The Federal Reserve's Ponzi Scheme

You Can’t Taper a Ponzi Scheme

Nick Giambruno

“You can’t taper a Ponzi scheme.”

Financial commentator and Bitcoin pioneer Max Keiser originally said these simple yet profound words.

A Ponzi scheme is an unsustainable scam that relies on a continuous influx of new money to keep it going. The scheme collapses if the flow of new money slows down or tapers.

Many believe the Federal Reserve is running what amounts to a giant Ponzi scheme.

That’s because the US government’s obscene spending and skyrocketing debt have reached an inflection point where the whole system will collapse unless the Fed pumps an ever-increasing amount of new fake money into the system.

Government spending is the leading cause of the problem. However, the government cannot even slow the growth rate of spending, let alone cut it.

The federal interest expense recently exceeded $1 trillion for the first time and is shooting higher. That means the interest expense is already bigger than defense spending and everything else in the budget except for Social Security, which it will also likely exceed soon.

The cost of debt service (interest expense) is taking up a larger portion of the budget, leaving less for other expenditures. That means the government has to borrow increasingly larger amounts to maintain basic functions.

The situation is compounded by the fact that the more the US government borrows, the larger the interest expense on the federal debt, which causes it to borrow even more.

Borrowing money to pay debt service is the inflection point in the debt spiral, and the US is at that point.

Even if tax rates went to 100%, it would not be enough to stop the deficits—and the debt needed to finance them—from growing.

The truth is, no matter what happens, the debt will not stop growing. It’s not even going to slow down. The debt is increasing exponentially.

The only way the US government can continue to finance itself is for the Fed to create ever-increasing amounts of fake money.

If the Fed doesn’t provide more monetary accommodation to lower interest rates, the growing interest expense will bankrupt the US government… and bring down the entire debt-based economy with it.

In short, the Fed must print ever-increasing quantities of fake money, or the system will collapse.

Ludwig von Mises, the godfather of free-market Austrian economics, summed up the Fed’s dilemma:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

The US government will not voluntarily “abandon credit expansion,” as Mises puts it because Washington is dependent on issuing increasing amounts of debt to pay for the ever-growing costs of Social Security, national defense, welfare, and interest on the federal debt.

As Max Keiser succinctly said, “You can’t taper a Ponzi scheme.”

That means their only choice is to debase the US dollar by ever-increasing amounts until, as Mises puts it, the “final and total catastrophe of the currency system involved.”

That’s why I am convinced extreme currency debasement is the inevitable outcome of the debt spiral.

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America Is Almost $35 Trillion In Debt. That Means Every American Owes $100,000

 JOHN STOSSEL

America is now almost $35 trillion in debt. That means every American owes $100,000.

The Biden administration doesn't care. It wants to spend more.

Already it is spending so much that it's increasing our debt by a trillion dollars every 100 days.

This will not end well.

Last year, we hit a new ugly milestone: Americans must pay $1 trillion per year just for interest on our debt.

That's more than we spend on defense--on infrastructure, education, poverty programs ... everything, but Social Security and Medicare.

Worse, America's spending growth is unsustainable. You can stretch a rubber band farther and farther, but eventually, it will break.

This column has reported on the politicians' irresponsibility for a long time.

In 2019, I complained that our debt increased by a trillion dollars every year. But now, it's 3 trillion!

This is absurd. When he took office, our debt was $26.9 trillion. Now it's $34.8 trillion.

Part of the problem is that Biden staffers listen to advocates of "Modern Monetary Theory"--the ridiculous idea that the U.S., because it prints its own currency, can spend even more.

"There's nothing to prevent the federal government," says Stephanie Kelter, Sen. Bernie Sanders' economic adviser, "from creating as much money as it wants to and paying it to someone."

This is crazy. Look what's happened to countries that tried it.

After World War I, the German government couldn't afford its reparation payments, so it printed more money. That led to 300% inflation and created anger that set the stage for Hitler.

Similar hyperinflation wrecked lives in Argentina, Zimbabwe, and, most recently, Venezuela.

People work their whole lives to build savings; politicians steal it through inflation.

The only solution is to address what causes the debt in the first place: excessive government spending.

It shouldn't be so hard. Politicians don't even need to stop spending more. They don't need to balance the budget.

They just need to limit spending increases to just below America's average yearly economic growth. Then we could grow our way out of our debt burden.

But our politicians won't even do that.

They don't even talk about debt.

They are irresponsible cowards.