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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"Social Security is a Ponzi scheme"
This a classic example of what Hitler referred to as THE BIG LIE.
"...in the big lie there is always a certain force of credibility; because the broad masses of a nation are always more easily corrupted in the deeper strata of their emotional nature than consciously or voluntarily; and thus in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie, since they themselves often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods."
Just keep repeating it over and over and despite how false it is, people will begin to believe it.
Those who say that the financial markets are ponzi scheme are inherently incorrect (to an extent) when you invest in bonds you have a claim on assets (so you can be paid back something). When you invest in stocks (which is inherently speculative) you also collect divedends..These are dirived FROM PROFIT reshaping resources and collecting more then what you put in....Unlike SS which has no profit (other then younger people getting shafted myself being included) You can really blame the fed because over the last 100 years they have printed money reducing the real rate of return in the private sector...So all you asshats (baby boomers) let the ponzi run without lifting a finger or saying a word for over 50 years you get what you deserve...you think starving grandma and grandpa is inconcionable they could have saved they lived through endless bubbles elected endless politicians and individually as a collective (not a contradiction) get their just deserts for their non effort...
PS my parents can move in with me I have no problem those who decided to treat their kids like shit let them get addicted to drugs didn't raise them right will also get what they deserve now Give the next responsible generation a chance to take care of their parents in old age if they don't have the money (through default higher interest rates and added purchasing power) because the system will burn down in hyper inflation otherwise (which I whole heartedly see the baby boomer generation pushing for because it was the most selfish generation in human history to exist anyway) Individual responibility bitchez you invested in companies that paid themselves outrageous options bonuses, you let the fed destroy the currency and you let the politicians raid your piggy banks for wars....you dug the grave LAY IN IT!
SS = Ponzi
Taxes = theft
When the government does it it is legal and kosher by dictate. So what? The people will vote for it and love it unil it crashes and then nobody saw it coming, who could have known...
No its a white duck, and they taste better.
Let's not forget, that as age age limit is raised, that means additional years of contribution. So those under fifty now, will pay more into and then receive less.
Someone pointed out how SS is a worse deal for men than women, because women live longer (actuarially); it's even more so a bad deal for young black men, who die younger (from poor nutrition, crime, etc.) than white women. I believe someone described SS as a scheme to transfer wealth from poor young black men to old white women.
Why Jesse and Al aren't all over this daily is probably due to their being more in favor of a larger government than social justice; equity could not be pursued on a race-neutral basis, and nothing else would (or should) pass SCOTUS review; the whole SS program might get "re-considered" if the question were seriously pursued. This would weaken or diminish the power of the Central State. So in order to preserve the ability to screw over everyone without limit when their party holds the reins of power, they will overlook basic inequality in a social insurance program continuously.
Not that the R side of the razor that's cutting you is any better when they are in power, since they don't pursue social justice any more diligently; it's astonishing how well both parties work to screw over the common man in order to curry favor with big unions, big corporations and other big campaign contributors.
The system as-it-is is broke; it will have to be restructured, rebuild and revised to protect the citizens individually, rather than corporations, unions, government or other large social constructs as it does now.
Not to mention, it is also a worse deal for blue collar workers. They star working younger because they tend not to have gone to college, they work harder, and they die younger than their college grad white collar age equals. They collect Social Security benefits for many years less than their white collar counterparts who have a longer life expectancy. In other words, truck drivers and construction workers die at a younger age than college professors and government administrators. Of course most don't realize that inequity. Just one more dirty little secret.
The men die sooner becuz they want to. BITCHEZ!
Social security is not a Ponzi because it does not have criminal intent. Social Security is much more progressive than is usually realized. The tax rate is regressive on the first $106K, but the benefit payouts are progressive. Someone who pays 1/4 of the maximum tax will usually qualify for 1/2 of the maximun benefit. I agree that most language about the security of Social security is misleading and deceptive. We have the power to make adjustments to the Social Security system, that are both equitable and sustainable. Our core problem is a totally dysfunctional political system, both corrupt and inept.
Criminal intent is not a required condition of a Ponzi scheme. There are some countries where pyramid investment schemes are legal e.g. Russia
http://en.wikipedia.org/wiki/MMM_%28Ponzi_scheme_company%29
Declaring Social Security as a Ponzi is just another attempt by the elite to rob the poor and middle class. Social Security is a regressive tax. The wealthy pay a very smaill percentage of their incomes toward it. However if they can get the payments raised they will have a higher cash flow that Congress will loot for them with pork projects. Look what happened when Social Security was "fixed" before in the 1980's. Don't look at how the Bush tax cuts benefit the wealthy on a percentage basis much more than the middle class as wealth in this country becomes more and more concentrated. Don't look how Obama's job proposals benefit the corporations first and those with higher incomes than it does with the average worker in this country. Why is that? This is just a squire flapping his lips with nonsense for the royalty. We all know that the illegal alien nightmare is costing us far more than Social Security ever will. Flap your gums about that.
payment of current return obligations drawn from money deposited by new investors rather then from legitimate return on investments.
that my friend, is the definition of a ponzi.
just as the capitalist mantra of unlimited growth is a lie, so to are free lunches. all the marxism in the world will not change that fact.
How to trade Ar... wrote:
I wouldn't call SS a Ponzi exactly. It's just a pay-as-you-go system. SS pays benefits to current retired people out of the FICA taxes paid by working people, and if those fall short, as they are doing now, the rest is made up from general revenues.
You nailed it.
The problem is that Roosevelt intended the program to be self supporting, with no use of general revenues.
The same borrowing fronm the reetirees' trust fund is done with the federal retirees' defined benefit plan.
When the trust fund is tapped, general revenues must be raised, or more likely, debt held by the public will be raised.
It's one thing to not properly hold reserves for social insurance, which is an involuntary tax.
It's another thing to not build up reserves for a voluntary retirement plan, whose contributions are not taxes, but REAL contributions.
Currently, the liability for federal retirees is in the trillions and it is listed on the federal government's balance sheet.
I can provide reputable government excerpts and links for anyone who wants specific statements to be supported.
Don Levit
I give this a 5. Its the most rational, fact-based article I've read on this "controversy".
and I support ron paul.... not perry so much. but my fave candidate is ABO
BRUCE- This is only Part 1 of your story, Part 2 is for all the above commenters who don't realize that the money they have "paid-in" is already gone! HA that's a funny joke, the part about them not knowing. While you're hot on the trail, have you snooped around the FAA's pile of cash? Lots of good work from you lately, man! Keep it up.
Exactly. There is no money in the social security trust fund, it just has a collection of IOU's. Who will hand over cash to buy these iou's in the future? They are simply debt instruments, they are not really assets. That is why social security contributions should have been invested in real assets such as income producing infrastructure, precious metals, housing etc. Instead it was invested in wars and vote buying deficits.
So what is the explanation for -2? If the report itself tells you that future recipients will get less without any change to retirement dates and benefits, what do you know that the rest of us don't? Or does the math escape you?
Dude, you know the popular ZH meme about lead and brass along with your gold?
Just try telling seniors that their money is gone, but finding the cash to pay the banksters.
Bruce,
None of the proposals you raise will work or solve the SS problem. The main component you did not address was pure Demographics.
We are a nation of abouot 311 million population with the prospect of somewhere around 50 to 70 million Baby Boomers retiring in the next few years. In 1960 the ratio of those paying into the system was roughly 22 to 25 people per person getting SS benefits. now that ratio is about 2.3 to 1. When all those Baby Boomers hit the ratio goes to about 1 to 1.
Do you actually think that generations X,Y,Z and AA will pay that Tax Freight for those getting ready to hit SS? I don't think so. The reality is that the Baby Boomers and the those behind them will get no SS or Medicare, we are broke there is no monies to pay out and yes a Default is coming.
Not to mention that every fucking job sent overseas, including all the customer service reps in India, are each one less person working here and contributing to Social Security.
not to mention energy - the real driver of economies - will never allow for growth of system 20 years hence - let alone 5.
Social Security is nothing but a combination tax and goverment benefit program. Neither is a guarantee. Taxes have been raised and benefits both raised (in 1969 and 1971) and lowered. (in 1983)Just a tax, like any other tax and a goverment program like food stamps or any other welfare program. All this crap about insurance and retirement is for the simple minded. And going forward your benefits will be cut and taxes raised as is politically expediant, end of story.
I think they had to call it a "tax" (in some Supreme Court case), because otherwise it would be in violation of 5th amendment. deprivation of liberty or property without due process, etc, etc.
Friends I must say I greatly appreciate the speculations.
I must correct an error by the author as well as you good people.
Imagine that! The Commonwealth of Bankachussetts was willing to overlook the law and subject me to triple jeopardy to ensure they took their revenge. But not for my so-called Scheme. Rather for my controversial plans for banking reform. All will be revealed in the fullness of time. But let me simply end by noting that the bank I controlled was outside the Federal Reserve system. Like Social Security, my revenge has been compounding since the year of my illegal deportation... 1934.
As for the rest...
Social Security is NOT a Ponzi scheme. My schemes are illegal to participate in… Social Security is illegal to NOT participate in!
We Italians invented the vendetta. And friends I have perfected it!
Hey OLD PEOPLE... It's funny how everyone wants things to get better but, to "get better", you have to take a hit... "I'm entitled to that money, I paid it in"... Nobody is wants it to hit them. Especially the one's on Govt money. For most SS recipients, you're taking out more than you put in and some didn't put anything in... Not to mention that the Treasury is paying SS 4.5% interest while the 10yr tresury market is below 3%... All I want is an option to opt out of SS all together. I never count on seeing a dime from SS. SS is certainly not a right... FDR was by far the worst president of all time...
Social Security is EVEN WORSE than a Ponzi scheme. You are FORCED to contribute and it PROMISES NOTHING. Actually the SSA sends out estimates telling people that if they continue contributing at current levels till various ages, they would be eligible for various payouts. But this isn't a binding contract. The government can (and will) change the plan whenever it wants.
Till recently Social Security was a cash cow for the government. Income from payroll taxes greatly exceeded payouts. So the government spent the excess income and gave the SS Trust Fund an IOU. But recently, payments have started to exceed income from payroll taxes. And the baby boomers have just begun to retire. Over the next decade, the gap will increase hugely and cause huge problems for the government. Benefits will have to be cut. So these yearly benefit estimates that the SSA sents out are JUST PLAIN FRAUD.
And then tax time rolls around.
Whats this?
This filer doesn't have a social security number...he must be one of those people, red flag him for a closer anal exam.
+55 Ben.
It is a hyper Ponzi, a hybrid Ponzi-welfare scheme that screws everyone that comes in after a certain date, like 1985 or so. It is as if Madoff could force his clients to not just stay in the scheme but put more money into it anytime he wanted. Now shortfalls are made up by government borrowing, putting the real cost onto the next three generations, in addition to the SS payroll taxes they will have to cough up at pain of jail.
I wouldn't call SS a ponzi exactly. It's just a pay-as-you-go system. SS pays benefits to current retired people out of the FICA taxes paid by working people, and if those fall short as they are doing now, the rest is made up from general federal revenues. SS doesn't claim to pay any "returns". SS doesn't claim you'll get more back than you'll put in. It is possible to get more back if you live really long, but most people get back less and everybody should know that. I don't see any effort by SS to deceive anyone about their likelihood of getting back more than they put in.
As for the trust fund being doomed to eventually run out of money, that's a minor technical issue. Long before then, Congress is going to have to balance the overall federal deficit, including SS. The portion of total tax revenues going to SS benefits is going to be increasing and driving up the consolidated deficit. Which is already 9% of GDP. Federal debt owed to the public is already at 67% of GDP and shotting up. The rising US debt will start running into real market friction faster than people think. This is coming to a head in this decade, not way out in the 2030s.
But if I were counting on SS I would be very concerned about these cuts to FICA tax rates, current and proposed in Obama's so-called "jobs" bill. The gutting of dedicated SS revenues seems to me to be setting up for a gutting of SS benefits.
There is only one retirement plan that isn't a Ponzi scheme: pile up a bunch of money in a savings account or under a mattress, then spend it when you retire.
Whether SS is technically a Ponzi or not, it does require ever more young people to pay for the benefits of the old.
Of course, your 401(k) is no different. Someone new has to come along and buy your stock or bond for more than you paid for it. What's called "investment" is really just another Ponzi scheme that requires ever-increasing amounts of new money to pay off the old.
In a world racing close to the Limits to Growth, and in a country whose central bank is feverishly working to destroy the currency, there are no good options for retirement. Work till you drop is the future.
"Work till you drop is the future."
Given the depression, you'll work at a greatly depressed rate, if at all. So, this is definitely the right time to end SS. /sarc
The old is now new again. the concept of "retirement" is a recent phenomonon by historical standards. Used to be that a person would work til they dropped dead. No pension, no retirement, no basking in the light of the golden years. Well that was when life expectancy wasn't long either, so...
Publicly funded retirement is a blip in history. It will go away as fast as it came. We will have to work, save and/or rely on family through out old age
I'd be happy to take massive hits to social security if I could be assured that the savings would go toward expanding our overseas military bases and increasing the allotment to Homeland Security.
sarc/off
Hey, if we got rid of Social Security, just think how much longer we could stay in Iraq.
Just think of how many more Solyndra's could be funded!!!
I'm really gettin the hang of this strawdog thingy ;-)
nmewn,
On the 9/11 thread I asked you about seeing the video tape from the various airports that the hijackers took off from and the Pentagon. It hasn't been shown to the public yet
You ducked the question.
Any thoughts?
Two-Wheeler,
I ducked nothing. Go back and look before you make an even bigger ass out of yourself.
I couldn't possibly big a bigger ass than you. Your 'answer' was a bunch of junior high debate club garbage. Don't bother continuing the discussion. You are nothing but a trifling, no-nothing clown.
Mmmkay...nicely stated...lol.
You have pointed to a cause for this "debate". Austerity is coming. So what gets cut? The notion that "granny" should be thrown under the bus without considering other possibilities is unconscionable.
Poor ole granny...she ate her peas...she did everything she was told to do.
She was a patriot.
I hate your post. I gave it the arrow up.
;-)
The notion that "granny" should be thrown under the bus without considering other possibilities is unconscionable.
Yeah, da ObamaNation already has that in the works. Cut Medicare and staff the Death Panels. They will simply deny health care that would keep 'granny' alive. That's a great idea? Right? I mean that's what he's telling us, "Just take a pill".
You may think I support Obama and ObamaCare. I don't. I don't support starving granny, or euthanizing granny or gassing granny. Let me know when Rick Perry or any of the other Republicans want to repeal ObamaCare. I don't want to burst your bubble. Just let me know, kids.
you hit it on the head unfortunately we're all gonna be hit there. When has the falling empire not taken it out on the common man
the federal government is doing a bunch of stupid things. the unnecessary scopes of government should go first (military industrial complex, war on anything including drugs, virtually all the departments, unnecessary legal & patent rules, education, etc.).
the federal government is also doing some things that aren't stupid in stupid ways. providing resources & medical care for underprivileged children & senior citizens is not a stupid scope. delivering medical care through a big bureaucracy is a stupid way of delivering that scope.
social security & medicare should be defined simply as "unsustainable programs" partially funded by non-refundable payroll taxes.
you don't yet have a Constitutional right to either and this Congress cannot bind future Congresses... so your projected benefit is not really a promise of a return. should the federal government not deliver the perceived promise, you have no right to a refund of past payroll taxes.