http://www.zerohedge.com/news/2013-06-24/biggest-ponzi-scheme-history-world
Submitted by Tyler Durden on 06/24/2013 17:33 -0400
Submitted by Tyler Durden on 06/24/2013 16:52 -0400
Submitted by Tyler Durden on 06/24/2013 18:38 -0400
The Biggest Ponzi Scheme In The History Of The World
Submitted by Michael Snyder of The Economic Collapse blog,
Did you know that you are involved in the most massive Ponzi scheme that has ever existed? To illustrate my point, allow me to tell you a little story.
Once upon a time, there was a man named Sam. When he was younger, he had been a very principled young man that had worked incredibly hard and that had built a large number of tremendously successful businesses. He became fabulously wealthy and he accumulated far more gold than anyone else on the planet. But when he started to get a little older he forgot the values of his youth. He started making really bad decisions and some of his relatives started to take advantage of him. One particularly devious relative was a nephew named Fred. One day Fred approached his uncle Sam with a scheme that his friends the bankers had come up with. What happened next would change the course of Sam's life forever.
Even though Sam was the wealthiest man in the world by far, Fred convinced Sam that he could have an even higher standard of living by going into a little bit of debt. In exchange for IOUs issued by his uncle Sam, Fred would give him paper notes that he printed off on his printing press. Since the paper notes would be backed by the gold that Sam was holding, everyone would consider them to be valuable. Sam could take those paper notes and spend them on whatever his heart desired. Uncle Sam started to do this, and he started to become addicted to all of the nice things that those paper notes would buy him.
Fred took the IOUs that he received from his uncle and he auctioned them off to the bankers. But there was a problem. The IOUs issued by Uncle Sam had to be paid back with interest. When the time came to pay back the IOUs, Uncle Sam could not afford to pay back the debts, pay the interest on those debts, and buy all of the nice things that he wanted. So Uncle Sam issued even more IOUs than before so that he could get enough notes to pay off his debts. As time rolled on, this pattern just kept on repeating. Uncle Sam repeatedly paid off his old debts by taking out even larger new debts.
Meanwhile, since the notes that Uncle Sam was using were backed by gold, everyone else in the world decided to start using them to trade with one another. This was greatly beneficial to Uncle Sam, because the rest of the world was glad to send him oil, home electronics, plastic trinkets and anything else that Uncle Sam wanted in exchange for his gold-backed notes.
Eventually, however, the rest of the world started to suspect that the number of gold-backed notes that Uncle Sam was issuing far exceeded the amount of gold that Uncle Sam actually had. So the rest of the world started to trade in their notes for gold.
And by that time Uncle Sam definitely did not have enough gold to back up his notes. Realizing that the scheme was starting to collapse, one day Uncle Sam announced that his notes would no longer be backed by gold. But he insisted that the rest of the world should continue using his notes because he was the wealthiest man on the planet and everyone should just trust him.
And the rest of the world did continue to trust him, although it wasn't the same as before.
As Uncle Sam got greedier and greedier, he started to issue IOUs and spend notes at a rate that nobody ever dreamed possible. The great businesses that Uncle Sam had built when he was younger were starting to decline, and Uncle Sam started buying far more stuff from the rest of the world than they bought from him. The rest of the world was still glad to take Uncle Sam's notes because they used them to trade with one another, but they started accumulating far more notes than they actually needed.
Not sure exactly what to do with mountains of these notes, the rest of the world started to loan them back to Uncle Sam. It eventually got to the point where Uncle Sam owed the rest of the world trillions of these notes. Even though the notes were losing value at a rate of close to 10 percent a year, Uncle Sam somehow convinced the rest of the world to loan him notes at an average rate of interest of less than 3 percent a year.
One day Uncle Sam woke up and realized that the amount of debt that he owed was now more than 5000 times larger than it was when Fred had first approached him with this ill-fated scheme. Uncle Sam now owed more than 16 trillion notes to his creditors, and Uncle Sam had already made future financial commitments of 202 trillion notes that he would never be able to pay. Meanwhile, the notes that Fred had been printing up for Uncle Sam were now worth less than 5 percent of their original value. Uncle Sam was becoming concerned because some of his other relatives were warning that this whole scheme was about to collapse.
Sadly, Uncle Sam did not listen to them. Uncle Sam knew that if he admitted how fraudulent the financial scheme was, the rest of the world would quit sending him all of the things that he needed in exchange for his notes and they would quit lending his notes back to him at super low interest rates.
And if the rest of the world lost confidence in his notes and quit using them, Uncle Sam knew that his standard of living would go way, way down. That was something that Uncle Sam could not bear to have happen.
When a financial crisis almost caused the scheme to crash in 2008, a desperate Uncle Sam went to Fred and asked for help. In response, Fred started printing up far more notes than ever before and started directly buying up large amounts of IOUs from Uncle Sam with the notes that he was creating out of thin air. Fred hoped that the rest of the world would not notice what he was doing.
It seemed to work for a little while, but then an even worse financial crisis came along. Once again, Uncle Sam started issuing massive amounts of new IOUs and Fred started printing up giant mountains of new notes to try to fix things, but their desperate attempts to keep the system going were to no avail. The rest of the world started to realize that they had been sucked into a massive Ponzi scheme, and they lost confidence in the notes that Uncle Sam was using. Suddenly nobody wanted to lend notes to Uncle Sam at super low interest rates anymore, and people started asking for far more notes in exchange for the things that Uncle Sam wanted.
Uncle Sam's standard of living dropped dramatically. Since he could no longer flood the world with his notes, Uncle Sam could not continue to consume far, far more wealth than he produced. Uncle Sam sunk into a deep depression as he watched the scheme fall apart all around him.
Uncle Sam had once been the wealthiest man on the entire planet, but now he was a broke, tired old man that was absolutely drowning in debt. Unfortunately, once he was down on his luck the rest of the world did not have any compassion for him. In fact, much of the rest of the world celebrated the downfall of Uncle Sam.
All of this could have been avoided if Uncle Sam had never agreed to Fred's crazy scheme. And once Uncle Sam made the decision to stop backing his notes with gold, it was only a matter of time before the scheme was going to collapse.
Does this little story sound crazy to you? It shouldn't. The truth is that you are involved in such a scheme right now. In case you haven't figured it out, "Uncle Sam" is the United States, the "notes" are U.S. dollars, and "Fred" is the Federal Reserve.
Please share this story with as many people as you can. Our country is headed for complete and total financial disaster, and we need to get people educated about this while there is still time.
http://www.zerohedge.com/news/2013-06-24/presenting-chinese-wealth-management-products-infinite-risk-loop
Presenting Chinese Wealth Management Product's Infinite 'Risk' Loop
While we explained - in detail here - the copper-financing-deals that are among the epicentric drivers of the credit crunch in China, there is an (albeit smaller) missing link. The so-called 'Wealth Management Products' that are discussed widely and yet little understood are basically higher yielding vehicles pitched to a greater-fool retail audience with the goal of reducing banks' risk at the behest of the PBOC. Of course that is not how these stuffed-to-the-gills-with-risky-development-projects deals are pitched to the investing public but they have allowed banks (and implicitly local governments) via the infinitely virtuous loop below to fund any and all things construction-based... until now. It seems that losses (step 5), risks (step 3), and illiquidty (step 6) are breaking the loop very rapidly and therefore implicitly lowering credit creation (and therefore growth) or driving credit demand even further into the shadows.
Simply put - the retail audience is becoming aware of the risks (Step 5 is breaking), Trust companies are increasingly illiquid and also unwilling to act as conduit carrying the short-term risk (Step 3), which stalls the recycling of deposits back into banks (Step 6) crushing the banks' ability to lend and keep the glorious growth cycle going...
From wealth-management to wealth-massacre in one easy loop.
Charts: Reuters
http://www.zerohedge.com/node/475643
The Secret Sauce Of Iceland's Success Story: Debt Liquidation?
That Iceland is so far the only success story in the continent of Europe, which continues sliding into an ever deeper depressionary black hole, as a result of the complete destruction of its financial sector and its subsequent rise from the ashes, is by known to most. What is still not exactly clear is what conditions have allowed success and growth to flourish in a barren wasteland where 60% youth unemployment is increasingly the norm, and where economic "outperformance" is measured in shades of red. As it turns out, perhaps the biggest jolt to Icelandic economic growth is what we said was the correct prescription for resolving not only the US but global growth malaise that struck in 2008: debt liquidation.
Of course, instead the powers that be opted for merely masking unsustainable debt with more debt in the hope of preserving the global financial equity tranche, where some $50 trillion, or two-thirds of total, in US household wealth is concentrated, by drowning out hundreds of trillions in global debt through controlled debt inflation - which four years later still has yet to take hold, and which with every incremental dollar, yen, franc or pound printed threatens to spillover into uncontrolled hyperinflation, i.e., loss of fiath.
Alas, no debt liquidation is possible without making the equity below it worthless: a fact of restructuring known all to well to most which is precisely why it will not happen as long as the status quo is in control. Yet in those places which dared to bite the bullet and do the right thing - namely liquidate untenable debt - growth is back, and the future is truly bright without everyone asking "just how much longer will a few Keynesian voodoo acolytes provide a reprieve from the poverty effect?."
From Bloomberg:
Iceland’s lenders have forgiven household debt equal to about 12.4 percent of gross domestic product since the island’s 2008 financial collapse.Lenders had written off 212.2 billion kronur ($1.7 billion) in household debt through the end of 2012, the Icelandic Financial Services Association said in a letter to parliament. The group estimated a further 35.3 billion kronur will be forgiven this year after they recalculate loan agreements to meet a Supreme Court ruling.About 141.2 billion kronur of that follows a ruling from the island’s top court stating that mortgage loans indexed to foreign exchange rates were illegal, it said.The island’s biggest banks failed in October 2008, after defaulting on about $85 billion in debt. The collapse plunged the island’s economy into a crisis that sent unemployment surging nine-fold and triggered a recession.The association said that of the total, 45.8 billion kronur in private debt was forgiven as part of an agreement that stipulated that debts exceeding 110 percent of a property’s value must be written off.
What a novel concept: debt slaves succeeding in, one day at a time, removing their shackles. Or at least being aware of their debt serf status: which sadly is much more than one can say about 99% of the remainder of the world's population.
That said, look for debt liquidation to be tried everywhere else eventually... But only after every other mechanism of "inflating" away the debt has failed, and in the process also wiped out not only the global middle class, but the myth of the welfare state.
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