The US Stock Market as a Quasi-Ponzi Scheme

https://www.priceactionlab.com/Blog/2025/02/us-stock-market-ponzi/

by paulpauper • 1 year ago

7 6 1 year ago

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paulpauper• 1 year ago

Sometimes it's called "Stealing from the future" because after the bubble pops later investors have much worse returns.

silexia• 1 year ago

The finance term for the Ponzi scheme is "fractional reserve banking". It corrupts Adam Smith capitalism.

The way it works is simple- the government allows certain market players an unfair advantage... They can loan out money they don't have. If the investment goes up, they make tons of money. If it goes down, the limited liability company allows them to walk away this pushing losses onto the public.

The result is a market with far more money than value, where wealth is continuously transfered to the privileged elite who are allowed to loan out the money they don't have.

morninglight• 1 year ago

Yes, but remember, if you subscribe to HFT, you will always sit in the first row.

https://en.wikipedia.org/wiki/High-frequency_trading

dhuk_2018• 1 year ago

I believe the US stock market has become too big to fail. Which is one of the reasons why the central bank has stepped in, to stabilize and essentially prop it up. Too many American investors have their life savings in it, and if the bottom falls out, the pitchforks will be coming for those (who think they are) in power.

johnea• 1 year ago

"Quasi"?

The only argument for increasing the population, given the so-called "demographic crisis" is becuase the modern economic system is a ponzi scheme.

The human population is massively over bloated, and straining every physical resource on the planet. But our universal system of make belive, in a word "finance", overrides physical reality and calls for an ever increasing population, to support ever growing uber wealth.

Just as a clarification: make believe can form very valuable models that are very useful in physical reality. But it is important to remember what is real and what is make believe. Physical resources can't endure ever increasing utilization, whereas a make belive resource, like ever increasing debt, with the right guard rails, can be sustained.

jfengel• 1 year ago

The title is misleading, and the implication is directly contradicted:

"Contrary to claims, mostly on financial social media, the US stock market is not a Ponzi scheme, as the majority of large-cap companies are highly profitable."

The term "quasi-Ponzi scheme" is invented for the article:

"Next, we define a quasi-Ponzi scheme as an investment where participants are willing to pay for high multiples of earnings in anticipation of future returns."

Except that's not even slightly what a Ponzi scheme is. It's not "quasi". It doesn't depend on future investors. There is an underlying value.

All he's doing is giving a name to the existing idea of Net Present Value. You pay a higher price than the data justifies because you expect it to be worth more in the future.

He accurately identifies that that comes at a cost: it materializes now some of the value that would otherwise wait until later. That puts more money in the system and causes inflation. You can't just sit on your money; you have to invest just to remain in the same place.

Economists know that. That's why they seek to maintain a low but positive level of inflation. That encourages money to go to work, rather than sit there. The Net Present Value of cash is the same as its future value, which sounds great, but it means that nothing is getting created.

There are a lot of problems with the notion that this kind of innovation goes on indefinitely. People are seriously starting to worry that we're coming up against the limits. But that has nothing to do with fraud, or a quasi-fraud.

The US Stock Market as a Quasi-Ponzi Scheme

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