Author Topic: Is the global economy just a giant ponzi scheme??  (Read 18284 times)

vwDavid

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Re: Is the global economy just a giant ponzi scheme??
« Reply #50 on: July 24, 2012, 04:46:45 PM »
Thanks smedleyb. I always have to read your posts 2nd and 3rd times to understand the big concepts that are not back of hand to me yet...I'll go cogitate on this...


vwDavid, I watched the Grignon video last week and I found it to be a fascinating description of how debt money is created and distributed.

For my purposes, it has forced me to rethink my entire negative stance on US treasures (I"ve been running around saying the "bond collapse in US debt can be measured in months, not years").  I've gained greater perspective seeing the internal mechanics of debt-money creation, and the role of quantitative easing or QE in staving off deflation (never mind inflation, the lesser evil in the Fed's eyes) by replenishing the destroyed debt money (via bankruptcy and consumer debt repayment).

I think I vaguely understood the relation between these complex parts, but now I see the debt machine in a better context and light.  On that note, the bond-collapse in US treasuries probably won't be measured"in months" as the process of consumer deleveraging which began 4 years ago will be joined by sovereign deleveraging (hello Europe and the PIIGS) going forward, and this dual edge-debt bomb will  keep US treasuries elevated (if not drive them even higher) for longer than maybe any of us think possible.  Irrational exuberance as applied to bonds?  Sub .5% on the 10 year?  Sub 2% 30 year mortgages?  Amazing, and unthinkable (for me at least) a short while ago.

arebelspy

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Re: Is the global economy just a giant ponzi scheme??
« Reply #51 on: July 24, 2012, 07:06:18 PM »
Really David?  I go to all the trouble of reading and responding, and you don't address any of my response?  :D

Hopefully you got something out of it at least.


I still have a healthy respect for peak oil, energy consumption, and over usage of resources. Population growth is now on my radar and as intelligent and regarded as this author may be, it appears some of his arguments are dated and set up to scare you all the more with massive worst case scenario is coming tomorrow viewpoints all of which could be true by the numbers, but aren't necessarily the current trajectory- although, maybe an alarmist jolt is what we need to turn things around...

While I agree with the first part (healthy respect for those issues), I can't agree with the final conclusion.  In my opinion and experience alarmist messages are such a turn off they are counter-productive to the message that is being spread.  Calm, rational discussion over "THE MOST IMPORTANT VIDEO YOU WILL EVER SEE" hyperbole is much more likely to get someone to listen, IMO.


I was surprised to learn that many MMM forum readers resist so strongly this type of information in that I had difficulty persuading any of you to view the video. I think a few of you eventually read parts of the transcript but I'm not aware of anyone that watched any of it. I guess this is an MMM muscle to learn to flex. Like many of you already stay away from mainstream news on TV, so I will attempt to step up my game here.

I think it's a combination of not needing to hear overblown alarmist propaganda, as well as the video.

Ugh.  I don't want to sit and waste an hour and 1/2 on a video, when I could spend less than 1/3 that time reading the article and comprehend and enjoy it much more.  I downloaded the video since it was so important to you, but watching it would likely still be sitting on my to do list.  The transcript was much more helpful.

Give me a good article, instead of good video, to discuss every time.

To throw this out there (though if anyone wants to discuss, it probably should have its own thread): deflation scares me much more than inflation.
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follicular

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Re: Is the global economy just a giant ponzi scheme??
« Reply #52 on: July 24, 2012, 08:29:36 PM »
vwDavid--
You seem to be obfuscating issues....the global economy is one thing, energy creation and usage, another, and by the way, how about global warming, investing in under-developed nations, the Arab spring, US popular discontent with its government.......
What I truly see as a ponzi scheme is the global stock market...how the bail out of Greece is eliminating billions from the pockets of Joe Citizen, US investor. Where's the logic? I believe mass hysteria/social psychology are riding rough-shod over all of us and destroying our joie d'vivre to boot!

arebelspy

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Re: Is the global economy just a giant ponzi scheme??
« Reply #53 on: July 24, 2012, 09:41:24 PM »
Where's the logic? I believe mass hysteria/social psychology are riding rough-shod over all of us and destroying our joie d'vivre to boot!

Yes.  Most investing done is not value investing.
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unitsinc

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Re: Is the global economy just a giant ponzi scheme??
« Reply #54 on: July 25, 2012, 08:49:49 AM »
I stumbled onto this site(possibly from someone here on the forums) a month or so ago. I read his entire backlog.

He uses actual numbers and figures and hard(relatively) science in every post. Not to mention he is a PhD in physics, so his math skills are most likely quite sharp.

I have always been on board the "science will surely save us" boat, but after reading his thorough and clear explanations, I feel much less sure. He's definitely still an optimist and has very very little alarmist language.

He started the site to address peak energy and how alternate energy would fix it all...and then he actually ran realistic numbers on everything and realized that everything came up exceptionally short, surprising himself.

His posts seem quite pertinent. He has a section organizing the posts by category. Give some of them a read. Very entertaining and interesting.

Not to mention in one example(not a real scenario he presents, merely used to show that energy consumption(by any means) can't grow forever) the planet actually boils. ;)
« Last Edit: July 25, 2012, 08:52:42 AM by unitsinc »

James

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Re: Is the global economy just a giant ponzi scheme??
« Reply #55 on: July 25, 2012, 09:27:46 AM »
To throw this out there (though if anyone wants to discuss, it probably should have its own thread): deflation scares me much more than inflation.


I agree, deflation is more concerning, at least inflation has some positive aspects to it.

vwDavid

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Re: Is the global economy just a giant ponzi scheme??
« Reply #56 on: July 25, 2012, 02:44:31 PM »

Really David?  I go to all the trouble of reading and responding, and you don't address any of my response?  :D

Hopefully you got something out of it at least.

OK, here goes. I hope these quoted levels work out, and yes, I certainly got much more than just something out of it

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First he talks about monetary inflation:
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Now, we worked a lot of examples. I said to the students, ďLetís talk about inflation, letís talk about 7% per year.Ē It wasn't this high when we did this, it's been higher since then, fortunately it's lower now. And I said to the students, as I can say to you, you have roughly sixty years life expectancy ahead of you. Letís see what some common things will cost if we have 60 years of 7% annual inflation.

The students found that a 55-cent gallon of gasoline will cost $35.20; $2.50 for a movie will be $160; the $15 sack of groceries my mother used to buy for a dollar and a quarter, that will be $960; a $100 suit of clothes, $6,400; a $4000 automobile will cost a quarter of a million dollars; and a $45,000 home will cost nearly 3 million dollars.

And my response is ....so?  Wages will have to rise, or no one could afford a loaf of bread.  In fact, I'll go so far as to say that this is completely 100% meaningless.  If a home cost 3MM, and wages were the same in that 60 years as they are now, very few people could have one.  If rents rose accordingly, no one would be able to afford that either.  SO is everyone gonna live on the streets and we have empty 3MM homes?  Of course not. They only have value because that's what people are willing to pay for them.  They're willing to pay it because they can.  If values are going up that much, it's because people are paying that much.  So to say "OH NO!  Prices will be so high!" is ridiculous, because people will be able to afford them.  Them being priced 3MM then is the exact same as them being priced 45k now.  In fact, many items are going DOWN in price in real terms.


I agree that this section is a so what reaction. I think we all understand inflation here. I think though if you consider the general audience that may be less inclined to think about inflation he is using this section to do two things, 1)to build on the idea of exponential growth and how absurd numbers and doubling times can happen quite quickly; and 2) while reminding the audience the way inflation works. I think it is a given that salaries will have to increase with inflation under the normal course of action.

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So this example is given and sounds scary, but really.. it's meaningless.
Agreed

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Okay, so let's jump to his next idea, about energy:
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Well, letís translate that into the energy crisis. Hereís an ad from the year 1975. It asks the question ďCould America run out of electricity?Ē America depends on electricity. Our need for electricity actually doubles every 10 or 12 years. That's an accurate reflection of a very long history of steady growth of the electric industry in this country, growth at a rate of around 7% per year, which gives you doubling every 10 years.

Now, with all that history of growth, they just expected the growth would go on, forever. Fortunately it stopped, not because anyone understood arithmetic, it stopped for other reasons.

I'm gonna pause right here to point out that the author glosses over that last sentence and just goes on with his purely hypothetical example.  Because in reality, it didn't happen!  The growth stopped, for other reasons!  Why does he not think other exponential growth will slow or stop?  Naturally it will, it has to.  And in practice it actually HAS, as he admits.  But then ignores, and does his fun hypothetical to make things sound scary.

You make an interesting point here where he does not elaborate on the reasons the energy growth stopped and when you acknowledge this it weakens the arguments into a a hypothetical as you describe.


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Let's look at (what I feel is) his strongest example:

Yes this one is a good one...

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Bacteria grow by doubling. One bacterium divides to become two, the two divide to become 4, the 4 become 8, 16 and so on. Suppose we had bacteria that doubled in number this way every minute. Suppose we put one of these bacteria into an empty bottle at 11:00 in the morning, and then observe that the bottle is full at 12:00 noon. There's our case of just ordinary steady growth: it has a doubling time of one minute, itís in the finite environment of one bottle.

I want to ask you three questions. Number one: at what time was the bottle half full? Well, would you believe 11:59, one minute before 12:00? Because they double in number every minute.

And the second question: if you were an average bacterium in that bottle, at what time would you first realise you were running of space? Well, letís just look at the last minutes in the bottle. At 12:00 noon, itís full; one minute before, itís half full; 2 minutes before, itís a quarter full; then an 1?8th; then a 1?16th. Let me ask you, at 5 minutes before 12:00, when the bottle is only 3% full and is 97% open space just yearning for development, how many of you would realise thereís a problem?

I do enjoy this thought experiment.  The main problem is that the compressed timescale is intended to confuse.  Let's say instead we have a constant 0.5% growth, which translates to doubling roughly every 140 years.  That means that 5 minutes before midnight is really 700 years.  Small beans on a geological scale, and even in a human timespan not that long.  But do I think it's long enough to do something about it? Absolutely.  Think of the changes from 1312 to 2012.

Or if we use his number of population growth, that's 1.3%, doubling roughly every 54 years.  So when we're only "3 minutes from midnight" (or 1/8 "full" - however you define full), that's 150 years.  Do I think that's enough time to deal with problems?  Yes, absolutely.

Again I hear you here. I see when you consider the timescale more rationally worsens the outlook. However, in the example of a 54 year doubling time, is 150 years enough to deal with major problems like re-jigging how politics work and powering industry by new means? All the while, while energy demand is increasing, and increasing moreso because of the demand for new low energy infrastructure to be produced (I think this is the energy trap arguement)? In my opinion, I do not know the answer, I don't believe anyone here does, any my anti MMM natural pessimistic side says no, don't rely on people smarter than thyself to fix the world...

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Does this mean we should ignore problems (current and future) now?  No way.  Should we try to reduce consumption? Absolutely.  Is there a crisis though?  Should we be that worried about exponential growth?  No, sorry. 

I think the big thing that should change is mindset.  Growth isn't the be all end all (nor is it a terrible threat).  The idea that a natural balance/equilibrium can be achieved should be promoted as a good thing.  One of the first things that needs to happen there is population, however.  And how do you do that without doing some terrible things (birthing laws, wars, famine, disease, etc.)?

Indeed, a taboo subject in the western world, and, I don't see current goverments interest in discussing it...or any other difficult subject.

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I was also a little annoyed at the end when he used generic quotes from brilliant people, as if they proved his point.  The Asimov and MLK ones were relevant, but the Churchill "Sometimes we must do what is required" and Huxley and Sevareid and Galileo.. none of those were relevant, they were just generic "don't ignore facts" and such.  Stop it.

In any case, I agree, perpetual growth is impossible.  Does it worry me?  No.  Do I think we're anywhere close to "midnight"?  Not at all.  Do I think we can solve problems when we do get close? Absolutely.

If I missed something, feel free to explain why you think that talk was so important or enlightening or life changing. Or, like the title of the video, "The Most IMPORTANT Video You'll Ever See" -- hardly.  Have you seen Bill and Ted's Excellent Adventure?  ;)

I can't disagree here...

Overall, my interpretation of the lecture has been tempered by the comments here. Being a scientist and concerned about my FIRE, quality of life, family, and politics, what this video does however continue to build in me is an identification that consensus on how to address and take action on taboo and difficult global problems will be very difficult to come by.

While I see that this video/lecture could be considered scare tactics, sometimes I wonder if this is exactly what parts of the population needs in order to kick our asses into thinking more about our neighbor than ourselves all the time...of course, I see how this type of video needs to be immediately followed up with something along the line of:

"Well, that is how things could unfold if all these variables went this way. But, as we know things changes, our world isn't such a massive collision course, but lets be aware and start to plan the futures of our great grand kids now by making different decisions with the knowledge of the power of exponential growth....




vwDavid

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Re: Is the global economy just a giant ponzi scheme??
« Reply #57 on: July 25, 2012, 02:45:58 PM »
vwDavid--
You seem to be obfuscating issues....the global economy is one thing, energy creation and usage, another, and by the way, how about global warming, investing in under-developed nations, the Arab spring, US popular discontent with its government.......
What I truly see as a ponzi scheme is the global stock market...how the bail out of Greece is eliminating billions from the pockets of Joe Citizen, US investor. Where's the logic? I believe mass hysteria/social psychology are riding rough-shod over all of us and destroying our joie d'vivre to boot!

I agree and I attempted to apologize above for taking this thread in a bit of a different direction than the initial subject and video...

...goes to google arab spring....since I saw it mentioned somewhere else today too...ahh, I see, just catch all phrase for current uprising in the arab worlds...

vwDavid

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Re: Is the global economy just a giant ponzi scheme??
« Reply #58 on: July 25, 2012, 02:54:48 PM »
How about this as a unifying idea between debt, global ponzi, and exponential growth.

Today I went to my ex-financial advisors website (fired him 2 years ago) to read his newsletters and see what is new in his camp. Discussed was the idea that even his educated clients are wondering how global blue chips with solid balance sheets are swinging 20% on global debt worries.

It became evident to me, after thinking back to the first video mentioned here, how a little money on deposit creates vastly larger sums of money, as stated in the video the figure was something like $100,000 of new money for $1000 on deposit- ok not exponential terms here but a good 100 fold increase.

Therefore good investments suffer when debt shocks roll though because for every $1 Billion of bad debt up to 100X's that in new money was created and perhaps dependent on the repayment of that debt...

So, when bad news on debt comes again, its impact on the markets are magnified due to this. If debt causes growth in money supply, and the growth is consistent we must have exponential increase in debt? = bad and eventually will come crumbling down?

« Last Edit: July 27, 2012, 11:53:45 AM by vwDavid »