RE: Has the current Stock Market turned into a Ponzi racket?

[Michael Jones <powderfinger99@yahoo.com>]

<<<
If Ponzi's example is to be invoked, it might be appropriate to do 
so in the context of today's stock market.
>>>

I never considered this...

<<<
For roughly a decade
and a half, the market has been growing in value at a rate that
substantially exceeds the growth rate of the GDP.
>>>

The S&P500 does not represent the whole economy. It is an index
repsentative of many industries. However, the S&P companies
are top tier companies. They generally perform better than
each respective industry sector are well as the economy as
a whole. The index is fluid, so underperforming companies
do get booted.

<<<
The only
way for this year's investors to make a killing is for next
year's investors to buy in at even more inflated prices?
>>>

For these companies the expectation is that their earnings
will continue to grow. If the company does not perform, then
their stock very likely will go down over time. The ones who
perform consistently are usually rewarded.

Compare this to Social Security. I can only get a benefit if
future workers (some of whom have not been born), are willing
to pay much higher taxes to support my retirement. This is 
a gamble I'm not willing to take.

<<<<
Buy in now, and next year's stock prices will be at least seven 
percent higher.
>>>>

There is one major flaw in your arguments, which I find to be
common among many politicians. A typical politician sees the world
as he sees government: redistributative. Every decision that
politicians make usually centers around a fixed pot of resources
that is to divided among the minions. When one group gets a 
larger slice, this must come at the expense of some other group.
This IS politics in short.

And so it goes with Social Security, since it works the same way.
The pot of money is fixed, and the politician takes great pride in managing
the fight between old/young, rich/poor, women/men, minority/non-minority,
etc.

Fortunately the private sector doesn't work this way. When more
money is invested in the private capital markets, it doesn't just cause
stock prices to become inflated, as would be expected if there were
no effects of the additional capital. The extra capital is used to
create more business, more jobs, and more wealth. It's not a 
zero sum game. 

The capital markets are fairly efficient at adequately distributing
the capital to places that will produce the best investment return.
It works this way because investors demand it.


<<<<
If one is interested in finding a home for the Ponzi analogy, perhaps 
the current stock market affords a better home for the analogy 
than does our current Social Security system.
>>>>

We can argue all day about what is a Ponzi. I don't think that
this comparison is very useful for each argument. The fact is that
Social Security will yield a negative return almost GUARANTEED,
unless taxes are increased dramatically in the future. If I
had the choice I would gladly risk my money in the stock/bond 
markets to at least have some chance of getting ahead.

I suppose when the term "negative return" is mentioned, many people's
eyes start glazing. Simply what it means is that there won't be
enough money available to pay everyone an above poverty benefit.
The money isn't there. What are we going to do? We could ration
the money. We could raise taxes higher. We could cut spending.
Ponzi talk aside, what solution do you offer?

Well, you do have a solution to offer, according to your web site.
The solution offered there does not seem to correlate with
the viewpoint in this post.

Michael