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Friday, January 9, 2009

Death rattles of capitalism, 1929

Isn't capitalism just one big ponzi scheme?
The way a ponzi scheme works is by paying yesterday's debt by tomorrow's earnings. A ponzi scheme promises investors with higher-than-normal returns on investments. It sounds good so people invest. The return is payed by future investors wanting in on the good fortune. It works because there is always a larger flow of cash into the system. It collapses when the flow stops or too many people try to withdraw from the scheme.

Kind of sounds like the basic premise of capitalism. The key word being "capital," as in needing to continually raise more this week to support last week's payments. The capital to be raised may be goods, or money, or workers. But without the increase it self destructs. Why else would 3% growth (inflation) be good? Is less or more bad? Less and it all falls apart, more and it threatens to run away.

In 1929 the premise was questioned and was found lacking. The result: the only thing that keeps a ponzi scheme afloat is to throw more money at it. The New Deal did just that. It shored it up for a while, then a war helped it along. In the aftermath of the Great Depression the real questions about capitalism were not addressed. Business boomed with a lot of hard workers and the world's resources to fund it (more and more capital). A few hiccups were felt and should have been warning signs. But a ponzi scheme this large would take decades to unravel and more capital was raised (Hence the Cold War and the hot wars in the Middle East countries).

But now the world is running out of capital to invest. The last few pounds of earth and flesh are being eaten as we speak. Soon there will be nothing left but revolving debt: 700 billion now (coming from where? DEBT) and another trillion later (again from DEBT). The ponzi scheme will be over and there will be no capital left to throw at it (The Middle East countries and China are the last of the big money men and look how heavily we are invested in their interests. Yet even they are eating through whatever capital they might have at an alarming rate). Finally the premises of capitalism must be questioned.

When the ponzi scheme is over then capitalism dies. So what is next? Hard to tell. It may be possible to prolong the death for a few more years... but in the meantime, we better all learn Chinese.

Daav Corbet

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