Your Questions About Is The Stock Market A Ponzi Scheme

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Chris asks…

I want to start saving money. Seriously! What can I do to make my $1000 double within a one year period?

I am a young college grad who has a couple of thousand dollars to my name. I want to take $1000 of those dollars and invest in something where I can see a net gain. Is it wise to open a Money Market account? What kinds of stocks can I invest in? Should I purchase bonds? Please help!! How can I make my money make money in such a short time.

Justin answers:

If there was a sure fire way to double any amount of investment money within one year we all would be rich.

The higher the stakes the higher the risk.

You could buy stock in a company and get lucky and see your stocks double in value within one year. (it has happened…) but at the same time you could lose half of your investment or all of it. (That has happened too).

Traditional and safe investment take a lot longer to grow your money.
A CD or money market account would probably yield a couple percent in a year..

Buying stock can be as dangerous as gambling…. If you bet on the right horse – good for you. If your horse (stock) comes in last – there goes your money.

If you want to dabble in stock… Try Ford Motor Company – but watch it closely and pull out when you see a decent gain, wait out the next down turn and buy again before it rises… (easier said than done…)

Beware of any investment scheme that “guarantee” high yields with no risk… 99% of the time it is a hidden PONZI scheme and you will lose all of your money when the scheme runs it’s course or when the FBI puts them out of their business.

Charles asks…

What was Bill Wilson’s purpose or final objective by creating alcoholics anonymous?

Was he looking to create a new religion? or just make money?

Justin answers:

I believe it was equal parts of wanting to get sober and getting his wife off his back. When it began to spread, when people started coming to him to find out his secret in staying sober, he saw the opportunity to avoid getting a real job, while at the same time being in a position to repeatedly stray. He cheated on his wife so much that it became an embarrassment to AA and they started having Wilson accompanied to meetings. Wilson eventually left 10% of his estate to his favorite mistress, Helen Wynn.

Wilson was never a stock broker as claimed by AA members, he was a stock touter:

“About Bill Wilson being a stock broker: That is simple. Bill Wilson was never a stock broker. He was never anything like a stock broker. Bill Wilson was never trained as a stock broker, and he was never licensed to trade stocks. He never traded stocks for anybody. Bill Wilson’s statement in the Big Book that he was a stock broker was a blatant lie, just more of Bill’s bragging and self-aggrandizement.

Bill Wilson was really a stock touter, and a Wall Street hustler. A stock touter is somebody who goes to rich speculators and says something like, “Buy G.E. It’s going to really take off. It’s going to go to the moon. Oh, and please slip me some of your winnings when my tip pays off.” If you do that with enough stocks and enough speculators, you can make a living off of it. You are likely to hit some winners sooner or later.

Bill Wilson was doing that during the Roaring Twenties, when the stock market was all going up in a frenzy of “irrational exhuberance”. It’s easy to pick winners when everything is going up. After the Crash of 1929, Bill’s game was over.

Bill Wilson also declared in one of his autobiographical raps that he got in with a bunch of Wall Street “operators” and got involved with “Ponzi schemes”. That is the wrong name for the racket. What Bill Wilson really got involved with was “Pump’n’Dump” schemes.
(See PASS IT ON, pp 74-76, 85-86, and 90-91, and Bill W. By Robert Thomsen, pp 146-147, 152-153.) ”
http://www.orange-papers.org/orange-letters179.html

Paul asks…

When will the British Government admit that National Insurance is a Ponzi scheme ?

If it looks like a duck, and it quacks like a duck it is a duck

Justin answers:

Never they know the public love Ponzi schemes..look at the bank bailouts profits privatized losses taken by the taxpayer, the stock market continues to have mugs throwing their money at it..the public are suckers so why admit it if u where the Govt? Just keep it going just like the quantitative easing the bank of England is so fond of doing just print money and pump it into the system another ponzi scheme when Mugabe did it we all laughed and called it a banana republic yet the UK & USA do it its called quantitative easing? Lol.

William asks…

What’s the difference between a ponzi scheme and an investment bank? –John Stewart?

*note
Jon Stewart shouldn’t have a question mark

Justin answers:

In a ponzi scheme the returns are created through fraud, namely they are told that the profit will come from x (the sale of stocks, the loaning of money, what ever) and they really just come from other investors, they are doomed to crash since they are artificial

an investment bank comes with inherent risk that the consumer takes on (namely fluctuation in the markets) and the source of income comes from where they say it comes from (buying debt, stocks, bonds, etc)

With an investment bank you at least know what you are getting into before you risk loosing all of your money (verses a ponzi scheme where you don’t know what you are getting into when you are guaranteed to loose all of your money)

Donald asks…

So is this a legal Ponzi Scheme for all startup companies to follow?

So first I will get some VC money, say 50 millions.
I will use that to support my business model to sell $20 bill for $15.. I will lose money on every deal but I will gain a tons of followers and customers who love it. Then I will file for IPO on a company that doesn’t have profit nor positive cash flow and once it’s on the stock market, I can sell my stock for multiple of millions along with my early investors.. that’s when people wake up and realize there were never a successful business model to begin with as the stock plummet to the ground.

Justin answers:

That’s not how VC’s work. VC’s fill fund 10 companies who ‘look like’ they will sell $20 for $15. 9/10 companies will actually sell $20 to $15 and go broke. But one company will actually start to sell $20 for $1000. That’s a worthwhile investment.

And people who wait till IPO to invest in start-ups are suckers.

Daniel asks…

I have reasons on why DOW dropped 14,000 to 8,000…can someone help me elaborate on these reasons?

~Profits reduced…

~Lower demand for stocks

~Increase in oil

~Credit crunch

~Deflation

~Consumer confidence drop

~GM

~Short sellers

~Risk factor

~Reduced corporate earnings

Even if you can’t answer them all, at least try and do some. I’d really appreciate. I need at least 5! Thx.
Also I’d like to add….

~Unemployment

~Banks collapsing

~Foreclosures

Justin answers:

Be happy to:

~Profits reduced…

In the end, this is why stocks always drop. However, it is a result of other factors, not the core cause.

~Lower demand for stocks

A result of profits dropping. When you buy stocks, you’re buying equity – what’s left over after the bills are paid. When product demand tanks, profits go with it, and thus dividends – the payments to stockholders.

~Increase in oil

Itself a very complicated issue. Constraints in supply, rising demand, and the weak dollar due largely to much wasteful deficit spending in Iraq all played a role in this. Additionally, speculation exacerbated volatility, but even in the presence of high volatility, the market ultimately finds the correct economic price.

~Credit crunch
~Deflation

These are related. Think of it like this – what is money? It’s what you exchange for goods and services; if someone owes you money, they actually owe you the product of their production. If you owe someone a debt, you’re promising to repay them at a given time with money representing your production. Money then is actually debt, and so is credit. The other side of the credit ledger is always the debt ledger.

Now then, the major (but not only) problem we have here is that we’ve developed a system over the last 30 years or so that, instead of ensuring the fruits of productivity gains were shared amongst those who produced them, allowed the people controlling capital (the wealthy) to siphon off these gains for themselves through regressive taxation and complex, fraudulent financial instruments and derivatives. Far from the claims of the strict free-marketers, the wealthy didn’t actually MATERIALLY produce the productivity gains, but they did reap the benefits. Now, in order for the economy to function properly over the long run, people actually have to BUY the new production, otherwise production becomes pointless, profits disappear, and the system implodes.

So, the people at the bottom went on consuming their productivity gains, but because of financial deregulation, they were really forced do to so on credit. The individuals made the choice in a way, but they are constrained to making choices that the system will allow, and the variables of the system required increasing indebtedness on the part of people further down the “greasy pole” (the class structure). The way this is structured means that consumer debt and the assets of the wealthy both increase exponentially approaching a limit of infinity.

However, it’s obvious that people can’t go on kicking an infinite amount of their income up the greasy pole, but at the same time, the neoliberal system in place since the 1980’s has required such increasing indebtedness for workers to earn the income necessary to finance the payments on the debt. It is at once an economic ponzi scheme and a system of financial enslavement – for in this system, the indebted classes can’t ever earn enough income to escape the debt. If they turn their income to debt repayment or default (as they eventually must), the financial system implodes. This implosion forces a massive liquidation of assets bought on credit, sending asset prices down, and since credit is extended against assets, all of a sudden banks are forced to start taking money out of the economy to compensate for their losses. But again here, as that happens, credit dries up, and… Boom. That’s what the credit crunch is. For all of the BS on the news, it’s really no more complicated than this accounting tautology: people are defaulting on debts because they can’t pay their bills. They can’t pay their bills because they’ve promised to give so much of their income (what they’ve borrowed plus outrageous interests rates which make their debt impossible to pay off) to the wealthy that it’s now undeniable that it can’t be paid back.

Of course, here’s the thing – the wealthy won’t actually SPEND it; for someone extremely rich, having a net worth of $500 million versus $5 billion makes not a bit of difference in their lifestyle. Rather, they just want to acquire more wealth for its own sake – wealth equals economic power, so it’s really just power for the sake of power, whereas average workers want more money so they can obtain more economic output. Workers though can only get this output with money – since, again, rich people have all the money, there’s no demand for output, so investment plans are trashed, workers are laid off, and many then default in addition to the original defaults.

This creates a nasty, self-perpetuating downwards spiral – faced with falling demand for their products, individual businesses try to conserve cash and maintain profitability by laying off more workers and scrapping more investments, thereby driving down wages, and making the repayment of debt even MORE difficult. The decline in purchasing power means less demand for goods and services (supply meets demand), sending prices down, down, down – hence deflation. This is why m

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