You Can’t Taper A Ponzi Scheme

Authored by Nick Giambruno via InternationalMan.com,

“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.

Here’s why.

The biggest expenditures for the US government are so-called entitlements. It’s unlikely any politician will cut these. On the contrary, I expect them to continue growing as the last Baby Boomers enter retirement in 2031.

With the most precarious geopolitical situation since World War 2, so-called defense spending seems unlikely to be cut. Instead, it is all but certain to increase.

Income Security is a catch-all category for different types of welfare. That’s unlikely to be cut too.

Efforts to reduce expenditures will be meaningless unless it becomes politically acceptable to cut entitlements, national defense, and welfare.

Further, interest expense is exploding higher.

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.

Here’s the bottom line with the budget.

Expenditures have nowhere to go but up.

But don’t count on increased revenue to offset these increases in expenditures. 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.

All the rest is noise.

Michael Saylor captured the essence of the situation when he said, “The road to serfdom consists of working exponentially harder to earn a currency that is growing exponentially weaker.”

I believe rampant currency debasement will be the most important investment trend of this decade, and it will devastate most people.

The worst of it could go down soon… and it won’t be pretty.

It will result in an enormous wealth transfer from savers and regular people to the parasitic class—politicians, central bankers, and those connected to them.

Countless millions throughout history were wiped out financially—or worse—because they failed to see the correct Big Picture as their governments went bankrupt.

Don’t be one of them.

That’s exactly why I just released an urgent new report with all the details, including what you must do to prepare. It’s called The Most Dangerous Economic Crisis in 100 Years… the Top 3 Strategies You Need Right Now. Click here to download the PDF now.