Pimco’s Bill Gross: USA is Giant ‘Ponzi’ Scheme

Discussion in 'Economics' started by bearice, Feb 27, 2011.

  1. US authorities are operating a “brazen” Ponzi scheme in government debt by buying trillions of dollars of bonds to stimulate the economy, according to Bill Gross, managing director of Pimco, the world’s biggest bond house.

    Mr Gross said more QE is a huge gamble, but necessary because the US is “in a ‘liquidity trap’

    In a bid to restart the stalling recovery, the US Federal Reserve is next week expected to unveil a second round of quantitative easing (QE) of as much as $500bn, on top of the $1.2 trillion already completed.

    In typically robust comments, Mr Gross said the Fed had run out of other options but warned that more QE would in the long-term mean “picking the creditor’s pocket via inflation and negative real interest rates”.

    “[Cheque] writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme,” he wrote on his investment outlook, arguing that creditors have always expected to be paid out of future growth.

  2. It doesn't make any sense to me that this guy is literally sh*ing where he is eating.

    Buying bonds is a perfectly acceptable method of stimulating an economy that is in danger of falling into deflationary death spiral and this is what the FED has done carefully and sensibly. Bernanke is the best central banker the US ever had.

    After all he doesn't understand what a Ponzi scheme is. In that scheme, you borrow from A to pay B. US is not borrowing but creating fiat money out of thin air. This is not a Ponzi scheme. Actually, if the US did not print money but borrowed more from the open market then we would have a Ponzi scheme.

    Mr. Gross acknowledges that his business is a Ponzi scheme unless the government prints money to buy bonds, that is what he does.
  3. The purpose of a recession or even a "Great Depression" is to clean out the weak parts of the economy so the stronger parts can take over. This process has to take place. The only thing the gov't and Fed can do is delay this by throwing good money after bad. Eventually, the weak parts of the economy will collapse. The only thing the gov't and Fed would have accomplished is to make it so that when the weak parts of the economy collapse, it will have many times more negative impact than if they had let them wither in 2007 through early 2009.
  4. Ponzi scheme means paying new investors from old investors money when the business does not have any real business/trading.
  5. QE might not be a Ponzi scheme but medicare, social security, and public pensions sure are.
  6. Locutus


    Agree with 1st part, disagree with the 2nd. I think that the financial system is way more "ready to collapse" now than it was in 2008. I think if nothing had been done to save them, it would have been catastrophic.

    Now it will become potentially catastrophic again if the collapse is delayed too much longer because leverage will again become excessive (provoking much greater losses than strictly necessary).

    By the way that article is from 2010.
  7. Social Security is a mandatory federally run insurance program.
    The program should serve as a model for those interested in implementing a single payer federally run health plan.

    The Social security trust fund has become a federal slush fund... The core program is self sufficient and strong if not for the politician's special interest money grab.

  8. Except for the fact that they will be paying out more than they take in very soon you might be right.

    Also, once population growth starts to slow down, it will be the end of the social security Ponzi scheme.
  9. You have some nerve criticizing the Social Security program. Social Security has run a nearly $3 Trillion SURPLUS while the rest of gov't has run a ~$11Trillion+ DEFICIT. Out of the almost $1.6T deficit we currently have, Social security is only responsible for ~$65Billion.

    You had better focus on closing the $1.535T of the deficit not due to Social security instead of the $0.065T due to social security.
  10. Agreed. They could do this for a period of 20 years, if Japan is any indicator of what can go wrong, courtesy a balance sheet recession, an entire banking industry under water... and the pure mathematics of aging versus real growth prospects offers us a glimpse at what lies ahead.
    #10     Feb 27, 2011