Another Ponzi Scheme

The Madoff Ponzi Scheme is the talk of the town and might get people wondering if there are any more of those out there. One of the most striking examples of such a scheme can be found in the treasury market.

Yes that’s right. Your own government is running a Ponzi Scheme folks. Here’s how it works. You get yourself elected by promising the majority to give them a piece of the minority’s cake. Instead of taking the cake from the minority though, you go out and borrow it from some lame foreigner who doesn’t know what to do with his money. You then turn around and give it to your electorate and put some fat icing on the minority’s cake. Everybody happy. Until the day of course that the foreigner wakes up and decides he’s no longer going to pay for somebody else’s desert or is simply forced to start looking after his own bread and butter.

I believe governments are likely to get into that position now. For years they’ve been growing their debts, consistently relying on a continuous stream of “bigger fools” to keep financing their deficits. Until one day the fools wake up or find themselves bankrupt. That’s when the chickens come home to roost and the Ponzi scheme collapses. With government bonds currently yielding pathetic returns and sovereign credit default swaps on the rise, it’s kind of hard to see how govvies offer good value right now. On the contrary: I’d say it’s about time to get short.

—— This is an opinion on the state of financial markets and the opportunities it provides by quirijns.com. It is not investment advice and not a substitute for your own judgment. When taking on any investment, make sure to have a first aid kit at your disposal that is jammed with tranquilizers and sleeping pills, as you’ll need it. It also comes in handy for other possible disappointments in life. History is not a guide to the future, nor is anything else. Any sane person knows that there’s no sure thing except death and taxes. Fortunes are made and lost each day in this arena. If you can’t stand that heat, please stay out of the kitchen.