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Date: December 19, 2008
Subject: A Ponzi Scheme 1000 times...

This is
G&G Associates
Tax & Financial Consulting Services
e-Newsletter


A Ponzi Scheme 1,000 times the size of Madoff's Wall Street Scam

Dear G&G Reader,

The Federal Reserve cut interest rates again Tuesday, this time to zero,
firing their last bullet at the deflation monster and sending the markets
skyward. Apparently the markets didn't notice the fraud, Ponzi schemes,
corruption, stock manipulation and other lying going on in the markets
that day.

Again...the power of wishful thinking.

With US$50 Billion in his pocket and a smile on his face, Bernie Madoff
told investors on a conference call that his entire business was a scam.
And so ended another of Wall Street's ‘biggest' lies. Things like this
will be the new norm, and we'll see more of them in the coming weeks and
months.

When the sun is shining and the Fed's easy money policies are churning out
cash, it's easy to keep your lie hidden. But when the going gets tough and
other liars make it harder to get by, these guys start to come out of the
woodwork.

Visit following link to learn the truth about our money and how it's created (or better yet) the lie that is told to you by the Government and the banks:
http://www.gngassoc.com/ConfCalls/The_Creature_from_Jekyll_Island.mp3

My personal favorite so far is a fellow named Otto Spork, a former dentist
and Canadian fund manager who ran a similar scheme to Madoff's. The big
difference here is that Spork's firm invested heavily in Icelandic
glaciers and then reported huge gains to his investors. Apparently the ice
markets are a hot place to be these days...

But Otto's scam is small potatoes compared to the biggest Ponzi scheme out
there. This from CNN's Cliff Mason...

"But I can't deny the similarities between how social security operates
and what Bernie Madoff was allegedly doing with his investors, or should
we call them marks?

With the Social Security system, workers pay 12.4% of their salaries into
the system to cover payments to retirees, who themselves paid into the
system when they were working. Except the original recipients of social
security in the depression never had to pay payroll taxes because the
system didn't exist when they were working.

Now look at the definition of a Ponzi scheme courtesy of wikipedia: "A
Ponzi scheme is a fraudulent investment operation that involves paying
abnormally high returns to investors out of the money paid in by
subsequent investors, rather than from the profit from any real
business."

As a creation of the previous Great Depression, the Social Security System
may find its end in the coming years, as Baby Boomers begin to collect
their dues and the system's obligations begin to rapidly outpace new
deposits. Indeed, should the next few years be as turbulent and costly as
2008, the system could simply unravel.

But many of you are already either fed up or frustrated. You've had
enough, and you just want to know something for certain. You want to know
the truth. And rightfully so, because so much of the world economy really
is just lies piled on top of more lies piled on top of even more lies.

Are you ready for the best thing you'll hear all day?

You can ignore the numbers. That's right, you heard me. The charts, the
graphs the statistics, just forget about them. If they don't make sense to
you, and even if they do, you should be skeptical about what they're
saying and whether they're telling the truth.

But that old saying is popping into your head, "numbers don't lie." Well
that statement's an even bigger lie than the numbers, and today you'll
find out why. Besides there's another saying. And being that this one
comes from Mark Twain, I'm more inclined to believe it.

On the topic of lying, Mark Twain paraphrased Benjamin Disraeli. He said
"There are three kinds of lies: lies, damned lies, and statistics." No
statement on the topic could ever be truer.

Busting the Myth of Statistics

Let's start with a simple example. We'll say that I'm doing a study, and
in this study I've made a basic assumption that there's a relation between
blue jeans and car crashes. Sounds strange but stick with me.

So I do a study across a wide range of people and places. I complement
this study with a graph that shows two lines - for blue jeans and car
crashes - and as the sales figures for blue jeans increases, so does the
occurrence of car crashes.

But what if the two have nothing to do with each other? At what point does
my graph answer that question? Well, it doesn't. It could be that one
person is buying an enormous amount of blue jeans (more and more each day)
and that the occurrence of car crashes is going up for other reasons
entirely.

Now I know this is a strange example, but it proves at least one thing. It
proves that our two variables - blue jeans and car crashes - may be
totally unrelated. Something that the graph (the numbers) wouldn't even
lead you to consider. Instead, the numbers, the graph, they make my weak
argument - that blue jeans cause car crashes - seem more legitimate. After
all, the numbers can't lie, right? Wrong.

A Frighteningly Real Example

Now we're going to move onto something a little bit scarier. And that's
how our government calculates inflation.

What's scary here is that the inflation statistics that are circulated by
the government, are acknowledged to be some of the most legitimate
statistics out there, and they're used by major businesses to make
market-shaping decisions.

But what we'll find here is a situation that makes the previous example
look like child's play. Indeed, these numbers are subject to some of the
most sophisticated tinkering in the financial world.

A process called ‘hedonic pricing' is used in determining statistics like
inflation and the Consumer Price Index. Hedonic pricing is a way to adjust
values for the progression of time. Sound confusing? Well it is, and
hedonic pricing is something that can be directly manipulated to produce
the desired statistics.

For example, I bought a TV five years ago. And it was cheap. And good. It
was a wonderful TV and I still use it today. But this past year I decided
to treat myself, and I bought a fancy new HDTV. This new TV cost me US$400
more than my old TV. But - thanks to hedonic pricing - it'll actually be
treated as though it was cheaper than my old TV.

Why? Well, since the new TV has a better picture and better sound, I get
greater enjoyment out of it (at least as far as hedonic pricing is
concerned) and therefore it's of greater value. At least that's what
hedonic pricing says. They can use hedonics and attach an arbitrary value
to that added enjoyment - let's say they go with US$450.

Since I get US$450 more value from my new TV, it's actually written into
the Consumer price index as being cheaper than the old TV. That's how they
can use hedonics to make consumer products seem cheaper and inflation
lower.

So they can use hedonic pricing to a very real extent in order to shape
the results they get. Still think numbers can't lie?

What You See Depends on where you Stand

We'll go from that example to a much bigger problem with Statistics. And
that's the fact that they're made by people.

Don't get me wrong, I think people are great. But I also realize the fact
that everyone sees the world in his or her own personal way. And how they
see the world depends largely on where they stand.

For example, Martin Hennecke, Senior Manager of private clients at Tyche,
doubts that inflation is as low as the government reports. He cites the
fact that if you used the 1983 formula to calculate inflation, then the
result is currently between 10-11% (twice as much as the official
numbers.)

But Mike Shedlock, a Global Economic Analyst from Sitka Pacific Capital,
disagrees completely. He cites the fact that the government uses a formula
known as Owners' Equivalent Rent (OER) as the housing component in the CPI
and their calculations of inflation. We won't get into OER here, but let's
just say that it's as easy to manipulate as hedonics.

Shedlock tries instead to calculate inflation using the Case Shiller
Index, a statistic he sees as more honest than the OER. By his
calculation, we've currently got a negative rate of inflation...that is,
deflation.

So What do You Do?

First, you should relax.

Knowing that most statistics are meaningless should free you from worry,
not introduce more. What you know now will make you less likely to be
swayed by a weak argument sporting a handful of pretty pictures. You'll be
more likely to ask questions about statistics, and not just accept them.

You should decide whether they make sense to you or not, and then just
worry about why. Remember that every graph, chart and statistic is not an
objective presentation of the facts. Rather, someone is always trying to
prove a point or support an argument. Don't ever be lured in by weak
arguments that use complex math to prove a point that fundamentally
doesn't make sense to you.

To help you cut through all the lies, become a member of the G&G Investment Society newsletter subscription, click on the following link:
http://www.gngassoc.com/site/index.php?option=com_wrapper&view=wrapper&Itemid=91

DON'T WAIT ANOTHER DAY!

- 1 year subscription - $99
- 2 year subscription - $169
- lifetime subscription - $399

I urge you to have a look and make the decision for yourself. A few
minutes of your day today could save you from the lifetime of headaches
and worry that these lies bring to your doorstep.

Thanks,
Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
877-817-6031 toll-free
866-361-3872 toll free fax
www.gngassociates.net

"What we learn from history is that people don't learn from history."
Warren Buffet


LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility. Also, please note that due to our commercial relationship with Publc Gold, G&G Associates may receive compensation from a membership purchased at www.publicgold.com/gngpreciousmetals.

 

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