Friday, July 01, 2011

Augustine's Ponzi Scheme

Those willing to critically read Treasury Secretary Timothy Geithner's letter to Senator Jim DeMint, will realize that Geithner has essentially confessed to the reality that the United States Government is running the largest Ponzi scheme in the history of the world.  Here is the critical confession:



If investors chose not to purchase a sufficient volume of new Treasury securities, the United States would be required to pay the principal on maturing debt, and not merely the interest, out of available cash. Yet the Treasury would be unable to make these principal payments without the continued confidence of market participants willing to buy new Treasury securities. 


Now, consider a Ponzi scheme, such as that run by Bernie Madoff.  He was forced to find new investors to continue to fund the "growth" of previous investor;s investments.  He took Peter's money to pay Paul.  Then he had to find a Stephen to pay for Peter, and then a Jane to pay Stephen, and so on.  How is this fundamentally different than what the United States government is doing?

This reminds me of a quote from Augustine's City of God.  Augustine writes, "that was an apt and true reply which was given to Alexander the Great by a pirate who had been seized.  For when that king had asked the man what he meant by keeping hostile possession of the sea, he answered with bold pride, “What thou meanest by seizing the whole earth; but because I do it with a petty ship, I am called a robber, whilst thou who dost it with a great fleet art styled emperor.”


Bernard Madoff should have used this defense in his trial.  He could have said something like this: "What thou meanest by fleecing the whole earth; but because I fleece only a few whilst in New York, I am called a robber, whilst though who dost from Washington, art styled the Treasury."

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