Every single financial pyramid goes broke as soon as the costs (payments) inside the system start exceeding the inflow of new funds. Mr. Mavrodi, the founder of the infamous MMM and MMM-2011, claims that the existing financial system (including banks, HYIPs, investment funds, exchanges) is the same financial pyramid.
Is it true or false? Let’s try to find it out together…
Is Mavrodi’s MMM 2011 About To Crash?
In late May 2012, some Russian internet sources started anticipating the crash of Mavrodi’s financial pyramid called MMM 2011. According to them:
· MMM 2011 has entered the zone of high risk and will collapse within a couple of months.
· They say Mavrodi may go back to prison in June-July.
· The funds attracted by MMM 2011 are being actively transferred to offshore accounts.
· Most MMM participants cannot get their money back for months.
Enough with rumors. Let’s proceed to facts.
In May 2012, Mavrodi cut the yield from 40% a month down to 10% a month and canceled bonuses to new participants.
It seems like the system starts cracking. Experts say MMM 2011 is doomed.
MMM 2011 Participants: MMM 2011 Won’t Collapse
However, some active participants of the financial pyramid claim the rumors are exaggerated - MMM 2011 won’t collapse, the problems are minor.
MMM 2011 counts over 35 million participants, with 600 offices in 16 countries around the globe (Italy, Spain , Russia, Kazakhstan, Ukraine, Moldova, Kyrgyzstan, Armenia, Israel, Germany, USA, Thailand, Lithuania, Latvia etc). More countries keep joining the company (for example, India). Not so long ago, Mavrodi anticipated an increase up to 1 billion participants with $1 trillion of investments.
They also claim that the real reason why Mavrodi cut the yield was to preserve the pyramid in response to the anti-MMM campaign started by banks and mass media. At the same time, they remind everyone about the fact that Mavrodi has never concealed that MMM 2011 is a classic financial pyramid, thus warning potential participants that they may lose their money. An finally, they quote Mavrodi, saying that the Federal Reserve is, in essence, the same financial pyramid as MMM 2011. Yet, the Fed Reserve has been feeling good since 1913.
Dollar Pyramid VS Mavrodi’s MMM 2011
According to experts, analogies cannot be always convincing. The same holds true when comparing the Dollar Pyramid and MMM 2011.
So, let’s try and compare these 2 pyramids.
Obviously, these days the US financial system has multiple problems. The Federal Reserve does have the right to create new money out of thin air. The US public debt has recently exceeded 100% of the national GDP. The budget deficit is currently equal to 11%.
According to the expert team of FxOpen (“Best ECN Broker 2012” according to ’s rating of ECB brokers), the US Dollar Pyramid cannot be compared to Mavrodi’s MMM 2011 because the power and strength of the US Dollar rests upon multiple factors:
· The USA’s image of a country with abundant reserves of various natural resources (copper, zinc, uranium, gold, silver, crude oil, coal, natural gas etc.) By the way, the US possesses the world’s biggest deposit of coal (27% of the global reserves). Can Mavrodi’s MMM 2011 boast anything like that? What does the image of MMM 2011 rest upon?
· The powerful US economy. These days, the US economy accounts for 25% of the global economy. In terms of economic potential, the US economy is close to the EU economy, which is 27 countries altogether). The USA accounts for 11% of the global export.
· The powerful US financial system. The USA is number one in terms of gold reserves – 8133.5 tons. Gold accounts for 74.5% of the country’s gold-and-currency reserves. And let’s not forget that the USA can freely print the US Dollar, which is the global reserve currency. The USA accounts for 70% of the global financial system. The Fed Reserve authorities can print as much “paper gold” as they need. In 2008, the Fed Res pumped into the US economy over $850 bn. Next year it added $ 800 bn more. The USA controls the rest of the financial world through its national currency.
That is why the US Dollar will remain the world’s major means of payment until the central banks of China, Russia, EU, Japan UK, India and many other countries stop recognizing it the world’s major currency and including it in their currency reserves.
At the same time, the experts say that only 0.5% of MMM 2011’s funds can be considered as asset-backed, i.e. the funds are not invested and don’t make money while all the payments become possible only at the expense of new participants.
However, it is common knowledge that cash money cannot make new money if it is invested. This suggests that MMM 2011’s viability depends on the inflow of new participants. It is clear, that Mavrodi and his followers have to boost the pyramid by 40% (new participants) a month in order to be able to pay the 40% yield every month. Obviously, to sustain the pyramid’s viability, they need to nearly double the amount of MMM 2011 participants. Basing on the current data, in 48 months, the pyramid will count 8 billion people, which is more than the global population. The bottom line is obvious: the crash of such a pyramid is just a matter of time.
And one more thing: Mavrodi’s supporters like to compare MMM 2011 to banks. They say any banking system is a financial pyramid. Alas, no sane banker will ever promise you 40% a month. Moreover, banks give money in various businesses, which do produce various products and render services. And finally, any country needs its own banking system. Therefore, banks are supported by governments. To make the long story short, banks do multiply their funds, unlike Mavrodi’s MMM 2011.
The bottom line: Mildly speaking, the US Dollar Pyramid and MMM 2011 are not the same. That is why, according to pessimistic forecasts, the USA has at least a decade of flourishing (they say the US Dollar will start losing its global status after 2020), the near-term crash of MMM 2011 is inevitable and obvious.
Mavrodi himself has never concealed that his financial pyramid may collapse sooner or later – in 5-7 years. However, the latest yield cut down to 10% suggests that the end is near. MMM 2011 may collapse in a couple of months.
Mavrodi and MMM 2011: Secrets of Popularity
According to the Department of Psychology of , there are several reasons why people act irrationally when joining MMM 2011:
· National currency and bank deposits do not seem to evoke trust anymore. The Russian, Ukrainian, Belarusian currencies and the currencies of other CIS states keep losing their value. At the same time, most banks are currently suffering from insufficient liquidity and are forced to offer their depositors very low interest rates (lower than the rate of inflation).
· Unstable economy. Along with some experts, Mavrodi keeps anticipating another major economic crisis in late 2012. In this aspect, most people start feeling helpless in the face of mass bankruptcy of banks, investment funds and other financial institutions. Some of them start seeing MMM 2011 as a safe haven. When people start panicking, they lose immunity to false prophets and other swindlers. Therefore, they can easily fall prey to any sweet lie. Swindlers take advantage of this psychological phenomenon, thus offering their victims exactly what they want or dream of.
· Lust for quick profits. “Get rich quick! Resolve all your financial problems!” This is the idea that Mavrodi and his followers sell. Even with 10% a month, MMM 2011 still looks more attractive than bank deposits (0.5%-2.5% a month). Obviously, over the last 18 month the so-called “Mavro” currency gained 3000-4000%. So, the first participants gained immense profits at the expense of others. However, Mavrodi’s first “child”, the infamous MMM created in the early 1990s, eventually collapsed, thus leaving an army of victims without a penny, Officially, there were 40000 victims. Unofficially, the army counted several million people. The damage was estimated at $100M. Obviously, if some pyramid participants win, the rest of them lose.
· Law imperfection. MMM 2011 is difficult to fight legally. MMM 2011 is not a juristic institution. It doesn’t have official offices, which means it is not subject to taxation or any financial control. The participants use private bank accounts to transfer funds between them. Any new participant is warned about the risks of losing the money because MMM 2011 is a financial pyramid. Most of the money transfers are done via online payment systems.
The only way to start prosecution is when some participants start trying to escape with substantial sums of money, thus deceiving others.
Some countries have already started acting. In particular, the Ukrainian parliamentarians are about to make some amendments to the country’s legislation so as to give the police legal grounds to prosecute founders of financial pyramids.
· High-ranking participants’ image. In order to improve the image of Mavrodi’s pyramid when attracting new victims, MMM 2011 participants like telling them that the MMM army counts a lot of high-ranking officials, tax officers, secret service officers etc. However, nobody knows if that’s 100% true.
· Attractive investment conditions. +40% a month including bonuses.
· Many other secondary factors, including the future internationalization and automatization of MMM 2011, the peculiarities of the ex-USSR mentality etc.
Does MMM 2011 have at least hypothetical chances to survive?
According to experts, Mavrodi and his followers like comparing the so-called MMM-dollars with major stocks like Coca-Cola. They say both of them gain value at the expense of new investors and speculators. However, it is fundamentally wrong to compare the MMM 2011 assets and a company’s stock. In particular, Coca-Cola is a world-class brand with immense profits. That is why its stock keeps appreciating. When a company makes money, its stock gains value. When the company has some problems or reports about lower demand and profits, the stock starts losing value. The speculative factor is minor in this aspect. However, speculators can only artificially drop or increase the price of the stock for a limited time period. The major driver is the company’s performance.
Now let’s look at Mavrodi’s MMM 2011. The pyramid doesn’t have anything except investors’ money. It doesn’t generate profit and has lots of expenses (Mavrodi and his supporters want to make profits themselves and should pay others). Therefore, the costs outpace the 10% that Mavrodi is promising right now. The only source of income is the new victims’ money.
The Bottom line: We hope that the conclusion is more than obvious for you to repeat it once again!
Market Leader and would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
Do you think Mavrodi’s MMM 2011 will crash in the short run?
