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If I look at the crisisses I know, the Ponzi element can be clearly distinguished. The Russian crisis had a clear Ponzi scheme with GKO bonds running. The Asian crisis embraced attractive interest rates, high inflow of money and rocketing asset prices.

Japanese real estate crisis was fuelled by the saving policies of the postwar years. This does not look much like a Ponzi scheme, but the role of relaxed money supply (and exploding asset demand) is clearly visible.

The Great Depression came clearly from a speculative boom. Automobiles and radio were the expanding new technologies. Easy credit was stimulated. Americans were encouraged to borrow and spend. Surely, there must have been a runaway Ponzi element somewhere.

The Bush admistration is on the same path. Maybe they genuily think they can avoid critical mistakes and repeat a guilded age boom in "a right way". Or maybe "they" cynically see an opportunity to enrich an insider ring with a hidden global Ponzi machine most effectively.

It seems to me that whenever you run up a sure Ponzi scheme on the scale of a whole market, you must hit a crisis regardless of the phase of the economic cycle. Since Ponzi schemes are very unstable, consequences must be evident within a few years.

What is the sense of Kondratiev type macrocycles within this framework? I see two possible features.

For once, a prosperous phase might increase money supply greatly. This does not automatically induce a Ponzi trading, but the potential is there to be crystalized. Once the public is overexited, or the government relaxes control for maximal bang, Ponzi snowballs start rolling.

Secondly, the whole economy might contain a very weak Ponzi element. Most of the time, the Ponzi element is undetectable. But it does gain substance within decades, and then boom-busts in a few years.

by das monde on Tue Mar 20th, 2007 at 09:59:09 PM EST
[ Parent ]
Scenerio I:  

Bush and his wealthy backers are greed-crazed idiots.  They don't even know what they are doing.  It is like a drug binge, where even if you can remember that last time you ended in a dreadful crash, right now it feels just too good to be thinking about that.  

This scenerio is almost comforting.  

Scenerio II:  

Bush's backers have been running the US for the better part of a century, and not by being dumb, either--even if HE is.  They know they are running a bubble, and they already know when to cash out.  Will it destroy the system?  Sure.  But Peak Oil and climate change are on the verge of doing that anyway, so what's the problem?  The problem is what comes after.  Well, they are not talking about that, but they have certainly been THINKING  about that.  

They already have plans.  

This scenerio is less comforting.  

The Fates are kind.

by Gaianne on Tue Mar 20th, 2007 at 11:45:31 PM EST
[ Parent ]
Albania in 1997 was a wake-up for me:

Many citizens naive to the workings of a market economy put their entire savings into pyramid schemes. In a short while, $2 billion (80% of the country's GDP) had been moved into the hands of just a few pyramid scheme owners, causing severe economic troubles and civic unrest. Police stations and military bases were looted of millions of Kalashnikovs and other weapons. Anarchy prevailed,[4] and militia and even less-organized armed citizens controlled many cities.

Thus described by wikipedia.

I remember reading an in-depth article at the time. According to it (and my memory) it was not a strict pyramid scheme, but rather a bubble turned Ponzi. The bubble started from political changes in the area, that is the wars in what was soon to be former Yugoslavia and the sanctions put in place.

Albanian groups started to smuggle sanctioned stuff and made lots of money. Their was room for expansion and more and more people invested and got rich. The Dayton agreement of 1995 removed the foundation for the investment scheme but by then the speed was great enough that it could carry on until 1997 on pure momentum. But the day came when all savings had been sucked up and then the ineviteble collapse.

This was refered to as a pyramid scheme by western media and that got me thinking about the raising stocks at the time (1997) when everyone was becoming an investor and especially in technological stocks. So I figured that that must be a bubble too and predicted a crash in 1998. Apparently I underestimated how big bubbles can be.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Mar 22nd, 2007 at 11:15:32 AM EST
[ Parent ]


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