The 10-Step Plan To End The Era Of Ponzi Finance

Tyler Durden's picture

The developed world’s Ponzi scheme is caused by record-high levels of public and private debt. As Boston Consulting Group notes, it is exacerbated by huge unfunded liabilities that will be impossible to pay off owing to long-term changes in developed-world demographics. Addressing these challenges at any time would be difficult. To make matters even worse, however, BCG points out that they come at a moment when the developed world’s traditional model of economic growth appears to be broken. This is partly a consequence of the Ponzi scheme itself. The underlying issues cannot be ignored any longer. The developed world faces a day of reckoning. It is time to act. In this excellent layman's guide to the the real world, not only does BCG explain the Ponzi, but they lay out ten critical steps that developed economies must take to definitively end the era of Ponzi finance. Some are sacrifices required of various stakeholders. Others are new social investments, both public and private, that are needed in order to return to a sustainable growth path.

 

The paper starts with the Origins of the Ponzi Scheme we call modern economies...

goes on to discuss the Broken Growth Formula...

 

 

Then lays out ten steps to any solution for developed economies...

Via Boston Consulting Group:

1. Deal with the debt overhang - immediately. A precondition to addressing the fallout of the unsustainable policies of recent decades is a fast cleanup of the debt overhang. In previous papers, my colleagues and I have discussed the various options for doing so.35 Put simply, some combination of writeoffs and restructuring, austerity, higher taxes, and sizable inflation will be necessary.

 

2. Reduce unfunded liabilities. Once debt restructuring is under way and the broader public sees that wealthy owners of financial assets are contributing to the necessary cleanup, it should be easier for politicians to take another painful step: addressing openly and directly the trillions in unfunded liabilities that are weighing down budgets and balance sheets across the developed world. It will require a combination of several measures to bring these unfunded liabilities under control.

 

3. Increase the efficiency of government. Parallel to reductions in government spending on social-welfare benefits, another key to reducing government’s share of GDP and increasing economic growth is to make government itself more efficient. A smaller government sector does not necessarily mean a weaker government. By defining the right “rules of the road” for society and business, governments can set the tone and priorities for development in a more effective as well as a more efficient way.

 

4. Prepare for labor scarcity. Countries need to start now to prepare for the coming era of labor scarcity. Doing so will require a series of initiatives to reduce the decline of the workforce.

 

5. Develop smart immigration policy. Even if developed countries take all these steps, it will still not be enough to reverse demographic trends. Therefore, these countries also need to become far more open and attractive to immigrants.

 

6. Invest in education. Education has to play a significant role in the future growth potential of the developed economies. Quality education will be the decisive factor in protecting and increasing GDP per capita. It is also the foundation of social mobility and a precondition to fully utilizing the innovative capabilities and entrepreneurial talent of a society’s members. For both reasons, it needs to be another key target of social investment.

 

7. Reinvest in the asset base. For more than a decade, the developed economies have reduced investments in public infrastructure and productive assets. Given the importance of the quality of capital stock to productivity and economic growth, it is time to reverse this trend.

 

8. Increase raw-material efficiency. The age of cheap resources may have come to an end. Developed countries have to increase their efforts to decouple economic development from resource consumption.

 

9. Cooperate on a global basis. Competition among countries will become more intense in the years to come. All countries will try to increase their exports; all will try to attract the best-educated immigrants; and all will try to secure scarce resources, from water to oil to commodities. This increased competition will pay dividends in the form of new and innovative products. But even as they compete, the world’s countries must also cooperate. The problems of the developed economies can only be addressed in a cooperative way on a global scale. Otherwise, the world risks descending into a vicious circle of beggar-thy-neighbor economic policies leading to much lower growth and slower improvement of living conditions worldwide.

 

10. Launch the next Kondratiev wave. Last but not least, the developed world needs to prove Robert Gordon wrong. By investing in a growing and highly productive workforce and making it easier for engineers and technologists to innovate and for entrepreneurs to start new businesses, the developed economies need to unleash a new Kondratiev wave of global economic development.

 

and ends with ideas for Negotiating The Fallout...

Must Read!

BCG Ending the Era of Ponzi Finance Jan 2013

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icanhasbailout's picture

11. Affix unicorn to Krugman's Rainbow

sunaJ's picture

That stuff is so much more difficult than war.  There is no reasoning with the definition of insanity.

Raymond K Hessel's picture

This reads to me like the fascist agenda. 

I think the worst thing about this report is that it reasonably assumes inflation, government regulations, increased spending and calling it investment, #8 sounds like "new normal" to me, global cooperation(?) and governments being able to positively increase innovation proactively, ... 

I don't know... it sounds like these guys insist that government is at the center of doing what the free market can't.

Am I alone on this?? Do you agree? 

Doña K's picture

When I see words like:

debt overhang, unfunded liabilities, efficiency of government, smart immigration. Invest in education. Reinvest, Increase efficiency and so on. 

I just see another attempt of government to spend more money.

Have a nice day. Bring on the eventuality and get it over with now.

smacker's picture

"I just see another attempt of government to spend more money."

Me too. I wonder if they costed the huge losses implied for savers/investors and the new taxes required to fund all this stuff.

I think I'd just go for Ron Paul's long-stated solution:

"LET THE MARKETS CLEAR"

ultraticum's picture

BCG . . . . you lost me at "invest in . . . . "  

 

Question:  Is there a place left on earth not completely overrun with fucking interventionist government-loving idiots?

AldousHuxley's picture

Fluff piece by benched 20 something mbas at B c G

Better get staffed soon on a real billable work bullshitters

lewy14's picture

This is the TL;DR version of the BCG article:

 

  • Government power expanded for decades on the back of promises to the people - pensions, healthcare, insurance.
  • Those promises are no longer credible.
  • So now that government power cannot expand on the back of those promises any longer, it's time to reneg on them...
  • ...and spend public money on other things... which will serve to expand government power.

You will see a lot of the "smart, sensible, moderate" elites - you know, the "thought leaders" - taking a similar line in the coming months.

smacker's picture

Right on. The political elites and their central bankers cannot demand full controlling power in every nook & cranny of a nation without accepting the blame when their policies all go wrong, as they have done. But we have seen a complete absence of any acceptance of responsibility by them, and they're now using the mess - of their making - to increase political control and powers. We are all fools to put up with this; it will lead to a new model of governance which is not nice.

Stuck on Zero's picture

Dona I agree with you.  I think the author works for the gummint.  Labor shortage?  What f**n labor shortage?  22% of the populace is out of work.  More immigration?  Immigrants in the U.S. have the same average ages as Americans.  10% of our immigrants immediately go on social security.  More education?  Jees that has really worked.  The best education is a job. 

How about just less government and the rest will straighten itself out.

 

Errol's picture

Dona K, I see this report as even more flawed than "...another attempt of government to spend more money". 

"4. Prepare for labor scarcity. Countries need to start now to prepare for the coming era of labor scarcity. Doing so will require a series of initiatives to reduce the decline of the workforce.

5. Develop smart immigration policy. Even if developed countries take all these steps, it will still not be enough to reverse demographic trends. Therefore, these countries also need to become far more open and attractive to immigrants.

6. Invest in education. Education has to play a significant role in the future growth potential of the developed economies. "

Prepare for labor scarcity?  As offshoring and automation of clerical and production activities results in ever-increasing structural unemployment?  Attract immigrants?  As if millions of third world slum-dwellers would not relocate to the nearest industrialized country if they could?  "...future gowth potential of the developed economies"?  Growth!?! These clowns seem to believe that we can continue to have infinite growth on a finite planet, if we just somehow tweak an overextended system just right.

I'm not going to waste my time reading some fantasy of politically-impossible reforms that can somehow get "growth" resumed.

falak pema's picture

the fascist agenda is today's world. THis is recipe to allow the fascists to save ours and their own necks; by becoming less fascist before we hang them, like Musso line vigilante. 

Its 12th hour quarter backing... can you imagine musso giving in? 

 

CH1's picture

it sounds like these guys insist that government is at the center of doing what the free market can't.

IMO, they see government as the essence of civilization. I, of course, utterly disagree.

Government is organized crime. The essence of their operation is organized robbery. That's just a fact.

The different thing about guv is that people have been trained to see this robbery as Holy. The difference is solely in interpretation: Theft is theft. A is A.

Seer's picture

"Government is organized crime."

Try this:

"Government is where BIG crime goes to legitimize itself."

I am neutral on "government," the word and the idea: add "BIG" and I'll go negative.  But, I'm anything but neutral when I state what happens TO government- as a center of power it is the lightening rod for abuse of power.  And given that we're all connected up to the government "grid" we pretty much know what is next implied for this analogy...

CH1's picture

I am neutral on "government," the word and the idea: add "BIG" and I'll go negative.

Rape is not of better or worse quality depending on its scale. Nor is murder, nor is theft.

Government IS organized robbery. There's not even room for argument on that question; at least not if we accept words as having meaning.

dunce's picture

Standard leftist load of crap. When has govt. ever become more efficient? They are calling for increased taxes ( revenue), and stiffing debt holders (China?), austerity is a code word for reduced spending, look at the way that is going in Europe. This is a plan, if tried, that could easily result in war with huge numbers of nukes. They might stiff the debt holders but the rest is pie in the sky.

From Germany With Love's picture

Testimony to that (in German):

http://www.querschuesse.de/1616-billionen-euro-an-staatshilfen-fur-den-f...

In short: From October 2008 to December 2011 European governments supported the financial sector directly with an astonishing 1.616 trillion Euros, 714.7 billions of those in the year 2011 alone - according to the European Commission.

Anyone surprised? No? I thought so. So back to money printing...

falak pema's picture

and indirectly thru allowing Libor, off shore scamming of taxes, HFT manipulating, ZIRP assist to carry trades in derivative bets...the indirect list is endless. 

Oracle of Kypseli's picture

We all know what needs to be done, including the bankers and the politicians (sociopaths)

The only chance we have is an implossion and a reset as the natural consequence. 

The longer it takes for the implossion the larger it will be and the more bankers and politicians will die.

There is no going back. Inflate or die and the end result is inflate and die

Yes Virginia brace yourself.

fockewulf190's picture

The Great Reset is going to wipe out much more than just  bankers and polititicians.  Imagine what is going to happen to the billions of people living on a dollar per day or less, and then add the billions more who live on two dollars a day when those dollars dissolve into worthlessness.  The suffering will be monsterus in scope.

Aziz's picture

One step plan:

Stop bailing out banks.

CH1's picture

My one-step plan:

Walk away from the slave game.

 

ball-and-chain's picture

There really is no plan.

Both sides are talking crap.

We are too far gone.

Run to the hills.

Run for your lives.

http://www.angrysinner.blogspot.kr/2012/12/try-to-find-church-you-like.html

Bindar Dundat's picture

Should be a 12 step program...

gimli's picture

OK ..... don't hire more see if I care.

Schmuck Raker's picture

"We're doomed. We'll never make it."  - Glum

Monedas's picture

There's no way to go back .... no way to avoid the cliff .... no way to not re-elect Barry .... even Angus McHugeprick couldn't fuck his way out of this mess !  Just get it over with ! You can't have a tea dance with these monkeys ! Erase the blackboard with hot soapy water and go home ...the party's over !   I'm so bored waiting for this thing to implode .... I'm praying for thermonuclear war to kill all the vermin !    My Christmas message !      Monedas    1929      Comedy Jihad End Of The World Tour    

StychoKiller's picture

[quote]

The wheel is turning
and you can't slow down,
You can't let go
and you can't hold on.
You can't go back
and you can't stand still,
If the thunder don't get you
then the lightning will!

Won't you try just a little bit harder?
Couldn't you try just a little bit more?
Won't you try just a little bit harder?
Couldn't you try just a little bit more?

Round round robin run around,
Gotta get back where you belong.
Little bit harder, just a little bit more,
Little bit farther than you than you've gone before

The wheel is turning
and you can't slow down,
You can't let go
and you can't hold on.
You can't go back
and you can't stand still,
If the thunder don't get you
then the lightning will!

Small wheel turn by the fire and rod,
Big wheel turn by the grace of God.
Everytime that wheel turn round,
bound to cover just a little more ground.

The wheel is turning
and you can't slow down,
You can't let go
and you can't hold on.
You can't go back
and you can't stand still,
If the thunder don't get you
then the lightning will!

Won't you try just a little bit harder?
Couldn't you try just a little bit more?
Won't you try just a little bit harder?
Couldn't you try just a little bit more?

[/quote] -- Grateful Dead, "The Wheel"

Imminent Collapse's picture

Cue ball's made of styrofoam
And no one's got the time

I am Jobe's picture

Drink heavily and hope the hangover stays forever.

 

Joebloinvestor's picture

#8 Put the UN in charge.

HAHAHAHAHAHA

 

Raymond K Hessel's picture

If this were the Onion, I'd expect an interview with Ezio Auditore.

falak pema's picture

spot on; now who will bell the cat?

New paradigm, new governance based on slimmer more responsible, neutral government, redirect new paradigm to more value added labour, by going more value added local, more alt. energy development, all the while having global ecosystem/labour/ trade agreements.

To kick start this, it means cleaning out house of Pax Americana and its crony capitalism, based on OIL/reserve currency and hyper consumption model.

How do we destroy that awesome, sociopathic combination?

It won't go away on the wave of magic wand! 

BearOfNH's picture

The underlying issues cannot be ignored any longer. The developed world faces a day of reckoning. It is time to act.

I recall reading something like this a year ago. And a year before that, and a year before that etc. I expect we'll kick the can down the road and read something like this again next December.

Raymond K Hessel's picture

I think people have been reading something like this in Germany and Russia for most of the 20th century.

Seer's picture

Well, they'd be right would they not?  Both experienced TWO major turnings, with Russia turning most recently (early 1990s).

Banksters's picture

Give me a fucking break.

 

STEP 1

 

INDICT, PROSECUTE AND JAIL shit like this:

 

Bombshell: Deutsche Bank Hid $12 Billion In Losses To Avoid A Government Bail-Out

RBS still negotiating with FSA over Libor fine

Announcement expected soon from Royal Bank of Scotland about the size of its penalty for attempting to rig rates

HSBC's record $1.9bn fine preferable to prosecution, US authorities insist

Officials defend decision not to prosecute in money-laundering case despite HSBC's 'blatant fail

http://www.guardian.co.uk/business/2012/dec/11/hsbc-fine-prosecution-mon...' to implement controls

 

Libor Fixing Scandal: HSBC Faces Six Rate Probes as CEO Admits Bank's Failures [VIDEO]

 

REPEAT UNTIL ALL THE FUCKERS ARE IN JAIL

 

STEP 2  END THE FED

 

STEP 3 REPEAT STEP 1

 

If we as a society can't apply justice equally, we'll never end the ponzi.

 

 

 

 

 

 

 

mendigo's picture

Excellent point.
The first step would need be a return to the rule of law for all.

I would also add that the elimination of the sec and of government regulation of equities and accountting of public corporations except for tax purposes should be eliminated as the fedgov is clearly not up to the task and so are only being used as a front man in a con.

Additionally needed is a roughly flat tax on individuals and business.

fockewulf190's picture

Where in that report is there a demand for a balanced budget amendment to the Constitution?  That alone will provide plenty of political cover when you have to tell your constituents that the new law of the land is too not spend more than you take in.  This should be a no brainer, but it seems that way too many decision makers and policy wonks  refuse to use their own.

Seer's picture

"Bombshell: Deutsche Bank Hid $12 Billion In Losses To Avoid A Government Bail-Out"

I think that this is worth re-reading and contemplating...

On one hand they didn't want to accept a bail-out- a mark of cane; on the other hand they LIED about their books.

They were pretty much fucked whatever path they took.

No, I'm not defending them, at all!

What I'm suggesting is how impossible things are.  I think that we're way beyond legal corrections here.  This says everything about the entire bloodstream of the economic world.  Business (ones that actually make things) absolutely rely on these blood-suckers to keep things flowing.

As much as I'd like to see them all hung I'm not thinking that this is going to happen.  Further, while the System is still functioning it allows us to make the "adjustment:" if prosecution (and execution) were to occur the clock will stop- would folks really ready?  And I mean this as though EVERYTHING freezes and stops, where you canNOT expect anything to work (no food supply; no "spare" parts [why I'm trying to get my machinery in tip-top shape]).

Regardless of how shitty this circus is, all anyone really wants is more time... THE lesson to be learned is to use time wisely.

Things that go bump's picture

"Kill em all and let God sort em out."  

icanhasbailout's picture

"REPEAT UNTIL ALL THE FUCKERS ARE IN JAIL"

 

You misspelled "doused in gasoline, on fire, and running the 50-yard dash to a fire extinguisher they don't know is empty"

AgAu_man's picture

Hmmm, reads like an executive summary to someone's MBA term paper. ;-) Purely theoretical solution, not attainable in the real world. Does not want me want to rush out and hire BCG for other 'sage' advice.

Seasmoke's picture

i have no fucking problems if all laws and rules are off the table...............just let the rest of us know

tickhound's picture

The "ERA" of ponzi finance... LOL.  As if this is some NEW phenomenon we stumbled onto.

The article is flawed from the first line..  "The developed world’s Ponzi scheme is caused by record-high levels of public and private debt" ..

The record debts are the RESULT of the ponzi scheme, NOT the cause.  The Ponzi scheme actually NEEDS MORE!!!!  It 'BENEFITS.'  

Later.. "The traditional model of economic growth appears to be broken." 

That "traditional model" IS a ponzi scheme, and its broken because its running out of MORE public and private debt to service it.

I mean, the growth model "appears" to be broken????? 

YA THINK??  I mean we practically BEG for hurricanes and tornados to come wipe us out because it benefits the model.  These are the things you wish for when ENVELOP and CONSUME runs out of real estate. 

The problem on Easter Island wasn't a lack of trees.  It was the model itself that made cutting the last one down WORTH the BOOST.

Just another guy trying to find a more efficient way to feed and make the ponzi "more sustainable." 

The only GROWTH this world needs right now is in NEW IDEAS. 

Seer's picture

"God bless you."  And I mean that in all sincerity.  This was pretty much what I was going to jump on.  Nothing I hate more than people who "get it" that don't "get it."  It's like this invisible wall that they can never see, they stop short, even slamming into it, yet they never seem to ask if it's because it's something else that they're failing to see!

QUESTION THE FUCKING PREMISE!  Is perpetual growth on a finite planet possible?  Unless these talking-heads are willing to engage in This discussion/premise then they can all STFU! (and anyone putting their "wealth" in with these disingenuous folks deserves what they get; how they warrant sustenance over someone breaking their backs out in some crop field is beyond me)

StychoKiller's picture

So, HOW do we get off this rock?

Things that go bump's picture

I think we squandered our shot at that.  As a species I think we're going to die here.

Bicycle Repairman's picture

End the empire and beat our swords into plowshares.  There's more than enough savings there.  Even if you are a militarist, it's obvious the MIC is not earning it's keep.

Also start drilling.  We'll consume our own oil and gas.