JoJojas Ponzi schemes, when they founder as they always will, often throw up worse-than-anticipated numbers for the losses, and have longer-term negative spillover on investor sentiment and the optimism of economic deciders. Increase the efficiency of government. Otherwise, as their CEOs have repeatedly and unashamedly said to government leaders, they will close their doors and governments can sort out the chaos and panic. Find the full list herestarting on page In previous papers, my colleagues and I have discussed the various options for doing so. Erx, the US, and Japan have taken on monstrous levels of debt and are not really getting a good return on that money. As long as it does, however, economic uncertainty will remain high.
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Europe, the US, and Japan have borrowed so much money that they are headed towards ruin. The Boston Consulting Group even went so far as to call it the biggest Ponzi finance scheme in history. That is some pretty bold talk from a buttoned-downed group of consultants. The 23 page report is well-argued and makes 3 points: 1 the global debt picture is pretty bad. Developed economies are in enormous debt. Europe, the US, and Japan have taken on monstrous levels of debt and are not really getting a good return on that money.
It would be different if the money was being invested productively, but too much of it is just being spent. Governments, companies, individuals — all need to take some blame. It has also reduced the potential for future economic growth, making it more difficult for the next generation to deal with this legacy.
Can you image if your personal debt was 4x what your gross income was? Any good financial planner would be screaming at you to reduce your debt and increase your income. The debt situation is getting worse. This is a bummer to say, but there are many reasons why the debt burden could increase over the next 20 years. Under-funded pensions: Governments and companies have made promises to their citizens and retirees that have not adequately funded.
Longer lifespan and healthcare costs: People are living longer which is good news, but how will this all be paid for? Healthcare costs are rising faster than inflation.
This is a huge problem that is getting worse. Fewer young people: Often times, pension costs are paid for by the contributions of younger workers who are essentially paying it forward. Well, what happens when you have fewer younger people than older people?
BCG put together this fascinating chart that shows that the population has already peaked in many Europe countries. Rising interest rates: Although not explicitly mentioned in the BCG report, rising interest rates pose a huge risk. Like any good monetarist , I believe the increase in money supply and competition for resources will drive up rates longer-term. Have developed countries become too complacent?
BCG argues that there are steps that can be taken to reduce the risk of this global financial car-wreck. Find the full list here , starting on page They are not simple solutions.
Systemic issues require a strong dose of political will and leadership. It will take more than just marginal improvement. Financial sacrifices will be required from all interest groups.
BOOM — If that is not a strong statement, that yes indeed, the debt burden of developed economies is a Ponzi scheme that does need some unraveling. Related links: Economist interactive tool to see debt by country Submit a Comment Your email address will not be published.
BCG ENDING THE ERA OF PONZI FINANCE PDF
Choose your location to get a site experience tailored for you. The greater the weight of speculative and Ponzi finance, the smaller the overall margins of safety in the economy and the greater the fragility of the financial structure. He announced an arbitrage business that would buy postal reply coupons in Italy and exchange them for stamps in the U. He attracted investors by promising extraordinarily high returns—50 percent within 45 days. But instead of investing the money to buy the coupons and exchange them for stamps, he simply used the money of later investors to pay high returns to earlier investors, extracting huge profits along the way. Such frauds have been known as Ponzi schemes ever since. The biggest, however, is still ongoing: the Ponzi scheme of the developed economies.
Ending the Era of Ponzi Finance