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Steins Law and the US Economy«Back to View Articles | Back to All Articles
4/16/2010 - Editor

Stein's Law -- "If something can't go on forever, it won't".

Stein's Law is the down fall of all Ponzi Schemes - a scheme where (according to wiki) "a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. The system is destined to collapse because the earnings, if any, are less than the payments to investors."

The entitlement programs of the current Administration are similarly like a giant Ponzi scheme were more and more money is taxed away from fewer and fewer responsible citizens and redistributed to the non-tax paying citizens and illegals. To make up the shortage in the near term, the Administration borrows money from other countries that must be paid back. Stein's Law says that sooner or later this tax and spend scheme will collapse as the available tax paying citizens will eventually run out funds required to service the debt load and the lenders will eventually want their money back.

In an easy to understand 16 April 2010, article Morgan Housel explains Stein’s Law application to the United States economy and “Why the U.S. Can't Inflate Its Way Out of Debt”. It’s a fun, if scary read. Read the full article HERE.


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