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Debt-Based Monetary System Demands Ever More Debt—Part II—Ponzi Schemes?


Ponzi1

Is our Debt-Based Monetary System a Ponzi Scheme?  [Courtesy Google Images]

Recently, in Part I of this series, I promised that in Part II, I’d explain “why” the survival of our debt-based monetary system (DBMS) depends on the creation of ever more debt. I argued that our massive National Debt is not an accident or evidence of political malfeasance, but rather an intentional and necessary consequence of accepting our debt-based monetary system (DBMS). I argued that our DBMS can’t survive without going ever deeper into debt.

I compared “payments” (which are tangible, real assets like gold or silver coins) to “promises to pay” (which are intangible, paper debt-instruments like paper dollars). I warned that, given the choice between receiving a tangible “payment” and an intangible “promise to pay,” only a fool would take the paper “promises to pay”.

I illustrated my argument about “promises to pay” by reminding readers of how many times they had made or received promises that had failed. My point was that promises are easily made and routinely broken.

So, I suppose it should come as no surprise that my promise to use this week’s article to explain the “why” behind the debt-based monetary scheme will also be broken. I began to write this second article with some background on “Ponzi Schemes” (which is how I and others frequently describe our DBMS).  But, when I looked into “Ponzi Schemes,” I discovered that maybe that’s not the most accurate way to describe our DBMS. I also realized that maybe I should try to discern and describe the nature of our DBMS before I got into the “why”.

Result? Here, in Part II of this series of articles we’re going to explore whether our DBMS is really a “Ponzi Scheme” or if it’s something else. Then, in Part III (coming soon) I’ll present my notions concerning the fundamental “why”.

I promise.

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False Premises


U.S. Subprime lending expanded dramatically 20...

U.S. Subprime lending expanded dramatically 2004-2006 (Photo credit: Wikipedia)

The sub-prime mortgage debacle triggered the A.D. 2008 financial crisis that nearly plunged the US and global economies into an economic depression.  The ultimate reason for the sub-prime mortgage crisis was a faulty, fundamental premise.  It was falsely believed that the prices of American homes had risen steadily since WWII and were certain to keep rising into eternity.

So long as the price of homes continued to rise, bankers could safely lend even to sub-prime mortgagors.  If sub-prime mortgagors failed to make their payments, the lenders would foreclose on homes that (thanks to endlessly rising home prices) were worth more than the original loan.  Thus, the lenders couldn’t lose.

But (“best laid plans,” etc.), it turned out that—Surprise!  Surprise!—the prices of American homes were not destined to rise forever and, in fact, could fall dramatically.   Once the fundamental premise behind the sub-prime mortgage theory was exposed as false, the whole sub-prime mortgage theory collapsed like a house of “sub-prime” cards.

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Posted by on June 11, 2012 in Economy, Lies, What Can't be Paid

 

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