Pimco’s Observations As The US “Reaches The Keynesian Endpoint” – The QE2 Ponzi Scheme Is “Nothing But A Profit Illusion”
Summary of “The End of QEII: It’s Time to Make the Donuts”
- ?With quantitative easing the Federal Reserve has in essence picked the pockets of Treasury bond investors throughout the world.
- Ultimately, the U.S. must own up to its past sins and let the deleveraging process play itself out.
- The U.S. must invest in its people, its land, and its infrastructure, as well as promote free trade, to achieve economic growth rates fast enough to justify consumption levels previously supported by debt.
In 1920 the Boston Post contacted Clarence Barron, the founder of Barron’s, to investigate a man who claimed to be racking up remarkable gains for investors in an arbitrage involving the purchase and sale of postal-reply coupons. Charles Ponzi, the developer of the scheme, sought to convince investors that differentials in inflation rates between countries had created an opportunity for investors to purchase the postal-reply coupons on the cheap in one country and redeem them in the United States, an arbitrage that Ponzi said would enable investors to grow their money by several fold if they invested with him.
In fact, there were indeed differences between the prices of postal-reply coupons postage bought in foreign countries and their redemption value in the United States. But there were also substantial barriers preventing any actual arbitrage, including enormous logistical challenges having to redeem the coupons, which were of low denominational value. Ponzi nonetheless started and then perpetuated the scheme.
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