Is the Ponzi Scheme the Exception or the Rule? Ponzi schemes fraudulently pay returns from money collected from investors rather than from investment profit.

These schemes usually offer abnormally high short-term returns to entice new investors. Such high returns require an ever-increasing flow of money from investors to sustain the scheme.

Because the payments exceed earnings, if any, the scheme is destined to collapse. Usually, legal authorities interrupt the scheme before then because they suspect a Ponzi or because the promoter is selling unregistered securities. As more investors become involved, the greater the likelihood that authorities will notice.

Today a growing number of commentators believe the U.S. Treasury is unintentionally setting our economy on such a path. Are they right or just expressing the latest panic we’ve seen in an increasingly bizarre series of economic twists and turns? Is blind faith leading the U.S. Treasury astray?

In 2008, Bernard L. Madoff Investment Securities LLC collapsed with losses of between $34 billion and $50 billion; depressing evidence that the Ponzi scheme lives.

In 2009, fears are increasing that such a scheme, albeit inadvertent, may manifest itself anew. The Federal Reserve already has announced it is considering issuing its own debt for the first time. The reasoning is sound enough, as the move would give the central bank additional flexibility as it tries to stabilize rocky financial markets.

But the fact that the Fed is even considering such a dramatic, and some would say desperate, action highlights the gravity of the ongoing financial crisis.

The key motivator is undoubtedly the Fed's balance sheet, which has exploded from less than $900 billion to more than $2 trillion since August. And the more the Fed backstops ailing companies and financial institutions, the greater this debt will become. That is already creating additional problems.

Until now, officials were able to fund programs by drawing against Treasury bonds, but today there are concerns that this stockpile is falling dangerously low – approximately $476 billion.

The Fed also has tried to kick-start the economy by pouring self-created funds (bank reserves) into the system. The results have been depressingly minimal and have caused concern among some economists that removing this cash from the system at a later date could prove impossible. If they can't, the system runs the risk of inflation. The additional cash also makes managing interest rates more difficult.

More worrisome is the question of legality.

Vincent Reinhart, economist at the American Enterprise Institute and a former senior Fed staffer, has already gone on record saying, “I had always worked under the assumption that the Federal Reserve couldn't issue debt.”

Desperate times demand desperate measures. But will the risk of fueling future monetary hyperinflation in this way prove to be too desperate?  5:34 PM •