Trap for Investors (4) - Ponzi Scheme and it's Derivatives

Below is a good video clip that explains what is a Ponzi Scheme.

* Why some insurance company policies will eventually ended up like a Ponzi Scheme.

There were many insurance policies that promise certain amount of annual return at the policy mature date, usually a few tens of year from the beginning of the policy. In order to attract the customers, the return has to be attractive enough. Also to minus of all those big bonus for the executives and commission of the salesman, plus the tough economy time to make profits from the market. One of the KEY SOURCE of income would be the new comers to the pool.

To see how this kind of system would fail, one would need to examine the Population Pyramid attached below. (Click to Enlarge)

Population Pyramid (Click on the Chart to Enlarge)

Take for example, many well developed countries are now in the Stage 3 of the pyramid (Stationary) and in the progress of moving towards Stage 4 (Contracting). And, some countries are trying to solve the problem by importing younger workers through immigration policy. But, this could ended up worse when the world economy is not growing.

Therefore, there are many Ponzi Scheme Derivatives such as certain type of Life Insurance Policies, which include the US Social Security System.

The following are good video clips that explain the problem with the Population Pyramids in most developed countries.

* Why inflation is a MUST, in order to keep the current system running.

Around the world, there are many countries, including China, at this point are suffering pain for the Pension Scheme for the retired workforce. In general, a pension is an arrangement that provide the people with an income when they retire from their job till the day he/she leave this planet. Of course, we don't get to see this kind of offer nowadays, but it was popular, especially for civil servant, just about 40-50 years back ...

During that time, the medical is not so advanced and average life expectancy was around 65-70. While just after the WWII for not long, everywhere is booming, the economy grow rate was just taking off. And, currently, the average life expectancy has been increase to about 80 and still seems to moving up. Attached is a typical chart on life expectancy chart found from the web...

On the other hand, the growth of the economy in most developed countries are saturated. As also shown in the population pyramid chart, while more and more people are retiring, there is less and less new work force competing more and more aggressively in the competitive global market.

While the politicians want to be elected or re-elected, they must keep the promise on the Pension Scheme. Naturally, they would keep their promise to pay the retirees, but they would pay more to the workers who are still working on the jobs. While the economy is not growing, the only way is to Increase the Money Supply or so call Print More Money... When more money is flowing into the society while the productivity remain the same... It basically dilute the previous-earned money that keep in the bank.

So, eventually, those people depend on pension system on their retirement will find that their buying power are reducing year by year with respect to the inflation.

After all, keeping cash in the bank has many risk nowadays....
Such as bank go bankrupt or value of money get diluted for sure.
Therefore, learning how to grow the money is a wise thing to do.

If you don't see the document attached below, click on the link:->

"Wealth is the product of man's ability to think."
-Ayn Rand

Relevant Article:- On Population Pyramid

<<<<<<<<<<<<<<<<<<  NOTE ADDED ON 10 OCT 2012  >>>>>>>>>>>>>>>>>>>>>

The above article was posted immediately after I heard of GENNEVA GOLD investment scheme that can give 24% annual return on Capital.  

Now, it has became history.



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