial-system-is-insolvent/5331143

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Comments

"lower fertility rates mean older, less innovative and productive workforces. "

What is your evidence that as people grow older they become less productive and less innovative?

I may have become even less acquisitive with age but I think that, even though my work involves considerable physical input, I'm actually more productive and innovative as I have more experience in being pushed to innovation and have acquired mental techniques for, and experience of being innovative. I'm also less "hormonal" as I age and subsequently more focused which in turn makes me more productive. I can't work as hard physically as I did 20 years ago but working smarter more than makes up for it.

I don't argue with the general premise that the obsession with growth economics is essentially "Ponzinomics" but the assertion that being older makes you less innovative and productive (socially or economically) buys into the ageist rubbish being pedaled by Ponzinomists.

I'm pushing 50 but can't see retirement anywhere in my future and hope to pay for my own retirement and then have either the freedom or the guts to stop being a burden sometime down the track when it suits me.

The envisioning of what a steady state economy might look like or the questions of how to manage a shrinking economy and ageing population should not be confused with, or sucked in by the systematic "elder abuse" being pushed by conservatives and neoliberals (almost invariably the same people denying me the right to choose my own time of death).

We already know that you can't "immigration" your way past the challenges posed by ageing populations , why give these growthist myths any credence at all?

Italians, Spaniards and Greeks are forsaking their homelands and heading to Germany and Switzerland as economies throughout the Mediterranean contract. The great big Capitalistic Ponzi scheme is becoming unravelled.

SMH: Jobs security lure Mediterraneans away

The massive unemployment in Europe is proof that economies can't keep growing to absorb population growth, austerity measures, debt and countries without borders. There are limits to any growth, and debts continue to accumulate and jobs end up being slashed.

People with professions are moving away from massive unemployment and deprivation to Germany and Switzerland.

Reports in Switzerland suggest that the country’s government is currently considering placing a temporary limit on the number of EU immigrants allowed to enter the country each year. Between February 2012 and January 2013, more than 90,000 EU citizens became residents of Switzerland – a more than 10% increase on the same period the previous year. The 2004 quota meant that only 2,000 residency permits a year are awarded to citizens from eight countries. Four parties which make up Switzerland’s coalition government are keen to introduce the quotas, meaning fewer EU citizens may find the country so welcoming to them in the near future.

Levels of racism are rising in Germany. But they're not rising equally everywhere. East German states have seen the largest uptick - and the German government's policy of allowing those states to combat it is failing.

"The only reason foreigners come here is to take advantage of our welfare system," postulated one of the statements in a recent survey. Unwelcome immigration is easily dismissed as "racism" rather than other social economic issues.

The German government has taken its first steps towards making the country more welcoming to skilled immigrants. Germany has already started to witness an increase in immigration, mainly due to the country’s economic strength making it a popular destination among migrants from other, recession-hit, EU nations.

Eastern European migrants are more likely to have jobs than native Britons, a research study revealed recently.

Eastern Europeans more likely to have jobs than native Britons

Researchers found that in the UK, workers from the countries that joined the EU in 2004 and later were 7 per cent more likely to be in work than British-born people.

It's easy to blame economies for not growing enough to absorb human numbers than the reality of population overload.

So the developed EU countries are falling into the abyss of poverty and unemployment, the same conditions those from third-world countries and the bankrupt EU countries are trying to escape. Global overpopulation and over-debt means that a greater number of economic migrants are trying to escape the Ponzi scheme collapse, but there are fewer countries to escape to.

This letter was sent to The West Australian (newspaper) recently but not published.

Dear Editor
Like many residents of Perth I am concerned at the many reports of violence in our paper these days. Recently I discovered the “2.5% rule” from a 2006 United Nations report. It stated that amost all the nations experiencing high levels of violence were countries with population growth above 2.5%.

Perhaps our Government and Police Commissioner should consider relieving the pressure on our overcrowded courts and jails by reducing WA’s high, 3.4%, population growth rate.

Patricia Weaver,
Nedlands

The crime wave in Australia must have similar explanations, due to high population growth. Our cities are riddled with crime, especially in the areas of high growth and congestions. Wyndham in outer Melbourne and Western Sydney are famous for fly-by shootings, random attacks, stabbings and many other crimes.
It's a dystopia, and the laws haven't been upgraded to face the surge in urban dis-ease.
According to the Australia Institute of Criminology, reported crimes for Australia have risen by almost two-thirds, from 845,923 in 1980-81 to 1.41 million in 1988-89. (1991) Research conducted in Australia
and overseas suggests that, "although worrying, these rising crime figures
may be due to a short-term trend in population growth, together with some familiar changes in society".
More recently, the 2011 census data has confirmed that Western Australia is the fastest growing state in Australia, increasing by 14.3% between 2006 and 2011. This is significantly above the national growth rate of 8.3%. Roads are heavily congested, cost of living has increased, crime has increased, and interestingly, homelessness has increased.
Social and cultural dimensions of quality of life which are widely perceived as having declined in recent years, at least partly as a result of population growth, include rising crime rates and other sociopathic behaviour, quality of human relationships, quality of outdoor recreational opportunities, quality of community services including health, education and transport, ethnic tensions, loss of small freedoms (like burning garden leaves) and conflicts over resource use, particularly in peri-urban areas. ( POPULATION-IMMIGRATION POLICY IN AUSTRALIA, Doug Cocks, CSIRO Division of Wildlife and Ecology, Canberra, Australia Dec 1998)
The government is only interested in short term outcomes which will come with long terms costs. What are our goals as a nation to invite the squalor, urban blight, poverty, crime, environmental degradation, resource depletion etc that accompanies over population?
Our government is making immigration decisions guided not be common sense, but by a market economy. What's the point of an increasing GDP but with infrastructure in a mess, homelessness increasing, a shortage of affordable housing, crime rates increasing, and food security diminishing? It's madness!
Studies show that there appears to be a loose relationship between population growth and the overall volume of crime. However, some types of crime lag behind the population just as other types soar ahead of it. Although there is obviously more to crime than population growth, it seems safe to say that rapid acceleration of population tends to facilitate, and perhaps even promote, some types of crime. (The Case of Two Growing California Cities, Beaumont and Banning: Ronald G. Corwin, Professor Emeritus, Department of Sociology, Ohio State University)
One billion people, one-sixth of the world's population, or one-third of urban population, now live in shanty towns, which are seen as "breeding grounds" for social problems such as crime, drug addiction, alcoholism, poverty and unemployment. (Whitehouse, David (2005-05-19). "Half of humanity set to go urban". BBC News. Retrieved 2011-11-30). With the world's population continuing to surge towards 9 billion, the systems that try to contain the dark side of humanity will be under more stress.

More evidence of Ponzi economic is our cut-backs to university funding of $2.3 billion to pay for State education.

It's not really funding, but cutting one educational sector to pay for another. It's really money-shuffling, taking from one already starved sector to pay for what should be available to another.
Ms Gillard always praised her chance to have a university education, had cut her teeth in student politics when she became president of what was then the Australian Union of Students as a Melbourne University student in 1983.

National Union of Students tweeted "@JuliaGillard as a former student activist and representative how can you justify slashing one part of education for another?" How many of our politicians enjoyed free, if not cheap tertiary education, just to put the screws on opportunities for this generation of prospective students?

University cuts give Labor member bitter taste of irony

The Federal government cut would result in losses of about $100 million in research funding, an estimated further $15m in infrastructure funding and $50.4m in teaching support at the university over the next four years.

The education industry would then be forced to rely more on international students, and increase the already unwieldy fees.

Our economy has become over-sized, unfathomable, unsustainable and cumbersome. It has created its own momentum - to gather more "economic growth" and this means losing control of what our economy is all about!

If the future of our young people is jeopardized by not being ready and educated for the 21st century, then the economy has developed a "mind of its own" and has lost the purpose of what it was supposed to do in the first place - provide for the people, the citizens, who are part of it. That means trading goods and services for high standards of living, working and high standards of education.
If our economy fails when debts become oversized, it becomes self-feeding and counterproductive.

The Ponzi pyramid serves the sharks, the elite, the high-rollers at the top, but further down the victims are being deprived of economic and social benefits.

This "funding" is simply moving around funds from existing budgets, and spitting out people - those nearer to the pyramid's bottom get more and more deprived and impoverished.