Thursday, June 24, 2010

Is the Welfare State a Ponzi Scheme?

When you think of Bernie Madoff, you think of a criminal who fleeced hundreds of people out of their life savings. Bernie is now in jail. Congress, through their deficit spending and ever increasing taxation, is fleecing the American taxpayer and our children out of their livelihood. Don't we need a law to protect us from the big Congressional ponzi scheme?

Ponzi schemes rely on people falling for promises that are literally too good to be true – but the outcomes are never really in doubt for the perpetrators of these scams, are they?

First they are playing with money that does not belong to them – which means they cannot lose. Also, when the scams finally unravel, the perpetrators have invariably moved on to their next group of unsuspecting victims –where the fleecing begins anew.

Sound familiar? It should. This is the modus operandi of governments all over the world in our current era of Keynesian excess – an era in which new taxes, fees and fines must be continually created and levied in order to pay for promises made in previous years. Of course these government promises are never actually “paid for,” the IOUs just keep mounting as the burden of repayment is extended further down the line to future generations of taxpayers.

Crisis compels the scammers to grow even bolder in their efforts to fleece the taxpayers. In fact, these “too good to be true” scams have only grown more expensive in response to the recent economic downturn.

Spain’s welfare state includes a socialist labor system that makes it nearly impossible to fire workers for any reason. And like Greece, its habit of dispensing unsustainable taxpayer-funded largesse has been propped up for years by government denials and deception. Most recently, Spanish Prime Minister José Luis Rodríguez Zapatero chose to deal with the brewing fiscal crisis by ignoring it and delaying long-overdue reforms in an effort to maintain his political positioning.

It’s the Ponzi mentality all over again.

Eventually, though, the scammers will run out of people to scam – and Spain could very well represent the last great heist. Spain represents 10% of the euro zone banking system and 16% of all net euro-zone loans, meaning that its collapse could very well bring the entire global house of cards tumbling down. Such an outcome would clearly have disastrous effects on the American economy, which makes the aggressive expansion of the welfare state here in the United States all the more unexplainable. Greece and Spain (as well as Portugal and Ireland) are clearly cautionary tales – not examples for America follow.
Howard Rich: Is the Welfare State a Ponzi Scheme?

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