This really does seem like a dumb question, but I submit that it is not.
In the current (June, 2014 actually – next month) issue of Scientific American is an article entitled, The Ponzi Economy by Kauchik Basu.
Sadly, I cannot give you a better pointer than this one, which is only to the start of the article. Sadly, even though I have a print subscription, and thus am entitled to see the online article for free, I cannot do this either. Sadly, Scientific American’s search can’t find the article either. But if you google The Ponzi Economy Scientific American you will find the start of the article. Or just click on the link above.
Now for some simple facts. Ponzi schemes generally rely on newer participants contributing to the payouts to fewer older participants. If you grow the pyramid rapidly enough, the returns can be spectacular – until you can’t grow the pyramid rapidly enough. Then the scheme collapses.
The article goes on to describe some interesting variations. One is a startup company which underpays, but stock-options, its workers. If the underpayment is sufficient, the company can be profitable because its cost base is artificially low. Thus the stock may look attractive, and new hires be continually added to the scheme.
In some cases such a company can metamorphose into one which is actually viable, by finding a sound product and paying in real money. Usually the company meets the usual fate of a Ponzi scheme: bankruptcy and collapse.
Now for the scary part. It is possible for a company to ‘hide’ a debt situation by refinancing. While the debt continues to grow, the company appears to be profitable and retains a decent credit rating. This goes on until the loan juggling gets noticed and the credit rating crashes, sinking the company.
Another version of a Ponzi scheme is a bubble – in anything: housing, stock market, gold, oil futures, whatever. As long as everyone (more or less) believes the price will rise, the price will rise. Until the inevitable reality check brings the inevitable adjustment.
What disturbed this reader was the comment about refinancing debt. Greece cannot now easily refinance its debt and is in disastrous collapse. Similar for the other unlucky Euro countries (Portugal, Spain, Italy, to name some) which over-borrowed and cannot now pay their debt, but need to borrow to pay their debt and run their bureaucracies and services.
I believe the city of Detroit is bankrupt. I fear that the state of California is nearly bankrupt. Meanwhile the US keeps raising its debt ceiling.
Now for the dumb question:
Is continued, expanding, government borrowing a form of Ponzi scheme?