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In Madoff We Trust
By Peter Schiff
The unraveling of Bernard Madoff's multi-billion-dollar Ponzi scheme presents Americans with an opportunity to understand the true nature of many of their most cherished financial institutions. The size of Madoff's scheme, however, pales in comparison to the multi-trillion-dollar Ponzi structures run by the US government. Ponzi schemes, also known as pyramid schemes or chain letters, are united by the fact that they always fail in the end. To a large extent, the Ponzi model has driven the major asset bubbles of the last decade: the entire financial and economic apparatus of the US had successfully convinced the public that "investments" in tech stocks and condominiums, for instance, were bullet proof and that the supply of new buyers was endless. Unfortunately, such a scheme is no more viable when run by governments than by private citizens. The Social Security Administration runs its trust funds with the same methods used by Madoff and Ponzi; as money is collected from current workers, it is dispersed to those already receiving benefits. None of the funds collected are actually invested, so no investment returns are ever generated. Those currently paying into the system are expected to receive their returns based on the contribution made by future workers - the classic definition of a Ponzi scheme. The main difference between Madoff and the US government is that while Madoff took elaborate steps to conceal his scheme, the US government operates in broad daylight. Faith in government is so pervasive that many believe the lie that politicians can succeed where private individuals fail, and that governments are somehow immune to the economic laws that govern the rest of society. Like those who were duped by Madoff and Ponzi, the world is in for a rude awakening.
