The Fed chase after fresh cash is not Ponzi scheme

Dear Matthew Alice: A few years ago, some of our socially prominent La Jolla citizens were sent to the slammer for running a Ponzi scheme, which pays off early investors with money from new investors. The enclosed clipping from the Wall Street Journal says the U.S. Treasury plans to raise $4.75 billion in fresh cash from investors and use some of the proceeds from the sale of $27 billion in notes to these investors to pay off previous investors to the tune of $22.58 billion. Aren’t these two schemes the same? By the way, what is “fresh cash”? — Fearless Fred, Pacific Beach

“Well-laundered” comes to mind. But no, in this case it means cash that’s not already in the T-note market; it’s in mayonnaise jars in the attic or invested in pineapple futures or something. If you buy new T notes with money obtained by selling off old ones, that’s stale cash, I guess. As for the legality of the Treasury’s scheme, there are things that apparently make sound fiscal sense for the guv’mint but would land us behind bars in a hurry if we did it. Running a lottery, f'rinstance. But this is no Ponzi or pyramid scheme, because the feds are buying out one set of investors who hold notes promising X percent return by bringing in investors who will get Y percent. Rates of return and due dates are known at the time the investment is made. It’s like a contract. In a Ponzi, late investors lose because the scheme inevitably collapses when the pool of new money dries up.