“The financial system as a whole has had the characteristics of a Ponzi scheme if we look at it fundamentally,” said Lee, who was very early in warning about deflation.
“By this I mean that we should think about the true value of assets as being derived from the future flow of goods and services that the assets can lay claim to or produce. If market prices of financial and real estate assets rise a lot but there is no increase in the ability of the economy to provide goods and services in the future, then the apparent increase in wealth is illusory.”
That means that savings must rise, and expectations about the kind of growth and income that capital can safely command must fall. The process of everyone’s figuring that out over the next year or so will be a continued hole in the side of the stock market and, despite the risks inherent in Treasury securities because of quantitative easing and fiscal stimulus, a boon to holders of government debt.
Once you introduce interest and loans, suddenly we make money by shuffling paper, not by generating value. If you can convince someone else that something is of value… they’ll buy it at that value, and you pocket the difference. And if you’re really savvy, you do it by taking out a loan, “enhancing” value, and then selling high, so that you can leverage money into ten or more times its value.
But there’s a cost.
Society quickly becomes highly deceptive, every source of news a product, and every person explicitly charged to sell themselves and become larger than life egos.
But no one thought of that.