Your Questions About Is The Stock Market A Big Ponzi Scheme

George asks…

Why Do Republicans Say I Do Not Understand What a Ponzi Scheme Is When Comparing It To Capitalism?

By Dr. Michael I. Niman is a professor of journalism and media studies:
Charles Ponzi, the con artist busted in 1920, and Bernard Madoff, one of America’s most successful hedge fund managers and a reputable pillar of the Wall Street financial community. Madoff, whose name is actually pronounced “made off,” took the scheme that Ponzi made famous to new heights, conning some of the world’s biggest banks and richest personalities, making off with an incomprehensible sum of money over three times the size of the auto industry bailout.
A Ponzi con goes like this: Some reputable crook sells an investment instrument that promises attractive returns. As new folks invest, the crook pays off previous investors, who actually see the promised returns on their investment. This continues on as new cohorts of investors buy technically worthless stocks or shares, the purchase of which fund payoffs to earlier investors. The actual stock or investment has no concrete value. It is not backed by a tangible item such as gold, real estate, or even a used car or a big lollipop. Nada. Nothing. It’s only value lies in the fact that people, for whatever reason, believe it has value. This belief creates a supply of fresh capital to keep the operation running while its crook-in-chief siphons his cut off the top. The early investors make out okay, as long as they cash out. The later investors, those mindlessly and greedily following the herd, are fucked.
I’m confused because I’ve also just described the global economy. The dollars in your pocket are what economists call “fiat currency.” While US currency was once redeemable for, and hence backed up by, a fixed amount of gold or silver, that system finally collapsed under the Nixon administration, which was essentially bankrupted by the costs of the Vietnam War. The US could no longer afford to back up its money with gold or silver since it had taken to printing money on an as-needed basis, essentially taxing the population by playing the margins on an inflating currency that it could print at will.
At the time, we had become so used to trading these paper slips for real goods that we forgot how this habit started. Words like “silver certificate” and any other indication of redemption value disappeared from our currency. We left “In God We Trust” on the bills, not because the masters of our economy necessarily trusted God but because it was good marketing for what essentially was a Ponzi investment. What, you got a problem with God?
Money has value not because it has any intrinsic worth. It has value because people value it. That’s it. People around the world continue to invest their worth in our conceptual currency, maybe because shaky as it is, it’s still better regarded than their own. In any event, as long as they keep investing in greenbacks, prior owners can keep trading them in, as with Ponzi’s and Madoff’s schemes.
Then there’s the stock market—global capitalism’s nest. Stocks have value? Well…
Okay, there are the fundamentals. Tangible things like factories and inventory. They have real value. And when you buy stock, you’re buying part of that value. But for the most part, those aren’t the hot stocks. Old economy accruements such as manufacturing plants are now seen as albatrosses. They require maintenance. Their operating expenses are susceptible to uncontrollable variables such as energy and labor costs. New economy corporations are rewarding for shedding the unwieldy weight of employees and buildings.
Wall Street’s stars are stars because they’re stars. That’s it. People invest in stocks because their values are going up, and the bet is that they will continue to go up. The rich are usually the first to get on and then off this train. The middle class, seeing how rich the rich got investing in air, then put their life savings into the roulette wheel, often in time for “bubble bursts” and “market adjustments.”
Like with any other Ponzi scheme, it’s a confidence game. It falls apart when the confidence ends. Right now we’re seeing a crisis of confidence.
Now let’s look at housing. When the tech bubble burst—meaning, when the romance of technology stocks wore off and people tried to assess their real value—the smart money pulled out early and took refuge in real estate. This gave us the era of McMansions, obese little castles wedging themselves onto the suburban landscape.
By 2000, real estate was well poised to be the new Ponzi. People burned by the revaluing of technology paper were looking for something real to invest in. Real estate is certainly real. And it’s a finite commodity—sort of like gold or silver. But the problem is that real and valuable as it really was, it wasn’t anywhere near as valuable as a frenzied market made it out to be—and up it shot. The collateral damage here came in the form of homelessness and personal bankruptcies as more and more poor and working folks got priced out of the housing market entirely
Republicans don’t understand what a Ponzi scheme is, no matter how much they tell someone else they don’t understand (and don’t offer any explanation of what it is just Ad hominem attacks).

Justin answers:

I’ve found that the cons here exhibit very concrete thinking bro.. So unless you spell it out, they aren’t going to connect the dots if you use metaphor or symbolism bro.. That’s why it’s so awesome to just continue to go on doing it anyway.

David asks…

does the government debt even matter?

it seems they have no problem going into deeper debt… does it even affect us? how does it affect anything?

Justin answers:

If our government goes to the fed and has them print up some new money to spend and it’s not underwritten by debt, then it causes hyper-inflation. The fed has to find a buyer for that debt or it can’t create it without destroying the credit market itself. The principle buyer of US debt are the oil producing nations we buy oil from. Part of the deal is they are obligated to use a substantial portion of their profits to buy up US debt.

There is a problem. The price of oil crashed recently. It crashed because congressional democrats passed a law and created an agency to investigate if investors were driving up the price of oil by engaging in the perfectly legal behavior of investing in oil futures. Since they basically threatened to throw anyone they felt was doing this in prison, almost all investors abandoned the market all at once. This caused the price of oil to crash. Without oil profits, nations like saudi arabia can’t buy US debt. That caused the credit market to freeze. US businesses could no longer borrow the money they needed to pay bills. They went out of business before being able to make a profit (bills tend to be spread out while profits come in fits and jumps) That caused the stock market to crash. Since stock price is the main collateral used by businesses to obtain loans, this became a vicious cycle.

The whole thing is a hell of a mess that requires, at the very least, that our government stop spending money IMMEDIATELY and allow the credit market to recover.

Is that what they are doing? No. What do you think the effect of printing up the biggest amount of cash ever in our country’s history and blowing it on a ton of useless bullshit is going to do to the value of the dollar if it can’t be underwritten by loans? It will make the US dollar worthless. And if it IS underwritten by loans, it will destroy the credit market.

So yeah….the debt does matter. It’s thrown our economy into a death spiral and there are only a few ways out of this mess.

For example, Obama can nationalize the banking system and force it to underwrite an unlimited number of loans and not sell them. This will cause a dramatic lack of confidence in the US dollar as now, nothing at all will underwrite it. It will also piss off most of the US’s trading partners who buy US debt. Because that debt will essentially become a worthless asset.

Obama could curtail spending. Actually, this is likely to happen. The states are up in arms over the whole thing. A constitutional convention is only two state legislatures away from being called (something that has not happened in a very long time). It’s basically a no-confidence vote by the states that strips the congress of its authority. If that happens, the very first thing they will do is end all federal spending. This is a very real possibility and is serious business.

The last (and probably best) thing Obama could do is disband the commission on oil and allow investors to bring the price of oil back up to a $150 a barrel. That would solve the problem, at least temporarily, in a matter of months.

But, as Ron Paul has made mention of, more than once, the US dollar (actually all major world currencies) are nothing more than a giant ponzi scheme that will eventually crash and burn. In the long term, there is only one real solution….disband the fed, root US money in hard assets like gold, and cancel all outstanding US debt. Basically tell our creditors we won’t pay and if you don’t like it, tough.

John asks…

Will the government of the United States collapse within the next 10 years?

At the moment, we have a government that is intent on escalating its failed policies of the past. We have a Treasury Secretary who is utterly incompetent and causes the stock market to drop every time he opens his mouth. We have a lunatic Fed chairman who is intent on causing a Weimar Republic style spiral of hyperinflation. We have an overseas Empire that has bases in over 130 countries. We have a debt that is so large that there is absolutely no chance that it will ever be paid. We have an aging population that is set to overwhelm the entitlement system within the next few years, finally causing the ponzi schemes of Social Security and Medicare to collapse. The Congress has recently passed a law, the GIVE Act, which forces the young into a forced labor indoctrination program of a variety that only exists in totalitarian countries.

Can anybody else see what I see in the eyes of our ruling class – that they know that the collapse is coming and that they are just trying to get as much loot as they can before the end arrives? Is the end of the biggest government in history near? Are you looking forward to it, as I am?
By the way, the CIA trained Osama bin Laden and the Mujaheddin back in the 80s to do to the Soviet Union exactly what they are now doing to our government.

Justin answers:

You’re wrong about everything except the last part about bin Laden.

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Overcoming Financial Problems: 4 Steps to Get Back on Track

No matter how much income you’re bringing in or how good you are with your
money, almost everyone runs into financial difficulties at one point or
another. If you’re stuck experiencing financial problems, then consider the
following four tips on how to get back on track with your finances.

1. Create a Budget

Image via Flickr by 401(k) 2013

First and foremost, you need to create a budget. Without a budget,
overspending becomes incredibly simple, which eventually leads to debt and
financial issues. However, when you do create a budget for yourself, it becomes
easier to set money aside for the most important bills while helping you get
out of a tough situation. Follow these steps to create a budget:

  • Start by evaluating your finances. Look at how much
    money you make, and then create a list of how much you’re spending and
    where you’re spending it.
  • Create a separate list that evaluates how you
    want to spend your money. Consider your most important bills first, and
    then see if it’s still feasible to fit in the less important costs.
  • Look at your first list again and determine what types
    of things you can cut from your spending so that
    you can put that money toward more important expenses.
  • Once you’ve examined where you’re at and where you want
    to be, make a list of where you will spend your money, and make
    sure that the amount you plan to spend works well with your income.

2. Invest Your

Investing your money involves taking risks, but when you work with a
well-established company such as Fisher Investments, you can
increase your income quickly to help you get rid of debt and get back on track
with your finances. Even if you’re not one of the individuals who make money
fast, investing your money is very important for retirement, and thinking about
this now can help you overcome problems in the future.

3. Seek Out Help

If budgeting your money isn’t helping you, then
perhaps it’s time to turn toward someone else. Your first option is to turn to
someone you trust, either a friend or a family member, who can help you spend
your money better. With someone by your side helping you make decisions,
avoiding unnecessary purchases and putting money toward important bills can
become easier.

Aside from a trusted friend helping you out, you can also turn toward a
financial counseling agency. They can help evaluate your situation and give you
advice specific to you.

4. Stop Using
Credit Cards

While credit cards have their advantages, they are also one of the biggest
culprits of debt. CNBC reports that the cost of consumer credit in America
totals over $950 billion, and experts attribute 98 percent of that debt to
credit cards. Hold off using your credit card until you’ve worked through your
financial problems since credit cards can cause you to spend more money than
you have, putting you even deeper in debt.

These simple tips are just starting points, but if you need help getting
back on track with your finances, then beginning with these steps could be the
key to overcoming your problems.

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Why Time Warner Is Investing Millions in Maker Studios

Why Time Warner Is Investing Millions in Maker Studios

Old media gave its stamp of approval to a new digital media model on Thursday. Maker Studios closed a $36 million round of funding, including $25 million from Time Warner. Never heard of Maker? You've probably watched one of its low-budget, yet
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1 Admittedly Squishy Investing Metric I Just Love

1 Admittedly Squishy Investing Metric I Just Love

People often have a hard time saying "sorry," don't they? That one little word — so fraught with weight, meaning, and of course, responsibility — is hard enough for the average person who's cut in front of you in a parking lot to utter, let alone the
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Your Questions About Invest In Gold And Silver

Paul asks…

Is this the time to invest in gold, silver, euro?

With this huge tax rebate, i’m expecting the valu of the USD to go way down. Would that seem like a reasonable statement? If so, is now the time to jump on gold, silver, the euro, and anything else that benefits when the USD goes down?

financi4 answers:

Maybe. I have been buying a little silver. I started at $11 an ounce though. It is now a little over 16 an ounce. Its not something you want to speculate on though. Remember balance is the key to any portfolio. If you already have other investments aim to get precios metals to be about 10%.

Charles asks…

Why do people say to invest in silver and gold? If there’s a crisis, what can we possibly do with these metals?

If money becomes worthless, what good are gold/silver?
Value based on what? You have no money and/or money becomes worthless, what good will gold and silver do you? You might as well use seashells or marbles as money.

financi4 answers:

It can make you some pretty jewelery so you don’t feel so crummy that the world as we know it has come to an end.

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Investing in Central Utility Stocks – Do Today's Valuations Make Sense? Part 3

Investing in Central Utility Stocks – Do Today's Valuations Make Sense? Part 3

This is the third in my series on investing in utility stocks based on the sector's current valuation levels. The series was initially inspired by concerns that utility stocks may be overvalued because they had recently performed very well. When the
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