Can you taper a ponzi scheme? What happens when it collapses?
Discussion
The money has been drained as profits, if you stop the inflows, people at the top have made profit, but nobodys capital exists anymore.
Generally the top rungs have made more profit than the capital they invested, so loosing that capital is not significant.
But for everybody else, they have gradually made less and less profit to cover their capital and so face ever increasing losses down the pyramid.
If Trump is trying to taper the ponzi (USD), when it collapses, the illusion of wealth should disappear - what does or could that look like?
The USD is a tokenised representation of wealth. It is not an investment scheme.
Bonds are an investment scheme with returns.
Bonds, however, pay interest, not dividends.
Normally both interest and dividends are paid from profits, but government bonds don't generate profit for the government, so they must pay them out of collected taxes or fresh printing. This is where the ponzi element emerges.
The money printing system is more analogous to rights issues within companies (i.e. when new shares are issued within a company to raise money).
You can normally do a rights issue when the company is under valued, but it would be possible to do when it is overvalued, but would be less likely for the rights to be taken up. I think this is the state of bonds right now.
At some point, the issued bonds will fail to sell at any interest rate. At that point the government will have to raise taxes to compensate, this will become draconian and will create rapid wealth depletion for those not able to escape.
Interestingly, I realised from examples like the Lebanon, that hyperinflation does not automatically mean the end of that states monetary system. People in the Lebanon conduct business in the Lebanese pound, but once paid, they will either spend immediately or convert that money into more durable assets such as USD, crypto such as stablecoins, shares, gold etc...
The Lebanese pound is a medium of exchange, but not a store of value. It is only satisfies 50% of the function of money.
This may be the eventual fate of the USD.
The moral of this story, people are clever and find ways around failure points.
Usually in the past, rulers understood they need to go back to a gold standard at some point. It is surprising this time they dont seem to.
What illusions of wealth will collapse? Currency units?, house valuations, incomes, the stock market - are these illusions of wealth?
I think Trump genuinely thinks he can deal his way out of debt.
He's taking over industry, Nvidia USA, Intel etc...
He's selling citizenship for $5M per person.
He's now charging $100K for foreign workers to come to the U.S. (H-1B)
Tariffs, up to 100% on some countries / goods to stimulate manufacturing and reverse the Triffin paradox.
But if not, then pegging the USD back to gold or Bitcoin would be difficult.
With regards to Bitcoin, I wrote an article about my concerns with this here:
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Thanks, that was worth a re-read.
I think you are right and the world also seems to mostly want weak fiat money too, or it would be more strained than it is.
I think there is no chance bitcoin would back any fiat, they dont want hard money constraints on their printing.