Economy Expert: ‘Economic Ponzi Scheme Will Cause The Next Market Crash’

by | Jun 11, 2018 | Emergency Preparedness, Experts, Forecasting, Headline News | 25 comments

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    Dr. John Hussman, whose Ph.D. is in economics, says that the economic Ponzi scheme we are forced to live under will be the cause of the next market crash. Our “dysfunctional economic system provides the illusion of prosperity for some segments of the economy,” Hussman wrote.

    Dr. Hussman asks us to examine two vastly different types of economies:

    In one, consumers work for employers to produce products and services. The employees are paid wages and salaries, and business owners earn profits. They use much of that income to purchase the goods and services produced by the economy. They save the remainder. A certain portion of the output represents “investment” goods, which are not consumed, and the portion of income not used for consumption – what we call “saving” – is used to directly or indirectly purchase those investment goods.

    There may be some goods that are produced and are not purchased, in which case they become unintended “inventory investment,” but in a general sense, this first economic system is a well-functioning illustration of what we call “circular flow” or “general equilibrium.” As is always the case in the end, income equals expenditure, savings equal investment, and output is absorbed either as consumption or investment.

    The second economic systemis dysfunctional. Consumers work for employers to produce goods and services, but because of past labor market slack, weak bargaining power, and other factors, they are paid meaningfully less than they actually need to meet their consumption plans. The government also runs massive deficits, partly to supplement the income and medical needs of the public, partly to purchase goods and services from corporations, and partly to directly benefit corporations by cutting taxes on profits (despite being the only country in the OECD where corporations pay no value-added tax).

    Meanwhile, lopsided corporate profits generate a great deal of saving for individuals at high incomes, who use these savings to finance government and household deficits through loans. This creation of new debt is required so the economy’s output can actually be absorbed. Businesses also use much of their profits to repurchase their own shares, and engage in what amounts, in aggregate, to a massive debt-for-equity swap with public shareholders: through a series of transactions, corporations issue debt to buy back their shares, and investors use the proceeds from selling those shares, directly or indirectly, but by necessity in equilibrium, to purchase the newly issued corporate debt. -Dr. John Hussman, Hussman Finds, via Seeking Aplha

    The first economic system is self-sustaining, and the second is a Ponzi scheme, says Hussman.  And much like the social security Ponzi scheme, we are all forced to participate whether we want to or not. The operation of our current economic system relies on the constant creation of low-grade debt in order to finance consumption and income shortfalls among some members of the economy, using the massive surpluses earned by other members of the economy. “Notably, since securities are assets to the holder and liabilities to the issuer, the growing mountain of debt does not represent “wealth” in aggregate. Rather, securities are the evidence of claims and obligations between different individuals in society, created each time funds are intermediated,” wrote Hussman. 

    Hussman also says we are finding ourselves on the precipice of another market collapse yet again, and the Ponzi scheme is to blame. In the end, the underlying instability will be expressed in the form of mass defaults, which effectively re-align the enormous volume of debt with the ability to service those obligations over the long-term; as is always the case.

    But human beings are not the best at remembering history and often forget economic hardships.

    In prior market cycles across history, there was always a point when enough was enough. Specifically, extreme syndromes of “overvalued, overbought, overbullish” market action were regularly followed, in short order, by air-pockets, panics, or outright collapses. In the face of the Federal Reserve’s zero interest rate experiment, investors continued to speculate well after those extremes repeatedly emerged. This half-cycle was different in that there was no definable limit to the speculation of investors. One had to wait until market internals deteriorated explicitly, indicating a shift in investor psychology from speculation to risk-aversion, before adopting a negative market outlook. -Dr. John Hussman, Hussman Finds, via Seeking Aplha

    Understand that point, or nearly two-thirds of your paper wealth in stocks, by our estimates, will likely be wiped out over the completion of this market cycle,” wrote Hussman.

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      25 Comments

      1. Fritz

        One doesn’t need a PhD in economics to figure out the obvious. Glad I don’t own stocks.

        • TharSheBlows

          Our Country is being destroyed one Cultural Tradition at a time. Well more like simultaneously and collectively destroyed. Just like the NFL, Boy Scouts, Girl Scouts, here goes another American Tradition. Isn’t a Beauty Pageant all about beauty?? Not any more…. And all fatty contestants will probably get a snowflake participation trophy for just showing up.

          Video: Miss America is Dead! Will Allow Fatties to Compete
          06-09-2018 • ht tps://www.prisonplanet.com, Paul Joseph Watson
          Newsflash idiots; No one wants to watch frumpy, miserable feminist bitches droning on about the patriarchy at a beauty pageant.

          Link to video – ht tps://www.prisonplanet.com/video-miss-america-is-dead-will-allow-fatties-to-compete.html

        • Kevin2

          The problem is the interconnected economic relationship of everything. Nothing drops in a vacuum. Home value, wages 9higher unemployment having downward pressure), M2 money velocity: down is down.

          • Kevin2

            The problem is the interconnected economic relationship of everything. Nothing drops in a vacuum. Home value, wages 9higher unemployment having downward pressure), M2 money velocity: down is down.

      2. SterlingSilver

        It’s really grade school arithmetic utilizing simple addition and subtraction. Yet they’ll complicate it for the masses and endlessly spin it on FoxBiz and MSNBC so most people will think something complex is going on and the impending doom happened by accident…no one saw it coming.

        • cranerigger

          Right on the money, Sterling Silver. Cartoonish levels of debt, entitlements up the wazoo, decades of giving away the store allowing other countries to have unfair advantages in trade (Thank you Trump for trying to rectify this deplorable situation), and the main-stream media will suggest the next ECONOMIC CRASH is a big surprize.

      3. Jim in Va.

        We should know it every time we buy something,our money buying less all the time. People are just buying bare necessities and just getting by. Healthcare is too expensive and everything else is going out of sight. Who has savings? Not most of us.

      4. Anonymous

        Everyone posting here knows much more about the economy than those in the mainstream of things.

        That’s why we’re all rich and prosperous with no personal money troubles to deal with and they aren’t.

        • Archivist

          We know more than the financial experts demonstrate on TV that they know. They are always wrong. Every time a new financial figure is reported, it’s always more or less than the experts thought.

          The experts are either ignorant or they’re lying. Ignore them in either case.

          I think of myself as prosperous. I’m happy. I don’t work for anyone, and I can do as I please most of the time. Can you?

      5. bb in GA

        “…(despite being the only country in the OECD where corporations pay no value-added tax).”

        I would remind the eminent Doctor that Corporations do not pay taxes….they collect them.

        If you notice that Taxes show up as an Expense to the Corporation, you understand it is just one more item (like the Light Bill) that has to be paid for by the Operations of the Corp.

        Individuals ultimately pay all taxes as customers, employees, or owners(shareholders)

        <bb

        • Archivist

          I have tried for many years to tell people that companies and rich people don’t pay any taxes at all. Only middle-class working people actually pay taxes, as they are the only ones who are actually producing.

          If you try to tax companies or the rich, they merely pass the expense along to us in the form of higher prices.

          • Yahooie

            I am so glad that someone else sees this. When I mention it, most people look at me like I’ve suddenly sprouted antennae and turned green.

      6. Anonymous

        Pay yourself first to have savings, 10.00 or more each week, hands off pretend you don’t have it.Thats how you save,otherwise poorhouse. Afraid of investments and stock market WHY? Pick something ,stocks, bonds ,cds real estate,something ,otherwise POORHOUSE! The RICH have these things why not you! Yes everything could shtf but until then better yourself or be poor forever!

        • Anonymous

          What makes you think the rich have any idea what they are doing with their money?

          Being rich, they just have lots and lots of it to throw around and don’t need to know what is the best way to invest and use it since being rich by itself makes you richer and richer, no need to do anything to have that happen.

          • Archivist

            Most rich people are rich precisely because they know what they’re doing. They know how to get rich.

            I know a millionaire who lost almost everything many years ago. But, since he knew how to make money, he’s now many times richer than before.

            My father said many years ago that you could take all the wealth of the world and evenly divide it among all the people, and in a year the same formerly rich people would be rich again and the same formerly poor people would be poor again.

          • Yahooie

            Many years ago, schools taught basic home economics, how to balance a checkbook (and your budget), and a few other everyday bits of practical financial knowledge. Oh, the information was spread out in various classes like Home Economics and Civic and math; but the information was provided. When I was very young, we even had a Banking Day when all the children brought in their bits to put in a savings account; this was done weekly just like paychecks were then.

            Now they have to worry about which bathroom to use or is Susie/Sammy a she, he or zhe today since it’s nearly a federal case if this is done wrong. Or worse worries of lethal crimes within school walls.

      7. Anonymous says, says......

        Pay yourself first to have savings, 10.00 or more each week, hands off pretend you don’t have it.Thats how you save,otherwise poorhouse. Afraid of investments and stock market WHY? Pick something ,stocks, bonds ,cds real estate,something ,otherwise POORHOUSE! The RICH have these things why not you! Yes everything could shtf but until then better yourself or be poor forever! Gold silver something!…..

      8. Brian

        The oldest principle of economics is “The rich get richer and the poor get screwed”.

      9. B from CA

        To truly understand the money situation in not only the USA, but the entire world, it is necessary to look at history, religion, usury, predatory lending, usury, conspiracies, usury, wars against Countries without a Central Bank, usury, the men from Jeykle Island, Hitler the most evil man who ever lived because he dared to put a Rothschild Central Banker Behind Bars in prison and print a National currency bringing his Country out of poverty into wealth and independence where his twenty-five laws made usury illegal.

        _

        • aljamo

          B from CA.. I’ve read most of what you wrote there that Hitler was not the person portrayed hy history. Then I read that Hitler was himself a Rothschild, that he lived beyond the date he was said to have died and was the father of Angela Merkel. I read that at 50 shades of pissed off.

          • B from CA

            Aljamo:
            Go to the source.
            Hitler wrote his autobiography and it has been translated into English and there are free copies on the internet. The best translation is the one written for the English people of England translated by a real National Socialist. It contains not only Hitler’s biography but also his thoughts, opinions, goals, and how he felt toward a certain minority.

            You may have heard of this book, but if you are like most people, you’ve never read it.

            My education about the man came from watching television, going to movies, and listening to people who wern’t there and don’t know what they’re talking about. I hated him.

            After seeing “Hitler, The Greatest Story Never Told” I listened to Hitler’s speeches with English subtitles then I read MienKamph.

            I suggest you, or anyone who wants to know the truth, do the same.

            _

      10. rellik

        I have said many times, I want to have a economic depression.
        ALL things are priced too high and I’m taxed too much.
        Obviously I’m prepared for and am preparing for
        such a situation.
        Thousands of my neighbors just permanently lost their land and houses and the first thing our government wants to do is raise taxes
        not cut costs to help them out.
        The “ponzi” scheme is AKA Democrat party.

      11. southside

        rellik,raise taxes on what? Volcanic ash? What an asshat place you live in. As for a value aded tax,Europe has them. The corporations just raise their prices to cover it,passing the VAT to the consumer.

        • rellik

          South,
          Only a fairly small part of the island is being affected. We have the land area of Connecticut and about 200,000 people.
          I’m well to the north and have no problems other than the occasional earthquake and VOG on days when the Tradewinds die down.
          They want to raise taxes on the rest of the island, since they can no longer tax the properties destroyed by lava.
          Economic impacts of loss of tourism haven’t been fully realized yet
          but it could be quite substantial.
          However our local government won’t cut a single union county job.
          This place is run by Unions, Democrats, and they are all related. Family(Ohana)is a big thing here, which is both good and bad. Good in that we have a safe stable society, bad in that we live under a tyrannical single party government.

          • Yahooie

            Don’t the voters have a say in the taxation? Seems like there should be with mid-term elections this year and especially if it’s a big change.

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