Re: Greenspan's Ponzi Scheme

["Devine, James" <jdevine@xxxxxxx>]

he shouldn't be worrying about productivity growth. Rather, what's important is profitability trends...

------------------------
Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine




> The Bear's Lair: Greenspan's Ponzi Scheme
> By Martin Hutchinson
> UPI Business and Economics Editor
> Published 11/24/2003 5:36 PM
> 
> 
> WASHINGTON, Nov. 24 (UPI) -- A Ponzi scheme requires three 
> things in order
> to be (temporarily) successful: a massive source of outside money, a
> sophisticated PR campaign, bloviating about its glories, and a "magic
> mushroom" to make people believe in it. U.S. monetary policy 
> currently has
> all three.
> 
> For those not around in 1920, Charles Ponzi ran a scam in 
> which money was
> supposed to be invested in international postal coupons (the 
> exchange rate
> disruptions of World War I had made it at least theoretically 
> profitable
> to buy Spanish coupons and use them to pay U.S. postage.) The postal
> coupons were the "magic mushroom" -- providing the hallucinogenic
> ingredient that people didn't really understand, but that 
> appeared to make
> it possible to make fantastic returns. By publicizing the 
> success of early
> "investors," paying back investors who demanded their money, and even
> agreeing to be audited, Ponzi created a PR campaign that attracted new
> money. By operating in the major money center of Boston, he 
> maximized the
> access to new investors, whose money could be used to pay off 
> old ones --
> he was taking in $1 million per week at the peak, real money in 1920.
> 
> Needless to say, Ponzi was imprisoned -- one of three prison 
> terms he was
> to serve -- after which he emigrated to Mussolini's Italy, followed by
> post-war Brazil, scamming as he went. The equation of 
> Greenspan to Ponzi
> does not suggest criminal intent -- just that many features of current
> U.S. monetary policy strangely resemble Ponzi's empire, and 
> are likely to
> lead to similar painful results for all of us.
> 
> With the exception of what seems now like a brief halcyon period in
> 1945-73, the last couple of centuries have been full of 
> British financiers
> prognosticating gloomily about the unsoundness of the U.S. 
> economy. In the
> 19th century, this gloom stemmed from experience -- more good British
> money was lost down the rat-holes of U.S. state finance in 
> the late 1830s
> and U.S. railroad finance in the early 1890s than I care to 
> think about.