Michael Lewitt: "We're In The Late Stages of Ponzi Finance"

Tyler Durden's picture

Since Michael Lewitt, aka "The Credit Strategist" is one of our preferred bond market analysts, we enjoyed his latest interview by Financial Sense's Jim Puplava, where he discusses the only thing that matters: "are we on the verge of a massive market crash." It will hardly come as a surprise that Lewitt, author of The Committee to Destroy the World: Inside the Plot to Unleash a Super Crash on the Global Economy, argues that the problems we faced in the last recession haven’t been dealt with and, as a result, another crisis is likely, particularly when it comes to the opaque derivatives market. In sum, Lewitt believes we are “in the late stages of Ponzi finance.”

The following is a summary of Puplava's interview with Lewitt, which can be heard in full here.

Failed Policies

We see abundant evidence that government policies have failed and are failing, Lewitt said. 

“They’ve tried to solve the debt crisis by printing trillions of dollars of more debt,” he noted. “They’ve added on top of that hundreds of billions of regulations or new regulatory costs, and somehow they expect the economy to grow under the weight of those burdens.”

These and other missteps by regulators have hampered growth and have created our current low-yield, low-interest rate muddled economy. Many regulators come from the same class of academic economists, Lewitt argued, and they don’t understand how the world actually works.

As such, he said, our current course is going to lead to another crisis.

Debt and Regulations Are Crippling Growth

The worst thing about the debt buildup is borrowed money isn’t being used for productive ends, Lewitt said. And what’s more, political will doesn’t exist to fix what is an acknowledged problem, he added.

“You couldn’t design this worse if you tried,” he said. “Low-interest rates cover up a lot of things, but eventually you have to pay the money back.”

As the debt inevitably matures, companies will be looking back on years of low growth, and they’ll have to default, Lewitt stated. And governments will keep taxing and spending until there’s pushback.

In terms of regulations, Lewitt said he feels they were well intentioned. The financial system was grossly overleveraged, but the problem is regulations went too far, he added.

“Markets are over-regulated right now. It’s one thing to want to make sure banks aren’t levered 30-to-1, but it’s another thing to come up with a set of regulations that dries up liquidity in markets,” he said.

* * *

Fed Is a Shadowy, Poorly Understood Force

Nobody wants to connect the dots, and most people don’t understand what the Fed does, or even what the fractional reserve banking system is, Lewitt noted.

“As a result, we have a system where the most powerful government agency in the world, the Federal Reserve, really operates without very many checks and balances,” he said.

We’ve seen regulators that are just hurting markets and making missteps. For example, the Fed should have raised rates at the latest in 2014, but instead persisted with crisis-era policies, Lewitt said.

What we’ve ended up with is a massive regulatory state because the government doesn’t trust people to manage themselves, he added.

* * *

Derivatives Market Is a Mess

Right now, American banks are much better capitalized and everything will be fine, Lewitt stated, unless derivatives become a problem.

For example, if Deutsche Bank is unable to meet its obligations on its $60 trillion in derivatives, counterparties around the world, including Goldman Sachs, J.P. Morgan, and others, are going to have a problem.

“It’s a huge daisy chain,” he noted. “The problem with derivatives has not been solved—it’s been glossed over. There is $200 trillion debt globally, and there’s no way the global economy can generate the productivity to service that debt.”

* * *

Later Stages of Ponzi Finance

“We’re … just borrowing new money to pay back old money,” Lewitt said. “I would say that we’re in the late stages of Ponzi finance.”

This doesn’t end well, Lewitt noted. At some point, people will have to come up with real money to pay debts. Or in our case, we’re going to devalue money to pay our debts through inflation and currency debauchment, Lewitt said. Those are our only options.

But we can make a positive impact to prevent some of this from happening, Lewitt argued.

“We should discourage debt,” he said. “We should encourage equity. We should discourage speculation. We should encourage productive investment. And in order to do that, you need to change the tax code, which right now does the opposite.”

We also need to lower the growth of debt, he said. And we need to figure out how to improve productivity and improve economic growth. The ways to do that are to fix the tax code, reduce regulation, and allow the economy rather than the government to run things, Lewitt added.

For individuals, this means getting out of bonds, having some gold, not being afraid to hold cash, and being very cautious of equities, Lewitt said.

“Now is not the time to be a hero,” he said. “Now’s the time to worry about protecting your capital.”

* * *

The interview can be accessed here.

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Last of the Middle Class's picture

This sausage face has GOT to be an MBA. Since '08 you dipshit.

TuPhat's picture

He also said the Fed is a government agency. Ha ha.

NidStyles's picture





pathosattrition's picture

Help bring the reset: default on your debts and cash out your accounts.

bamawatson's picture

that's my new bumper sticker.

bleu's picture

CUT the HEAD of the Ponzi BEAST. https://goo.gl/2SIIh0

Squid-puppets a-go-go's picture

the only thing that matters "a massive market crash"

Aren't we at the point now where CB's have bought enough % of the stock market such that there arent enough private holders of equities left to generate a crash even if they all sold simultaneously ?

neidermeyer's picture

OK , I get that the Fed isn't a government agency .... but honestly can you name any entity that is more involved in the most base of government demands ,, the ability to write checks for vote buying FOREVER and EVER , Amen!

Escrava Isaura's picture

The money is privately owned. The government is owned by corporations/Wall Street —private power.

The bond market is owned by private power. The government borrows from the bond-holders —private power.


It’s the other way around, stupid, amen.


If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond hereas the currency pays nobody but those who contribute directly in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people. — Thomas Edison, 1921.


Not My Real Name's picture

Remind us again how currency debasement "helps the people"? FFS.

Things that go bump's picture

It'll help the government. It'll be able to pay its debts with money of much lesser value than even now. This has always been the goal. We're just along for the ride. Better fasten your seat belts. I remember the hyperinflation during and after the oil embargo of '70s and if I remember correctly prices increased about ten fold, but wages didn't budge until much later. That $9 a pound hamburger is going to cost $90, so unless you can find work as a stripper you're in for a bad ride. Those of us living on social security now are going to starve under a bridge. 

Escrava Isaura's picture

Currency is not wealth. Currency is a token to facilitate exchanges. Humans need energy and food to survive and not wealth (good life).

The growth of currency (tokens) is  a minor problem, growth of the population is the real problem.

Enjoy whatever wealth (good life) you can put your hands on, because wealth will end in a catastrophic collapse.


“Wealth is a flow and it cannot be saved. Spent it must be as it accrues, whether on consumption or on capital outlay designed to produce future wealth.”Frederick Soddy, 1921.


I Feel a little Qeasy's picture

You are an idiot, the issue is who produces the currency you use, not debasement.

Don Sunset's picture

Not a recoverable situation.

The Duke of New York A No.1's picture

Instead of "DRILL BABY DRILL" .... it's "PRINT BABY PRINT".

Countrybunkererd's picture

until some dipshit (HERO that will fall on their sword) trips on the power cord thereby cutting the electricity to the beast.


Pure Evil's picture

Eventually even Atlas won't be able to hold up this three ring circus.


Where is John Galt? I'd like to join him.

ejmoosa's picture

We are John Galt.

Cut your spending.

Reduce your tax burden.

Be prepared.

Hulk's picture

When E.F. Mutton writes, Zh listens !!!

Mini-Me's picture

Hit the damn reset button already.  

Squid-puppets a-go-go's picture

they CANT. they have lost CONSENSUS amongst the oligarchy as to the nature and timing of the reset - the robot collossus has seized up and will slowly topple and dissassemble with no capacity to be recommissioned, until we are all the way back to barter economy. Fiscal dark ages, here we come

dhemaius's picture

“We should discourage debt,” he said. “We should encourage equity..."


And with what does one acquire equity? Money! What is money? Debt! So some debt needs to be created somewhere so someone can aquire equity in the first place. I'm not saying it's the only way it could be done, but it's certainly how it's being done right now.


The money creation scheme is the real culprit behind all the shit.

new game's picture

until the fed is ended, nothing fucking changes. attempting tol end the fed is like falling on the sword.

only hitlary style.

SunRise's picture

Money is not supposed to be debt.  Money is supposed to be productive labor.


Joos always think they can bullshit their way out of bankruptcy, and debt. Lewitt thinks people that live paycheck-to-paycheck should buy PMs. He is talking to the most indebted nation on planet Earth and the mofo is telling everyone to buy PMs.


Get a job, Spewitt.

Father ¢hristmas's picture

The plebes can afford about ten Silver Eagles.  

The upper strata farmhands who are allowed to oversee the cleaning of their feudal lords' stables maybe, just maybe, if they liquidate their retirement funds, can afford about ten to twenty gold buffaloes.

That's what, a month of electricity, tank of gas, and a week's worth of bologna, bread, and water, when Janet finally yells "Pull it!"

Kirk2NCC1701's picture

If you have a job and a mortgage, you should reduce your monthly payments by doing a refi at lower rates.

You then use the extra cashflow to Prepare, or pay off your mortgage faster.

All else is folly.

Consuelo's picture



Funny that FSN would have a guy like Lewitt on their program, since they haven't allowed much in the way of 'bearish' talk since 2012 or therebouts...


When the QE rush finally hit equities in 2012, Puplava did a 180 on the site's general 'worldview' of the new Fed-managed economy.   Whichever way the $$$wind blows, right...?   Haven't been to their site since, and have no use to ever return.   



Hohum's picture

An economy can "grow" without debt?  I haven't heard that since the moon landing.

withglee's picture

An economy can "grow" without debt?  I haven't heard that since the moon landing.

Debt, like all money, is "an in-process promise to complete a trade". It is created and extinguished by traders making simple barter exchange trades over time and space. Economies can both grow or contract, with or without debt.

Regarding debt ... it is "never" a problem. Defaults, on the other hand, are "always" a problem and must be immediately mitigated by interest collections of like amount to guarantee perpetual zero inflation of the Media of Exchange (MOE).

Governments "never" deliver on their trading promises ... they just roll them over, and that is no different than straight out counterfeiting ... which is immediate money creation and default with "no" mitigation by interest collections. It is "pure" inflation. Governments are sustained and expand on the inflation our tolerance of this practice allows.

SunRise's picture

and again I Thank You!

withglee's picture

You're welcome. I thank you for thanking me. Spread the word. The "obvious" should not be that hard to get across.

TuPhat's picture

This is why I quit reading Financial Sense. They only make sense if you think the Fed is a benevolent government agency. They are still drinking the kool aid.

cart00ner's picture


order66's picture

Like they put the whole thing together in the dark.

Rickety Rekt's picture

Too many Told-ya-so to hand out to the masses once it finally implodes. It will be like when you hit a jackpot at the arcade. 


lasvegaspersona's picture

Regulations are just not a problem! ...for some...

In fact the bigger you are the better...you spend .0001% of revenue on those silly regulations and do quite well. The smaller guy has to spend 5% and it puts him out of business. It is good to be big in the age of corruption.

withglee's picture

“They’ve tried to solve the debt crisis by printing trillions of dollars of more debt,” he noted. “They’ve added on top of that hundreds of billions of regulations or new regulatory costs, and somehow they expect the economy to grow under the weight of those burdens.”

Run the numbers. The economy "has grown enormously" ... their (the government's) economy.

In my entire 70+ years in this land of the free, home of the brave, the government has not delivered on one single trading promise they have made. They default on every single one and just roll it over. The taxes they collect go straight to the capitalists who put them in place in the first place. The government  itself lives off of, and expands itself, through inflation alone.

Government is performing "exactly" as it was designed and instituted to do ... by the capitalists ... or the communists, depending on which side you observe from.

Wake up and smell the coffee.

With a proper Medium of Exchange (MOE) process, capitalists and governments could not compete ... they could not sustain themselves ... they would rot on the vine.

Walhei's picture

What we need is Public Servants who are rewared by how much debt they pay off,  by cutting government,  and by how much money they save the taxpayer.

We should never have passed anti discrimination laws.  How can we ask about a persons character, and integrity?   

We are forced to listen to their lying words.

We need people who want to give freedom to individeuals and not regultate everythng!

withglee's picture

What we need is Public Servants who are rewared by how much debt they pay off,  by cutting government,  and by how much money they save the taxpayer.

I don't refer to my grocer as a "public servant". Why would we refer to these morons as public servants ... they are public parasites. We can determine how much the taxpayer saves ourselves ... quit paying. Find another source if we need those services. That's what I do if I get sideways with my grocer.

We should never have passed anti discrimination laws.  How can we ask about a persons character, and integrity?   

What you mean "we" Kemosabe? And the last person I would ask about a person's character and integrity is the subject person. You observe character and integrity ... you don't ask about it. That's why democracy doesn't work for more than about 50 people.

We are forced to listen to their lying words.

I haven't had TV for 25 years now. On my SiriusXM I have hundreds of choices of what I listen to ... I don't even know what channels "they" are on.

We need people who want to give freedom to individeuals and not regultate everythng!

We need people who understand you start out with freedom. We need people who understand "freedom is taken away ... it's not given".

SunRise's picture

Seriously - THANK YOU for that wisdom!

brushhog's picture

How long do the late stages last? 2 years? 20 years? 200 years?

Colonel Klink's picture

Lewitt, it's amazing how the Amish are the go to experts on EVERYTHING, even though they're only 2% of the population.

SunRise's picture

They're only 2%, because they didn't print!  Would you rather be in the 2% on shore or the 98% in the raging rapids at the edge of Niagra, however nice the current view that the crowd is the righteous place to be?

cubicyard's picture

r/k genetics, they are in each of us. Survival strategy of dominant genes, has nothing to do with politics, but survival of rabbits and wolfs. Rabbits don't care, make lots of new rabbits, all you need to do is run fast,makes lots and lots of babies, so what if mr. wolf gets 80% of them., spring renews the clover each and every year. However wolves choose the mate carefully, she picks a good hunter, they invest a lifetime training the offspring.

Sometimes the rabbits are up sometimes the wolves are up, same shit throughout our collective history through time.

LN's picture

"Lewitt believes we are “in the late stages of Ponzi finance.”"

Nope, Ponzi math does not work when the top can print.  Get back to me when we're running out of ink, or 0's and 1's


Not My Real Name's picture

The Zimbabwe Central Bank said the same thing. LOL

It's all about confidence. When confidence collapses -- and in case you haven't noticed, it is fraying around the edges and beginning to unravel -- the game will be over.

LN's picture

"The Zimbabwe Central Bank said the same thing. LOL"

Please elaborate on Zimbabwe's global military might, and their nuclear deterrent.  I think you may be missing a small piece of this puzzle.


Edit to add, I do not have to like something to acknowledge it.

SunRise's picture

Do you mean that a nuclear device could deter printing?