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An informal, stream-of-consciousness reflection on business ideas, events and issues in modern business, modern life and with some specifics to the web-software industry by Paul Tomori, Internet Entrepreneur

The Ultimate Ponzi Scheme
By Paul Tomori
Wednesday, November 03, 2010 at 16:01:25 (EST)

Today, the American government announced 650 Billion dollars of "quantitative easing". That's some fancy words for "printing money". They are doing this in order to increase "liquidity" so as to help the hobbling economy. By calling it "liquidity" they distract from what is really happening... they are adding "cash" that does not have any backup in goods and services. This effectively makes their move yet another loan from future generations of taxpayers. It also de-values the currency that already exists. Imagine if you had a claim check for a slice of pie. Well, the pie hasn't gotten any bigger, but the number of pieces has increased. This means your slice just got a little smaller.

Certainly, I am no economist and I would humbly claim to have a very rudimentary understanding of all this stuff. Furthermore, perhaps these fiscal policies are necessary to avert heading into another depression. If the U.S. goes that way, Canada will suffer greatly. So, maybe all of this stuff is good?

Or maybe not.

It kind of reminds me of what Bernie Madoff did.

Imagine yourself and a bunch of people handing over some large dollars to a fund manager so that when you retire and need that money you can go to the fund manager and get all your money back PLUS some extra achieved through compounding interest.

Then, imagine that after you have handed over your cash to that manager, he takes it and spends it... on things that do not directly benefit you.

He does all this activity surreptitiously and pulls it off, because he can count on a steady stream of new investors to keep the whole trickery afloat. You see... If you request your money back, instead of digging it out of the pot, you get your cash from new investors who have just put their money in.

That's what Madoff did until he reached a point where the dollars of people asking for their money back exceeded the amount that Bernie had available.

If he were a government, he would have licked that problem by just "borrowing" cash from future investors who weren't even born yet... and to actually produce that cash, he would have printed the money.

The trouble is... Madoff could NOT pull that rabbit out of his hat, because he was not a government... Yet, the government pulls that very rabbit out of the hat steadily and we somehow accept it as legitimate.

I could be wrong, but in my simplistic black-and-white perspective, to me, the government is pulling the ultimate Ponzi scheme.

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