Cash vs Crypto: Which is the best Ponzi scheme? [Video]

Boston College and Oxford researcher Robert McCauley say that Bitcoin (BTC-USD) is worse than a Ponzi scheme, as the possible use case of cryptocurrency remains unknown, while its high demand energy makes it a “negative sum game”. ”

McCauley wrote in the Financial Times that the $ 20 billion so far invested in mining is “gone.”

According to him, the underlying structure of Bitcoin trading is very similar to a Ponzi scheme, as early investors are paid by laggards and no economic value is created in between.

Another non-resident senior researcher from Boston University’s Global Development Policy Center has argued that the Bitcoin (BTC-USD) system will kill society in the long run because of the cost associated with maintaining it, particularly in terms of consumption.

“Every day, investors send money to miners. And the majority are flushed down the toilet every day. Most of it was consumed by fire,” he said. “And that’s just the cost to society as a whole. All this is a failure. »

A professor at the University of Oxford, McCauley discovered that some Ponzi schemes were able to recover some of their losses, even after they failed. The Bernie Madoff scam, which reimbursed about 70 cents on the dollar at this time, was used as an example to prove this point.

According to him, there would be no more assets to distribute among the surviving investors if Bitcoin went bankrupt.

As for McCauley’s view of Bitcoin (BTC-USD), he said he was still waiting for him to determine its usefulness before changing his mind.

We have been waiting for the use case for a while, he admitted. “We have to wait and see what the future brings, but new ideas are on the horizon. However, we are still a bit on the fence.”

Banks use fractional reserve bank rather than mining.

Only a small percentage of bank deposits are secured with cash in this scheme.

This is the system that led to the economic collapse in 2008.

We can borrow money to buy homes, start businesses and move the world forward through the same system.

At the same time, it’s like Dr. Jekyll and Mr. Hyde who takes care of your finances.

In fact, many people are annoyed by the whole situation, which is understandable.

Fractional reserve banking is one of Professor Murray N. Rothbard’s favorite subjects, and he does not hesitate to reflect on the subject.

As he says:

Ponzi scheme; fraud or deception where fake stock receipts are issued and distributed as if they were cash.

His complaint is that the banks are getting rich at our expense, in other words.

According to Rothbard, our banking system is a Ponzi scheme because it provides a high risk-free return.

This is how it all works.

We borrow money from the bank and pay a fee for the privilege of doing so. When a banker presses a button on a computer, the results are instant! – commercial money is created by the bank.

The bank, on the other hand, does not have the necessary funds to guarantee the loan it has just issued.

Rothbard’s world is here too. The bank acts as a depository for the money. The “fake department store receipt” is a commercial money transaction created by computer. The banking system around the world uses this commercial money, but it cannot be backed up by money that the bank did not need in the first place.

Rothbard is not the only one who sees a problem.

Mervyn King, the former governor of the Bank of England, had some thoughts on the issue of banks owing individuals money during the financial crisis. He quotes Winston Churchill in his book, The End of Alchemy:

For the first time, “… never in the field of economic action had so much been owed by so little – and with so little fundamental reform”

The banks thus granted loans which the borrowers could not afford to repay. Little has changed. Unpaid loans can still be taken out by banks.

Since the fractional reserve bank has proven to be a Ponzi scheme, why do we not do something about it?

It would be better if they kept 100% of the deposits they receive in cash and call these “reserves”.

“100% Reserve Bank”, sometimes known as “Complete Reserve Bank”, was first proposed as part of the Chicago Plan in 1933. This idea was first flown up as a result of the Great Depression, in which the banks again made headlines.

The full reserve bank is what many people think of when they think of banks. Having a large bank account like this is like having a safe.

When you deposit your money in the bank, they are safely locked away. You can withdraw it at the bank whenever you want. Because the bank will not lend it, you never have to worry about not being able to access it when you need it.

By depositing your money in a bank, you withdraw them from the general economy. As a result, the amount of money in circulation decreases, while overnight deposits in the bank increase, resulting in an unchanged amount of money in circulation. The bank can not take any risk with your money if this mechanism is in place.

There is no need for your money to be used up by the bank. This does not mean that you will not have access to your money if a bank run occurs, which is when a large number of people withdraw all their money at once.

A forced increase in the bank’s reserves to 100% would prevent a bank run. These fake stock receipts also prevent the bank from granting loans. It also prevents bankers from making risky investments with other people’s money and then selling them as low-risk alternatives to their customers. (Do you remember the subprime crisis …?)

But…

Our small business loans, mortgages and other investments such as real estate and equities are all rejected because the bank engages in risky transactions such as these

There is no doubt that fractional reserve banking is the system that takes the risk of financing new investments, regardless of these investments. Our economy depends on it.

As long as people do not withdraw all their funds at once, our fractional reserve banking system will work – even if it is an endless balancing act to keep track of deposits and withdrawals.

Bank deposits do not stand still; they are put to work finding homes and businesses and incurring other expenses (such as dangerous business by “return-seeking” bankers).

With a £ 100 bank account, the bank can borrow £ 50 and deposit it into the account of someone who needs it for a small business loan. However, the bank still owes you £ 100.

As a result, the borrower has £ 50 and the bank owes you £ 100. £ 150.00 in total is the final sum. As for real money, there is only £ 100 because the bank invented £ 50 for profit.

At a given time, only a fraction of the bank’s deposits or reserves are secured with cash and can be withdrawn.

Or, to paraphrase Rothbard, the bank issues stock receipts, which are then exchanged for the supposedly identical amount. In this light, Fractional Reserve Banking appears to be a Ponzi scheme.

So what if people all want to take their money out of the bank at the same time?

If a bank does not have enough cash to pay everyone, a bank run is possible.

When Michael asks the bank for his money, he does not get it, and the bank closes for the day, when chaos reigns, do you remember that scene?

It’s very similar to what happened in the financial crash of 2008, but much worse.

It was difficult for banks to tolerate losses on speculative “investments” during the financial crisis. People and institutions were eager to get their money back in case of a bank run, which increased the likelihood of a rush.

A liquidity crisis arises when banks cannot get their fingers in the money fast enough to settle all the debt they have accumulated.

Rothbard’s term “false stock receipts” refers to this.

As “money stocks”, banks lend money that is not backed by actual cash deposits.

If this happened to your business, you would go bankrupt and your creditors would come knocking on your door.

As a result, when a bank goes bankrupt, the Federal Reserve acts as the lender of last resort and rescues it when the government asks it to. The rules make it possible to generate money and print money to do so.

People see the central bank rescuing bad banks as unfair – a risky move that could have unintended consequences. If the banks lose, the taxpayers pay for them.

It is not only the central bank that creates money, but also the Federal Reserve.

When private banks set up these loans, they do the same. Because debt needs to be repaid at some point, some economists disagree. However, this is based on the assumption that they are, which is not always true.

During the financial crisis, can you imagine being in charge of a bank?

Debt reduction is necessary because you have borrowed too much money, but more money is needed because people and institutions are withdrawing their finances.

Therefore, you need to increase your debt to get the funds you need. There is a direct link between money creation and debt!

An intriguing point is made here: banks create money, but not wealth.

In short, taking out a loan means that you have more money at your disposal. You have more money at your disposal to buy everything you need.

This money still owes the bank. It does not give you more money. In addition, you must repay the bank for the privilege of borrowing from them. As a result, you’re actually poorer because you owe more money now than before you got into this mess.

It is possible to build your own fortune by investing the difference between what you borrowed and what you earned.

No matter how much money you have, they have no inherent value. It’s just a way to facilitate a transaction. More importantly, banks are simply speeding up this process.

Everything is fine. Moreover, “making money” does not in itself imply a Ponzi scheme.

It is possible that the procedure will turn into a Ponzi scheme as the chances of not being reimbursed increase. In other words, it is a no-brainer to lend money if the bank is sure to be repaid with interest.

The bank, on the other hand, demands a higher return – more money – to take out a loan when the risk of not being paid increases. And this is where things start to go wrong.

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