US Economy: Is it a Ponzi Scheme?

Is US Economy a Ponzi Scheme?: The Federal Reserve bought Approximately 80% of US Treasury Securities issued in 2009

Well, Yes. The headline is not wrong. In 2009, The Federal Reserve has bought 80% Treasury bonds issued by the Fed Government. This means that USA has issued a new debt and itself has bought it. In this sense, The US Government has printed money in the true sense out of thin air only.

What should be the normal scenario?

Well, in the normal scenario, there should be a Lender & a Borrower. If you want to buy a new home and don’t have money, you go with your Bank and your Bank agrees to lend you money. Here you are a Borrower & your Bank is the Lender. In this scenario, the Total Money Supply in the economy remains the same so that the money circulating in the economy don’t dilute.

Now, What Happens if, Borrower & Lender are the same person. Means you want to buy a home. So you go to yourself. You issue yourself a debt and accept yourself. In other words, you lend money to yourself.

Now, the question is that, if you don’t have money, How can you lend someone? And if you have money than what is the need of borrowing?

The same thing happened in US Economy. This time the Federal government has issued the Treasury Bonds of almost $ 1.2 Trillion. Now, in the normal situation, there should be the market to buy these Treasury Bonds in the world. In normal condition, the countries like China, India, Russia buy these Bonds. In normal situation, the large corporations and private investors buy these treasury securities. In other words, buying a Treasury Bond means you are lending to the US Government.

But this time, nobody in the world wanted to buy these Treasury Securities. Because there was not this much demand in the world. So What US government did? Well, Federal Reserve has bought these securities from Federal Government. In other words, it has printed new money in the economy.

And that’s why the US Monetary base (Money in Circulation + Bank Reserves) has hiked from $ 800 Billion to $ 2 Trillion.

See in the above diagram that, How US Government’s money printing activity has boosted the total money supply in the economy.

Suggestions:

Now, the question is that, What you and me can do in this situation? This is because the US Government is printing trillions of dollars and giving the bailouts to the other nations of the world from this printed money. So the economy of other economies will also suffer sooner or later. Very soon the Hyperinflation will come and your money will become worthless.

Now, in this situation, you should now sell any of your Assets now. You should not sell your stocks, bonds, gold, real estate, mutual funds, businesses, blogs, web properties, art or any other Asset. This is because what happens if suppose today you sell your business for $ 1 Million and plan to retire but because of this money printing activity, the purchasing power of that 1 million becomes half?

Than you will have the same 1 Million on paper but it’s purchasing power will be that of today’s half million only. So Don’s Sell your Assets because Assets are more valuable than Money.