Thursday, January 1, 2009

From Ponzi in 2008 to Pozzo in 2009

The closing weeks of 2008 resulted in the public exposure of a spectacular Ponzi scheme run by Bernard Madoff. Losses, still not exactly known, are estimated, by the schemer himself, to be around $50 billion. The size of the scam has caught the attention of the world, and yet, it pales in comparison to the Pozzo scam headed directly our way.

International diplomat and manipulator Carlo Andrea Pozzo di Borgo of Corsica was a childhood friend of Napoleon who eventually turned against Napoleon. He also turned against his political sponsor, Paoli, to more quickly advance his own career. It is with this background, that while studying at Cambridge University, John Maynard Keynes was tagged by fellow students with the nickname, Pozzo. The nickname lasted for the remainder of his life.

It is the economic beliefs of John "Pozzo" Keynes, centering on spending money as a method to boost an economy, that will impact modern day America. The incoming Obama Administration has already announced a $700 billion spending program. There is even more likely to come. This, we hasten to add, is on top of the "rescue" programs of the Bush Administration.

The economic justification for such spending programs exists in the writings of Pozzo Keynes. But the tremendous spending results in few considering the "take away" that accompanies every Pozzo penny spent. The take away is the source from where Pozzo money must come from. If $700 billion is spent, $700 billion must be taken from somewhere to fuel the spending. Like the crazy aunt in the attic, the "take away" is rarely spoken about. But it is most important to understand it.

The take away can only occur in three ways from taxation, borrowing or money printing. Each has a vicious negative impact on the economy. It's as though the crazy aunt has been put in charge of driving the family to church in the family car.

Taxation, of course, cuts into the saving and spending ability of those taxed. The Obama insiders have leaked to the press that the "take away" will not come via taxation. This leaves borrowing and money printing. Borrowing crowds out the borrowing of the business man, so less is produced. During a downturn, the last thing you want is less production. The money printing option fuels the inflation machine.

Thus, the Pozzo Plan is one of less production or more inflation. It succeeds in capturing the imagination of the shallow thinking public in much the way the razzle dazzle that accompanies a Ponzi scheme catches their eye. They see what is going on directly in front of them, but nothing is said about the source of the money. This is the 2009 we face.

If the choice is between a Ponzi scheme and a Pozzo scam, a Ponzi scheme is always preferable, since it is voluntary and thus can be avoided and, secondly, it never grows to the size of a Pozzo, and is thus much less damaging to the overall economy. But, the big Ponzi scheme of 2008 is yesterday's news. The news for 2009 is all about John "Pozzo" Keynes and the wonders of Pozzo spending. It is going to choke, hurt and do nothing but mess up the economy, and you are going to have to be very quick, sharp and lucky to keep away from its clutches. Happy New Year.

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