I’ve looked up a few definitions of what a Ponzi scheme is. This one is from an excellent source. The Securities and Exchange Commission defines a Ponzi as:
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.
Does Social Security constitute a Ponzi based on that definition? I think it does.
There are two ways to look at this:
I) If there are no changes in the current laws regarding Social Security does the projected future financial results support the conclusion that it is a Ponzi?
II) If changes are made to Social Security will the consequence of those changes result in the conclusion that it is still a Ponzi?
(I) is easy to answer. Based on the SEC definition, Social Security is a Ponzi. If you want proof of that go to the Social Security Trust Fund May 2011 report to Congress. On page 10 (of the report) you find the following chart. Somewhere around 2036 (I think much sooner) SS benefits will be cut by 25%. That is the law as it is written today.
Conclusion: Anyone under 45 today is paying for something that they should expect to get 75 cent on the dollar. Clearly a Ponzi.
To answer (II) requires that one make some assumptions regarding what changes to SS are coming. I rely on the recommendations from a variety of sources. Both Republicans and Democrats (including the President) have supported the recommendations made by the Fiscal Commission report. SS has it’s own set of recommendations. “Independent” private groups have made their thoughts public. While it is not clear what (if any) changes are coming at SS, the following covers the options that are being given serious consideration:
1) Gradually raise the age limit to 70.
2) Gradually increase FICA taxes.
3) Change the formula that indexes SS benefits to inflation. The consequence would be to slow the current projected growth rate of SS payouts.
4) Gradually increase the cap on incomes subject to FICA. (Currently $106,500).
Of all of these options the one that has had the most support is to gradually increase the age limit to 70. What does that do for SS on the charge that it is a Ponzi?
Assume I am 65 and getting $2,000 a month from SS. On paper I should die at age 77. By the numbers I will get 12 years of benefits.
Now assume that the age limit is extended to 70. Assume further that this will be effective is 15 years. Based on what we know today the average life expectancy of a 65 year old male will be 13 years in 2026.
This means that a person who reaches age 65 in 2026 will not get benefits for another 5 years (70). That same person will die at age 78. They will get benefits for only 8 years while I get mine for 12. I will get benefits for 50% longer than they do.
Conclusion: Anyone who is under 50 today is getting screwed when that age limit goes up. For those folks, SS meets the definition of a Ponzi.
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Raising FICA makes things worse. Not only would younger workers pay more into the system as a % of their income, they will get benefits for a shorter period of time.They pay more for less when taxes are raised
Conclusion: Increasing FICA taxes is a solution that forces the conclusion that a Ponzi is afoot.
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Changing the COLA formula has lots of support from the “deep thinkers”. I agree that if this were done it would have a very significant consequence to SS over a 30-40 year period.
The desired effect is to reduce the inflation adjusted cost of benefits. I get $2,000 a month. We know what that buys today. In 30 years a retiree will get $4,000 a month, but because of the changes to COLA that $4,000 will have a purchasing power equal to only $1,000 today. This is the objective of the proposed changes.
Conclusion: Changing the COLA formula devalues future benefits versus those receiving them today. Anyone under 40 is going to feel the full brunt of this. For them, SS is a Ponzi.
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Increasing the wage cap is just another way of increasing the current tax burden on workers. Yes, this increase will be targeted to those who make a decent buck, so this is a popular approach. The consequences will be felt by about 10% of all workers.
Conclusion: For those in this group the consequences of #’s 1,2 and 3 are just magnified. I don’t feel sorry for those high-income earners but it’s certain that this group is facing the biggest Ponzi of them all.
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SS is, and always will be, an inter-generational transfer of wealth. By itself that does not have to mean it is a Ponzi. If the total population were symmetrical across all age groups the inter-generational impact would be both fair and reasonable. But that is not what we have in America today. We have a stable population that is rapidly aging. Given that dynamic anyone who is under 55 (and especially those who aspire for a high lifetime income) are going to get hit with the biggest inter-generational wealth transfer in history. For all in that group, SS is a Ponzi. They will pay in more than they get back. The extent that each age group is impacted varies. Those who are not yet born are the ones who will feel this the most.
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I’m not sure if Rick Perry is crazy or just crazy smart. There are 50 odd million Americans who are getting SS checks. That’s a hell of a lot of voters. That’s why SS is called the third rail.
But if Perry asked himself, “How do I win this election?” He could well answer with a strategy that relied on young people who would cheer/support him. He could also look to all those swing voters under 55 who pay a fortune in SS and will not get their fair share back. It's an odd political alliance. But it just might work. Mr. Romney seems to be doing well with the seniors. But he falls flat when he gets to a campus. The base that Perry is chasing after is the same one that got Obama elected.
Note:
In my definition of a Ponzi there has to be intent to defraud. I’m not sure that this condition has been met. Every year for the past five the SS Trust Fund has told Congress that significant changes must be immediately implemented. SSA has not mislead anyone, so no fraud from them. The deciders who looked at these reports and chose to ignore what has been written are probably not guilty of fraud either. But they sure were remiss in their responsibilities.
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Means testing is another way to kill SS. If you eliminate enough people, it will get killed, so forget about it.
Social Security recipients have to accept reform to the system. The alternative is their benefits will be paid with debased dollars. 10-15% inflation every year as long as the eye can see.
No they don't. If inflation takes off, that's what the COLA is for. But we've already discussed this, haven't we?
What was the COLA increase last year? What was inflation?
The COLA effectively covered inflation, and if we get 10% to 15% inflation, it will cover that. Certainly it will provide more relief than a total elimination.
I know you think that inflation can be used to "reform" SS. I say 'bring it on'.
Uhhhh....the COLA for 2011 was zero. Do you think inflation was 0% in 2011?
http://www.ssa.gov/cola/
All in, I thought it was close. 1% here or there won't gut the system. You're talking about 10% to 15% inflation gutting the system and I'm saying 'no way'. Didn't happen in the 1970s and it isn't happening in the future.
Inflation will not gut this system. For one thing, inflation will increase the contribution limit on wages and increase the funds that are collected. But mainly, when old people vote and agitate as a bloc, Congress is going to respond. They are the most important voting bloc in this nation. So whatever the problem, old folks will demand a fix and Congress will oblige.
After Civil War II, "old folks" will be few and far between. RIP, bicycle repairman.
How many old people died in Civil War I (the war between the states actually)? Relative to young men, not many. I like my chances. A lot.
You mean like how they are demonstrating in the streets over 0% CD rates?
Most potential SS recipients don't own CDs and probably don't know what they are. They do know when their SS check doesn't cover their needs. And you can count on opportunistic politicians to validate their concerns, and get them organized.
Oh, by the way, I think the "fix" is going to end up being pretty simple, but of course it's going to be years of howling and shrieking before it starts to come together:
"Retirement benefits" are going to stop being delivered as checks and start being delivered as services. You won't get a check intended to cover cost of living from the Feds anymore--you'll just move into one of their dormitories and start eating at one of their cafeterias and they'll give you an allowance.
Assuming we don't smash the State first.
"I'll gladly pay you Tuesday for a hamburger today".
The U.S.A. itself is the ponzi, Social inSecurity is just one of the carrots on a string.
Social security works as it was intended to work because Republicans haven't been allowed to mess with it. Tell us how you think the military will be funded in 2038.
Personally, I don't think SS is a Ponzi scheme, just because no one ever said it was an "investment."
If you ask for money from someone and tell them it's an investment that will pay them back, that's a little different than if you just take money from someone and tell them you'll pay them back later.
Culturally, the USA just seems a bit too infantile to actually solve any of its problems. Seems most people prefer bitching about them.
So evolutionary forces will have to do it for us.
All defined benefit plans are frauds.
For example, how the heck is the post office supposed to create a defined benefit plan for its 600,000 employees when its product has been obsoleted by silicon valley (email) and private competition for packages? Who will pay into their system when no one wants their product?
How's that Enron plan working?
How does any defined benefit plan work when there is no way to realistically predict returns?
It is impossible. Folks are just lame and they think that if somehow they give all personal responsibility to the government that somehow, magically, all risk goes away and they just have to wait for the check to come in the mail....It is entitlement delusion.
By going down this path of denying these truths and constantly borrowing from now and the future to make up for these shortfalls you guarantee that you will destroy the currency (its ability to maintain purchasing power). Then all those chickens come home and that avoidance of risk comes back like a tidal wave...and you get your PERS check and it won't buy a quarter of what you had planned on.
Spend em if you got em.
When SS was started the average life expectancy of a white male was about 57. Setting the rertirement age at 65 therefore made sense - on average the system would be a net receiver of funds. As life expectancy has increased however the and the retirement age was never adjusted the system is running a structural deficit. It interesting but not surprising that politicians never had the balls to index the retirement age to life expectancy.
Rgds
WeekendTrader
You are confusing life expectancy at birth with life expectancy at age 21, etc. In 1940 a 65 YO male had another 12.7 years of LE.
This is all explained with small words on the SSA website
So what you are really saying is that SS was designed to take money from a lot of people who would never get it back.
Inflation guaranteed it.
http://www.infoplease.com/ipa/A0005148.html
very wrong. 63 for white maies which was the vast majority in 1935. Not being nit picky, but wrong data is why things are so f'd up in the first place. I am quite sure they knew life expectancy was increasing, too, so they hardly thought that babies born in 1935 only had 63 years...
These schemes such as social security or LBJ's 'Great Society' programs are offered to 'the people' when the politicians have or are planning on screwing over the populace for the benefit of the bankers. What had happened in the US when social security was created, they created a bubble in the 20's and then it exploded and sent people headlong into poverty. What happened wihen LBJ started the 'Great Society' stuff? JFK had been assassinated 4 months after returning part of the power the creation of money to the US Treasury with the executive order creating silver certificates which LBJ cancelled then a few years later off the gold standard.
THIS IS NOT A FRICKIN PONZI, DAMN IT! It's better than a Ponzi because the new investors HAVE to buy the invesment, and the Ponzi operator can adjust the scheme by raising the taxes ("investments" in big-spender parlance).
SS gives Ponzi schemes a bad name.
Published in Andrew Breitbart's Big Government on Friday:
PONZI SOCIAL SECURITY MAY BE THE WEDGE ISSUE FOR YOUTH VOTERS
When Texas Governor Rick Perry in the Republican debate at the President Reagan Library described Social Security as a “Ponzi Scheme”; Perry hoped the media would hyper-ventilate and scream that his political career was over. Back in 1982, Democratic Speaker of the House Tip O’Neill legendarily damaged the President’s and the Republican’s popularity by spinning that Reagan’s efforts to return Social Security to solvency was an effort to destroy the program. Perry understands that Social Security still remains popular; but he intends to use as a wedge issue against Democrats the fact that few Americans are willing to pay more taxes make the program solvent and that younger voters believe they will never receive the benefits they are paying for.
The Merriam-Webster Dictionary describes a Ponzi scheme as “an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.” Social Security began collecting taxes in 1937 and began in 1940 to pay their first benefit recipient, Ida May Fuller. Ms. Fuller worked for three years under the Social Security program before she retired. The Social Security taxes on her salary were $24.75; her initial monthly check was $22.54; and she lived to collect $22,888.92. Essentially, Ms. Fuller earned a spectacular 925% return on her investment.
President Franklin Delano Roosevelt was quoted by his Labor Secretary Francis Perkins as trying to make sure Social Security would not be a swindle to future generations:
“Ah, but this is the same old dole by another name. It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980. We can’t see the United States short in 1980 any more than in 1935.”
Prior to the 1970s, the Social Security program was fairly well funded; because it took a highly visible Act of Congress to change the payments. But in 1972 Republican President Richard Nixon increased benefits by 20% and created a formula to automatically adjust Social Security payments by a cost-of-living-adjustment (COLA) tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers. President Jimmy Carter in 1977 more than tripled the Social Security tax on wages; but price inflation continued to drive COLA payments up faster than the taxes on wages. When President Reagan tried to reinstate the original COLA calculation in 1982 he was pummeled by Democratic Speaker of the House, Tip O'Neill, who famously told the press that trying to change Social Security was the political equivalent of asking for the instant death of touching the "third rail" of an electric train. Republicans lost 26 Congressional seats in the following midterm elections, as the Democrats made preservation of Social Security the centerpiece of their campaign slogan: "It's not fair ... It's Republican".
In 1995, the Senate Finance Committee appointed a commission to study the amended CPI’s effect on Social Security solvency. The commission determined that the COLA calculation introduced in the 1970s overestimated the cost of living calculation envisioned by FDR by a value approximately 1.2% per year; but Congress took no action. Through 2011, the COLA has averaged 3.73%. Over the last 36 years the COLA resulted in benefit payments that were 47% above higher than the original plan supported by Roosevelt. Had the COLA not been passed into law the current $2.5 trillion Social Security Trust Fund would be three times larger and the program would solvent, instead of currently $5.4 trillion under-funded.
Perry understands that for the last twenty-six years no Republican Presidential candidate has been willing to address the unsustainability of the Social Security funding for fear of being pummeled by Democrats. But recent Rasmussen polling indicates that although Social Security remains a popular with a 73% approval; only 30% of likely U.S. voters favor raising taxes to make sure the Social Security and Medicare trust funds have enough money to pay all promised benefits. Rasmussen determined that only “26% of voters under 40 believe it’s even Somewhat Likely they will receive all of their promised Social Security benefits. That includes only 5% who say it’s Very Likely those benefits will be paid.”
The key to President Obama’s election victory in 2008 was the 22% voter preference he enjoyed in under 30 voters.
Perry’s denigrating of Social of Security as a Ponzi scheme may turn out to be a powerful wedge issue that may turn younger voters away from Obama this fall.
This is no suprise. Scumbag politicians are searching for something to sell their candidacy. Throwing granny under the bus does not deter this scum.
But here's something you want to get deep, deep into your brain cortexes. This discussion is academic. You may be able to get a handful of political operatives to downgrade me here. Out on the street, I've got the votes and the activists. You're going nowhere. Scum like Rick Perry may strike a pose early in the Republican campaign season to get noticed. If he gets anywhere near the nomination, he'll throw you guys under the bus. Why? This issue is a loser, and he, and every other politician in this nation knows it.
Watch and learn.
Funny how granny keeps coming up...Barry wouldn't say if she would get her check only a month ago (even though the flow of funds was clearly there).
Now, we can't talk about why Barry would say that?
We both know why he said something that stupid...don't we two-wheeler? ;-)
I asked you a question on a 9/11 thread and you ducked me. I want an answer.
Are you fucking retarded?
I answered you...go look it up.
I saw your non-answer. Just get lost, small change.
I gave the correct answer.
Post it...right here ;-)
of course its a fucking ponzi scheme....i mean WTF bruce, why did you even bother debating this with morons who think its legit. Theyll run this fucker till it collapses(which should be in about 5 years if theyre lucky)......
If you define up is down you can deny gravity.
If you ignore that SS is capped so the rich effectively don't participate, almost 40% loss of input.
If you ignore that 25 years of surplus input was stolen for the tax breaks for the above sanctimonious few,
This and much more, Krasting is still wrong. But this will not deter.
Life is a ponzi scheme.
We consume from a finite amount of resources that could be used by future generations and species, and then we die.
SS is just another welfare program.
FICA is just another tax.
Benefits are at the discretion of congress and are NOT tied to FICA paid in, just like benefits in any other welfare program aren't tied to taxes paid.
The so-called "trust fund" is pure bullshit. It meets no legal requirements of a trust. FICA collections go right to the general fund just like any other tax. Benefits are paid out of the general fund just like any other welfare program.
Ok, so why not eliminate FICA and raise income taxes by that amount?
It would be political suicide. 30% income tax rate and 8% FICA rate sounds way better than 38% income tax rate.
Actually there's one other reason too. Income tax goes to the Fed. FICA goes to the general fund.
Hardly anyone knows that.
If it's welfare it's the greatest welfare plan in history: you have to work for it! And i do have friends who work and work hard but they've never paid in and therefore will get nothing. Of course it's not a ponzi either because it really costs the government nothing to administer it and yet the returns for those who have paid in remain unrivalled even on Wall Street. And obviously that is real money. Ponzi money never is from the beginning. Can the country still go bankrupt? Yes. Can SSI be a cause? Yes. Are there other items that will bankrupt us first? Hahahahaha. Just ask your doctor.
It doesn't matter what you think, or I think, or any of us think about it. SS is going away, along with Medicare and Medicaid. And I'm fine with it. Let it go away. It's a few trillion of unfunded liability they won't have to worry about.
Well, actually they might retain Medicaid in some form. They don't wana piss off the low-income vote, the no-income vote, the illegal immigrant vote, etc. Obama (and democrats in general) need them to get reelected.
someone wrote that investors buying bonds are secured by assets of the company, ok well tell that one to GM bondholders who lost big time as their security interests were grabbed by Ob's and his united auto worker union buddies, leaving bondholders of GM corporates with a bag of shells and a few shreads of paper of what once appeared to be a hornbook legal bond indenture.
Transfer payment systems can work under the right demographic conditions.
The problem is that our population pyramid is shifting from a pyramid shape to a rectangle shape. This is the geometric manifestation of the people paying in to the people collecting becoming 1:1 (the system is total dysfunctional under this scenario). The situation worsens under our particular scenario when the younger workers have an extremely high unemployment rate. Any social security analysis that doesn't take the demographic shift (from pyramid to rectangle) into account is not worth anything, that is the root cause of the unsustainability of the system.
Salvaging social security in its current form is attempting to fight demographic shifts, and as Bucky said, "don't fight forces, use them." Fighting the demographic shift is futile. We have to shape our policies around inevitablities (shifting demographics in this case), not attempt to jam a square into a circular hole.
Happily I relinquish all claims so long as I never pay another cent to the massive PONZI that Ss.
This is where Perry should go. He should ask some questions:
1) What if folks quit paying into this program? Would currennt "investors" get their money back? (ponzi) Of course, not...then
2) Suggest to the younger voters that he would offer a phase out option. Admit it is a fraud, intellectual or otherwise and kill it, kindly. Prorate it to age. For example, if you are under 30 you can opt out entirely. You get nothing ever out of the system, but in exchange your FICA tax goes to ZERO. Instant 10% raise (bossman keeps 5)
The older you get the more options you have. Pay nothing, get a little. but it goes away.
Consider that SS started as a 1% tax. It is now over 15. Yeah, it was a great idea from the gitgo. To argue that it is a great program is intellectually void of intellect. How? That is like saying Bernie Madoff was a great fund manager because he averaged 14% forever. This is true. until it wasn't.
The 70's: in 1977 Congress passed and Carter signed legislation fixing the double-indexing mistake. This amendment also altered the tax formulas to raise more money,[53] increasing withholding from 2% to 6.15%.[54] With these changes, President Carter remarked, "Now this legislation will guarantee that from 1980 to the year 2030, the Social Security funds will be sound.
It needs to be shitcanned and young people need to shitcan it.
definitely not a ponzi scheme which would be characterized by not being a compulsory payment, last I checked SS is a compulsory payment, if you don't pay you maybe get locked up at some point. A true ponzi affords an option to discontinue the process of being fleeced by the ponzi schemers. SS is way worse than a ponzi scheme, it is the mother of all theft by swindle.
Actually if you don't get a payroll payment (think passive income) you pay no SS. Just saying.
If this fund had been handled like a private fund and actively invested in gold fields, oil pools, etc. (NOT the inflated spawn of the bankers) it would be able to grow and continue. As it is, the fund has been robbed repeatedly by congress for pretty printed pieces of paper guaranteed by the US government (whose guaranteeds are starting to blow in the wind). Congress could have (should have!) taken care of this as a part of their jobs, but they have chose to strangle it on the say-so of their masters and overlords (not the people of the US).
Like somebody posted here the other day, it's a FONZI.
Kinda kool when it first hit the scene, but jumped the shark long ago.
Of course it is a Ponzi scheme. There was never any intent for the Treasury to pay that money back. So Greenspan's commission designed the perfect Ponzi scheme on behalf of the US Treasury. It was perfect because as we now see they have convinced most of the marks, that would be you, that not only didn't they really give the money to the Treasury, nor did the Treasury actually agree to pay the money back but that people believing it should be paid back are lazy niggers.
ponzi on wayne...i would also have accepted "ponzi on garth"
Tie retirement age to life expectancy.
Then make it interesting by doing it by sex and racial groups, hence massively screwing caucasian females!
Social security in the US will fail not because of malicious intent inherent in the scheme, but because the nation, a once great nation, has lost its cohesion.
The State's rights lunatics and seccessionistas like Rick Perry are speaking as if the federal government is an occupying power, more akin to the British, who by the way have greater liberties and freedoms than any Meercan today.
You all think Perry is tough coz he shot a damn coyote in the face for barking at his Shitzu, or carries a gun cause he might run into a f%&^ing snake!! We've got snakes in Australia in numbers and aggression that would make a rattler piss perrier but we don't jog with guns. We surf with sharks and when the shark cuts yer mate in half, you swim his body back for his mum.
That is heroism and that is what none of your pussy candidates have.
You've been hijacked by Greenspan and his Randians and you think your pathetic Tea Partiers are gonna save you. Your libertarian bs is nothing more than blatant selfishness and the dry heartless hypocrisy you call Christianity drags the name through the mud across the world. We are all getting sick and tired of your whingeing and complaining. Suck it up and fix the damn system.
You aren't broke, the dollar is not finished and the world doesn't hate you. It hates that you are the only people who can fix it for all of us who believe in America, but you are whimpering and crying in the corner playing with your own poop.
God help us, nobody wants the Chinese or the Russians or the damn Europeans to run the place. Have a cold shower and get to work.
And Bruce, don't get caught playing the idiot's games, keep writing stuff that makes a difference!