Steve Keen's Debtwatch

I expect–and hope–that the tenor of dis­cus­sion at this mon­th’s RBA Board meet­ing will be very dif­fer­ent to last mon­th’s. In August, I imag­ine, the com­mu­ni­ty mem­bers of the Board lis­tened sage­ly as the RBA’s econ­o­mists explained why the risk of future infla­tion had risen, why this jus­ti­fied a “pre-emp­tive strike” of rais­ing inter­est rates, and then reluc­tant­ly agreed to the rise.

I hope that this mon­th’s dis­cus­sion is more along the lines of “if you guys are the mon­ey experts, how come you did­n’t see it coming?”–it, of course, being the unfold­ing col­lapse of the US hous­ing mar­ket, and the result­ing extreme tur­moil on finan­cial mar­kets.

Named in mock hon­our of Amer­i­ca’s great­est swindler, a Ponzi Scheme is a finan­cial ruse that, for a time,  gen­er­ates appar­ent­ly great returns from an invest­ment that in fact pro­duces noth­ing. Ponzi Schemes ini­tial­ly appear to work because the pro­mot­ers pay ear­ly entrants seem­ing­ly fan­tas­tic returns, by the sim­ple expe­di­ent of giv­ing them mon­ey deposit­ed by lat­er entrants. So long as the Scheme con­tin­ues to grow, it can appear successful–and indeed indi­vid­u­als who get in and out before the Scheme col­laps­es can become fab­u­lous­ly wealthy.