Arjun,
Good points but as usual, many nitpicks from argumentative Yindians only.
1) You are possibly within your rights to call the entire Financial system a Ponzi scheme - but as Vikram pointed out, firstly please stop restricting this to the US alone. You are questioning the basis of the global financial order at this stage - the same financial order that all countries around the world (including the future superpowers - India, China, Brazil et al) have as the basis for their economies. So this is not a US-specific issue by any means.
Good point - the whole world is a ponzi scheme. Yay.
But saar, in the long run, we are all dead only. So ultimately, when the sun goes red dwarf and all, GDP growth will cease to matter, perhaps.
Point about ponzi scheming is unsustainability in the short-to-medium term. See, as long as SS type of ponzis will remains nominally solvent till, what, 2040 or something, it's way too far away for the generation in power (the 45-60 age group?) to care about deeply right now. Similarly, as long as the global financial scam-o-ramas could continue to find new suckers, to quote from sri neshant's elegant but repetitive rhetoric, nobody really cared only. Trouble now is, the fancy assumptions, spreadshit models and solutioneering that underlied (over-lied?) the ponzi is looking, slightly shaky only. Gawd forbid, the ponzi unravel on the watch of the scammers now, no?
However, I will admit that such unraveling is far less likely than the likes of sri neshant seem confident about. Too much is riding on keeping the facade going a wee bit longer, year after year. Sure, things happen that nobody wants should happen - like WW1 that none of the major powers then wanted to fight but which broke out anyway, but the elitemen running things are, hopefully, a tad wiser now. Or so we should hope.
2) I think you have an extremely naive view of the alternatives that are out there....Many many folks have studied as well as tried as entrepreneurs to see if an alternate system could be developed and the answer is that there is none. The technology solutions that you talk about are extremely niche and will in no way work as replacements for the entire financial system. The system of investment banks, commercial banks, rating agencies, exchanges, buys-side funds etc all working as intermediaries in the movement of capital from savers to investors - is the best system there can be - and there is NO better alternative out there. Happy to expand on this point in subsequent posts, since this really goes to the crux of the whole debate.
There is no alternative because the existing system, tottering though it may be, is still not broken down completely and it actively prevents the rise of challengers.
When and If things do go to the dogs completely, alternatives will emerge, rest assured.The alternatives needn't and likely won't be pretty but they will be there. In Russia, am told, after the great yeltsin-ian collapse of economic normality, people went back to barter to navigate the chaos the emerged. Necessity==innovation's mamma mia and all that.
Again, this is an unlikely scenario and I wouldn't lose sleep over it. Wouldn't be haughty-type dismissive either, lemme rush to admit before sri neshant jumps on me.
3) Accountability and fixing blame for when things go wrong in the economy. This is an interesting point. Can one really go after the Fed for accountability on the sub-prime collapse? Fraud or gross negligence requires one to prove that either (a) certain defined processes were not followed or (b) certain expertise which is generally accepted as going along with the trade was not displayed by the concerned team / individual. An example of the latter in medical practice would be to sue a doctor if he prescribed a certain medicine for a symptom when the generally accepted norm would have been to prescribe something altogether different. But this only works for deterministic fields - in the case of economics there is no deterministic answer, there are different schools of economists having different ideas for running the economy. So, the only alternative is to see if certain processes were not followed -ie should the Fed have informed Congress about aspects of its program and sought approval, and was this not followed?
Well, how about transparency first? Accountability can come later, am sure. How about sue-ing acts of commission - like rating agency fraud, like foreclosure fraud, like rampant securities fraud, like .... etc etc first, eh? Would be interesting to see how many of the masters of the universe (fin elitemen) turn approvers under a pecora style grilling and spill the beans on (deliberate?) acts of omission as well (by the regulators and the mother of regulators - the Fed). No? I know, I know, am all dreaming and all that only. Such will never happen. Only. But still,m the day we have given up dreaming of right things, we have given in to darkness, non-imagination and despair only.
Jai ho, JMTPs have a nice day and all that.