If you thought Bernie Madoff was running the biggest scam ever, then think again. The Western world has been running a giant Ponzi Scheme for decades. Ponzi financing is where the scheme operator doesn’t have enough cash flow to cover the principal or interest so “sells the asset” to the next buyer to cover the losses on the first. So the scheme operator is the government and the public are the buyers in the form of taxation.
In 1992, economist Hyman Minsky stated “Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is a large weight to units engaged in speculative and Ponzi finance. . . . The greater the weight of speculative and Ponzi finance, the smaller the overall margins of safety in the economy and the greater the fragility of the financial structure.”
So the rapidly rising debt to GDP levels are a sign of this Ponzi financing. It is recognised that the threshold for a sustainable level of debt to GDP is 60% (such debt is Government debt – also referred to as public sector debt). Here are some figures on such debt – Japan: 229%, Greece: 163%, Italy: 120%, US: 102%, France: 86%, UK: 82%, Spain: 68%.
But who is going to buy all this Government debt to keep the scam going – can we rely on China? In short no. The Ponzi scheme will unwind, the day of reckoning has already passed quietly. Go for gold – it’s likely to be the best hedge against the inevitable de-valuing of fiat currency.