The biggest Ponzi scheme in history nearing collapse

Wednesday, 6 November 2019
Adelaide, Australia
By Bernd Struben

  • The real growth driver
  • Controversial? You bet…

You’ve probably heard of Charles Ponzi.

He wasn’t the first conman to offer early investors smashing gains by handing over money provided by later investors. Minus what he pocketed, of course.

But his scam gained enough notoriety that it now bears his name. The Ponzi scheme.

Ponzi ran his underhanded scheme in the US back in the 1920s.

In a nutshell, he promised investors fat returns for by buying discounted postal reply coupons. And early investors really did double their money…or more. But they didn’t know Ponzi was concocting their profits with money from the next round of eager investors.

Nor did the next round of investors know their profits were coming from a growing crowd drawn by the promise of big gains.

The con worked for more than a year. But eventually the flood of new investors thinned to a trickle. And Ponzi was no longer raking in enough new cash to offer hefty gains to the ever growing herd of existing investors.

Like all Ponzi schemes — also known as pyramid schemes — it was doomed to collapse from day one.

Some Ponzi schemes are quite simple and transparent. Like the chain letters of yore.

Chain letters asking for money have long been illegal in the US. But when I was growing up in the state of Virginia in the 1970s, we still received more than a few in the mailbox. My parents treated them as if they were laced with anthrax. Though many people still fell for it. And I did take a peak into the rubbish bin on occasion to see what these verboten missives were pitching.

A ‘standard’ chain letter might ask you to send money to 10 people listed in the letter. You’re then meant to place your name at the top of the list of 10 people (dropping the 10th one off the list) and mail copies on to 10 more people.

The idea is that they’ll then send you — and the nine other folks listed in the letter — money. Then they’ll drop your name to the number two spot and repeat the process. By the time your name drops all the way off the list, you conceivably would have made many times the money you first sent out.

Most chain letters would peter out and fail in less than the year it took Ponzi’s own scheme to collapse.

Larger schemes, involving greater numbers of people, will take longer to implode.

Like the one run by investment ‘advisor’ Bernie Madoff. His scheme ran for years and allegedly netted US$65 billion before the FBI cottoned on to the fact that something fishy was afoot.

Which brings us to the biggest Ponzi scheme in history.

More, after a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 30.52 points, or 0.11%.

The S&P 500 closed down 3.65 points, or 0.12%.

In Europe the Euro Stoxx 50 index closed up 11.31 points, or 0.31%. Meanwhile, the FTSE 100 gained 0.25% and Germany’s DAX closed up 12.22 points, or 0.09%.

In Asian markets Japan’s Nikkei 225 is up 13.48 points, or 0.06%. China’s CSI 300 is down 0.22%.

In Australia, the S&P/ASX 200 is down 21.02 points, or 0.31%.

West Texas Intermediate crude oil is US$57.11 per barrel. Brent crude is US$62.96 per barrel.

Turning to gold, the yellow metal is trading for US$1,484.59 (AU$2,154.08) per troy ounce. Silver is US$17.59 (AU$25.52) per troy ounce.

One bitcoin is worth US$9,324.41.

The Aussie dollar is worth 68.92 US cents.

The real growth driver

The biggest Ponzi scheme in global history — one that may never be topped — has been up and running for more than 120 years. And while it won’t collapse tomorrow…or next year…its end is nonetheless nigh.

You may know what I’m banging on about already. If not, the two graphs below should clue you in.

This first one shows you how global GDP has expanded over the last 2,000 years:



chart image
Source: Our World in Data
Click to enlarge

Boom! Looking at this graph you might think the sky is the limit for global GDP over the coming century.

Now, barring some apocalyptic event, global GDP will keep marching higher. But not at the pyramid scheme fuelled level you see in the graph above.

That’s because GDP growth largely equates to productivity growth plus population growth.

Productivity growth — the steam engine, assembly lines, the internet — propelled some of this growth. And new technologies will certainly continue to contribute to increased output.

But the graph below shows you the real driver behind the explosive growth in global GDP:



chart image
Source: Population Education
Click to enlarge

You don’t need to be a charting expert to catch the similarity between the two graphs.

And you don’t need to be a futurist to understand that this growth model has a use-by-date. One that’s fast approaching.

Which brings us to these two glaringly opposed headlines I lifted from Bloomberg this morning:



chart image
Source: Bloomberg
Click to enlarge

First, the ‘global fertility crisis’.

Most developed nations today find themselves in the ‘alarming’ position where their women are having fewer than 2.1 babies. That’s considered the replacement level for a stable population.

Thanks to nations like Niger, where the average woman bears seven children, the global fertility rate still stands at 2.4. It’s the developing nations that the UN expects to add another three billion people by 2100 before we eventually stabilise.

And it’s from these developing nations that countries like Australia can tap immigrants to keep our own economy growing.

Like former Foreign Minister Julie Bishop said in April 2018, ‘…we can take as many migrants as we believe is appropriate in Australia’s national interest to drive economic growth.’

And here’s this, from Bloomberg’s article on the ‘fertility crisis’:

Population growth is vital for the world economy. It means more workers to build homes and produce goods, more consumers to buy things and spark innovation, and more citizens to pay taxes and attract trade.

Now Australia, if we choose, is in a position to keep adding people for some time yet. That, after all, is how we managed to surpass the Netherlands and achieve the world record for recession free years back in June 2017. A record that’s still ticking away today.

Though it’s worth noting the distinction between national GDP growth and per capita growth. The per capita growth figures — GDP growth per person — are less than half the national growth figures. With the Aussie population ramping up from 10 million in 1960 to somewhere just over 25 million today, that’s hardly surprising.

But, even in a big nation like Australia, that growth can’t continue indefinitely. And it’s already taking its toll. Bumper to bumper congestion on the urban freeways. Overwhelmed public transport. Too much rubbish and recycling for the current infrastructure to manage. Energy blackouts when everyone wants to switch on their aircon at the same time.

And of course more air pollution and carbon emissions.

Controversial? You bet…

Which brings us to the ‘climate crisis’.

Here’s an excerpt from the second Bloomberg headline above:

More than 11,000 experts from around the world are calling for a critical addition to the main strategy of dumping fossil fuels for renewable energy: there needs to be far fewer humans on the planet…

The scientists make specific calls for policymakers to quickly implement systemic change to energy, food, and economic policies. But they go one step further, into the politically fraught territory of population control. It “must be stabilized—and, ideally, gradually reduced—within a framework that ensures social integrity,” they write.

This one’s a real bombshell. Even for climate activists who’d gladly go vegan and eschew air travel to save the planet.

The pushback has already begun in the media. The scientists’ calls to stabilise and ideally gradually reduce our numbers are drawing comparisons to China’s once brutally enforced one-child policies. Or even horrific instances of historic genocide.

That’s nonsense, of course.

The reality is that the trend to a gradually reduced population is already firmly in place in North America, Europe and the developed Asian nations.

Rather than gluing themselves to the gates of big mining companies, climate activists may wish to consider the impact of developing nations delivering three billion more people on Earth in just 80 years’ time. Three billion people who just might want to hop on a plane. Or eat at Macca’s.

Of course the UN’s growth forecast that puts the global population at 10 billion by 2100 is just that. A forecast. We’re talking about purely hypothetical people whose parents may not even be conceived yet.

Not that this will silence the alarmist cries of genocide.

That’s a wrap for today.

Tomorrow we’ll look at the latest woes to hit Australia’s big banks. And some of the nimble fintech players moving into their lucrative business space.