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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Ponzi schemes unravel when the number of new participants dries up. This is happening now.
Social Security is a particularly bad deal for men. Men don't live as long as women on average, but SS retirement ages don't take this into account. As a result, if a man and a woman both make the same payments into the system and retire at the same age, the woman is likely to collect a lot more than the man.
If I were a baby boomer trying to decide whether to retire, I would probably be considering the possibility that SS benefits are likely to be reduced in the future. So it might be tempting to retire now and collect whatever benefits I can get now before they reduce them. Also, I think that men might get screwed less by the system if they retire early.
does medicare cover a sex change?
You want to be a 66 year old Tranny? Man, you're goin be ugggly.
So you are willing to fund the pretty ones?
All this carping about SS is bullshit, the polticians want to end it because they've already looted it and can't pay it back. SS would be fully functionally without any shortfalls with only some minor tweaking.
"SS would be fully functionally without any shortfalls with only some minor tweaking."
Might I suggest just using it for...you know, a retirement supplement as it was intended...instead of just another welfare program?
Not that it matters at this point...fucking thieves.
I got mad at him earlier in this thread, but I see his point about them wanting to end it because they are done looting it. Doesn't that just sound soooo true?
Of course it's true.
But the looting is not "done" until the public writes it off. Just like all other government debt, from the water bill to T Bills, the question remains of whether the gov will pay its bill or not.
Clearly many are intensely invested in default on this particuar debt, but that doesn't make their claim that it's a done deal any less of a lie.
http://www.ssa.gov/oact/progdata/specialissues.html
Minor tweaking = means testing.
"The actuary over at SS says the retirement plan is OK. Compared to him you know exactly nothing."
Bernie Made Off said his fund was good too.
I would give more credit to an independent analysis than the SS actuary.
If it is not a ponzi, Social Security should be able to pay a good share of its liabilities at any time without depending on future revenue.
If it is such a good deal for the recipient, let them out. The truth is that the people who pay in are slaves of the people who pull out.
What percent of the money (purchasing power) is left in the fund?
If that money belongs to the future recipients, would you be against letting them cash out and not pay any more in?
and I will mention to you again:
Mr. Ponzi could never have thought up such a grand system. What Ponzi did is a grain of sand compared to the black hole that is Social Security.
"I would give more credit to an independent analysis than the SS actuary."
His work gets reviewed. It is available to the public. The whole society can view it and comment on it.
Face facts, you are entirely unfamiliar with the process and are merely speculating.
Social Security isn't a ponzi scheme. Ponzi schemes are voluntary!
And Ponzi schemes offer a guaranteed positive rate of return, whereas SS guarantees a negative rate of return.
The Stock Market is the Real Ponzi Asshole.
The people who need the check would disagree with as the market has crashed over and over again through the years.
While CEO's drain the money out of the markets with bonuses and stock options. Now that's a ponzi scam.
Rick Perry as many Neocons want, would rather you put that money in the stock market.
Hmmmm. Look at today's Bullshit rumors and that should be enough said.
As far as SS goes. Uncle Ben can print for everything else. He can print to pay seniors who have paid in their money.
So Fuck off on your SS ponzi scam. You seem to be just another puke who thinks if the sheeple hear it enough they will buy it.
The logic that those who propose SS is just fine should stop wasting your time on ZH and go straight to the Bernacke who can print $$ for everything that ails the financial system. The Fed should just print enough $$ to pay everyone's fair share of taxes, fund government and to pay seniors who have paid in their money. Hey, that makes sense, right?
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 responsibility 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!
It is not a Ponzi. You and Perry are deviously disingenuous in describing it as a Ponzi to falsely smear it is a fraud. No one is promised a return greater than their net taxation. If you die before collecting you get nothing. You only get a positive return if you are lucky enough to live a long time and who's to say that today's 30 year olds won't live for 110 years if medical advances slow down human aging.
So you don't like Social Security. Fine! Then suggest a better alternative but stop spinning bullshit trying to destroy a system that many like and depend on and are OK with. But, knowing you Bruce, next article by you I expect you will claim that Social Security Administration is hoarding WMD's and sexually molesting disabled children and small furry animals and should be invaded and destroyed.
If its not a ponzi just call them up and ask to see the money you paid in. They won't be able show it to you because its not there.
Surprise, its been transformed back into its natural unbacked full faith & credit fiat state...a debt...lol.
Now, you may also be surprised (but not most here) by how cavalierly they store these trillions of debt with the publics name "attached to them".
Read on...
http://www.washingtontimes.com/news/2010/mar/16/social-security-ious-stashed-away-in-wva/
And then early one morning there was a small office fire in Parkersburg W Va. ;-)
Go to your bank and ask to see the money you put in. They don't have either. Doesn't make it a ponzi.
Dumbass, you can get that money out anytime you want, unlike SS.
Denial is a trip. I am sorry for the puppy person. The truth hurts.
I don't have a savings account at any bank so I wouldn't know ;-)
I get a statement of my benefits every year. As for information from the Washington Times - LOL. I always check with the Moonies before I decide what to believe.
Open up your window and let in a little fresh air.
What does it say at the very bottom of the statement?
Answer my question from the 9/11 thread, nmewn.
You're trying the strawman shit again two-wheeler.
Answer the question...what does it say on the bottom of the statement?
Your answer was trifling garbage. Don't bother I'm done with your sophist ass.
Is trifling a new word for you?
Way to bail on the question at hand there two-wheeler.
Seeya round ;-)
Your mama's calling, small change.
What does it say on the bottom of the statement?
No change or small change?
Answer the question slick ;-)
Since "BicycleDespairman" won't answer the question, please enlighten me as to what you're referring to.
(Is it: "These estimates are based on the intermediate assumptions from the Social Security Trustees' Annual Report to the Congress.", or something else?)
If I recall something along the lines of subject to Congressional approval, that is, if no changes are made...these will be your benefits.
In other words, its not a defined benefit or pension or insurance policy or contract with words like that on it. Any changes are solely at the discretion of Congress so its not binding...which was my point to two-wheeler.
I'll see if I can find one tonight and put it right here...
Edit: Two-wheeler said: "I get a statement of my benefits every year." as if that means anything at all...lol.
From the statement he places so much trust & faith in...mine is dated June 28 2010...directly under "estimated monthly benefits" where I told him to look...and I quote...
"Your estimated benefits are based on current law. Congress has made changes to the law and can do so at any time. The law governing benefit amounts may change because, by 2037, the payroll taxes collected will be enough to pay only about 76 percent of scheduled benefits"
That, my friend, is not a trust fund. It needs new money to feed it or it crashes. It is a ponzi relying on younger workers to perpetuate the ponzi scheme.
That is not even a contract, as no viable valid contract between two parties would be written in a manner which allows one of the parties to change the terms of the contract leaving the second party with no recourse...not even in court. Because its their "law" they can skate by calling it things that it is clearly not.
And two-wheeler knows this as well, he's a fucking shill.
I back my shit up...always ;-)
I did dickweed...go back and look!!!
Or do you need someone else to do that for you too?
"a system that many like" = early / current recipients -- not anyone under the age of 55.
"a system that many...depend on" -- stop depending on others (government / taxpayers / me) -- depend on yourself; take responsiblity for yourself and your family.
It is absolutely a ponzi - early beneficiaries get more than they contribute, the manager of the funds (government) uses the funds for alternative purposes, not enough there for later recipients -- that is the definition of a ponzi.
Bruce, I think you live in a dream world where SS is ended and Joe 6Pack sends all his SS money to your criminal Wall Street friends, so your friends can earn over-sized commissions and churn Joe 6Pack.
That's about right, isn't it?
Always funny to watch liberals attack one of their own when that one starts to see the light.
Just like a cult.
I'm not a liberal, Hedgeretard.
Supporting Govt thievery definitely means that you're NOT a Republicon!
Yeah that's about right. I'm just out to fuck you and all the others.
Give me a break. I have 30 articles on SS. Every one reads the same. SS has to be reconfigured JUST SO JOE SIX PACK DOESN'T GET FUCKED.
You need to rant a bit, I understand. We all do from time to time. But give it a rest. Or better yet, just read what I write.
Bruce, you want to help the little guy, stop spreading FUD about things you know very little about.
It's all for the little guy! What part don't you get? Hey, his last article was on the unfair rate of interest the SSTF earns on its investment in those Special Treasuries and this one brands it a ponzi scheme. Actually, every one of his articles has argued against SS's legitimacy in one way or another.
But when pushed he tells you why he's doing that over and over and over again: To save it for the little guy.
Please make a note of it.
SS is for the old "little guy". In fact as you get older you get littler, so don't give me that "littler than thou" stuff.
LOL! Kudos on your patience and commitment, btw.
Thanks. Bruce and I debate SS everyday, as Bruce blogs on this everyday now.
Here's the thing -- If Social Security is such a great system, then convince me it is: MAKE IT VOLUNTARY!
You're either being ignorant or completely disengenuous about the principle involved here: The US Govt is TAKING the fruits of our labor(s) at the point of a gun and giving them to people we don't know (after taking their cut, of course!). Which is it? Are you in favor of theft (so long as you and people you care about benefit), or are you blind to the notion that support of our fellow men should be obtained on a voluntary basis?
Either we're FREE, or we're laboring to support senior citizens simply because the Govt sez so.
Our work, or your (Big Brother's) guns: Choose one, you CANNOT have both!
I'm sure you think it's "god's work". Whatever.
The government is a fiction. All government schemes are frauds and fictions. The entire artifice is a fiction. Even fundamental law correctly calls ALL organizations (including government) "fictitious entities". Why do people keep treating ToothFairy level absurdities like they are anything but mass delusions that exist only in the minds of hoards of sheople and fools? Theft does not become non-theft when predators and apologists promote them with fancy names. Sheesh.
Some people believe life is but a dream. What do you think of that?
One should NOT look for fish amongst the treetops.
Life is a real physical process that takes place in real physical organic beings. Many processes take place in these beings, including subconscious processes, one of which is called "dreaming".
However, when a group of human beings sit down around a table and decide to form a fictitious entity (a corporation like "SugarHighBakery" or a government like "the USSA"). When they say "we are forming this entity", NOTHING popped into existence, which means, that corporation or government is FICTION, which means, "it does not exist", literally. These people re-organized the contents of their brains to create a delusion in their heads, just as people who believe in the existence of the "ToothFairy" create a delusion in their brains. That does NOT make the ToothFairy exist.