United Liberty
Social Security: The Biggest Ponzi Scheme
Tue, 12/16/2008 - 7:30am | posted by Matt Wittlief
In 1920, Italian immigrant, Charles Ponzi, developed a scheme which promised high-yield returns on the arbitrage and trade of international postal reply coupons. It sounds like a fancy scheme even today and it fooled many investors at the time. Ponzi, however, was not actually making such investments. He was taking money from new investors, drawn by the promise of high returns, to pay off past investors. A brilliant little scheme except for the fact that it is essentially stealing and fraudulent. This basic framework is now called a Ponzi scheme, and former NASDAQ chairman, Bernard Madoff, has been implicated in what may be the biggest Ponzi scheme of all time.
But, is Madoff’s scheme really the biggest of all-time? It is currently estimated that his scheme is in the neighborhood of $50 billion. The U.S. Social Security program is far bigger and, in this writer’s opinion, meets the definition of a Ponzi scheme.
The Social Security program is a pay-as-you-go program in that current “contributions” (lawful stealing) pay for current “benefits” (paltry returns for your stolen money). There is so much about the program to disagree with, but, no matter one’s viewpoints on government welfare, one must admit that it is a Ponzi scheme. You invest in the fund with the promise of future returns, but, in fact, there is no investment made by the administrator. The only source of funds for the returns is new investment.
It could be argued that this is not such a scheme since the details of the program are disclosed. But, this writer disagrees with that argument. Indeed, that is what makes this program more nefarious. It is a fully disclosed Ponzi scheme where participation is forced by law.
We are currently in the boom cycle of the scheme as new investment outpaces the payment to previous investors. In other words, more taxes are collected from current workers than are paid out as welfare to beneficiaries. But, like all Ponzi schemes, this will come to an end. The welfare for beneficiaries will exceed contributions sometime in the next 10-20 years as baby boomers retire. Over $2 trillion ($6 trillion in net present value) have already been spent by the government which, by all rights, belong to those future retirees. Instead, the government will either need to a) tax us more, b) reduce the benefits for retirees, or c) go even deeper into debt delaying the inevitability and depth of options a) and/or b).
Further reading on America’s economy-
Native American Response to Banking Crisis
Economically Rough Times Make Strange Bedfellows
How Agriculture Subsidies Distort Food Prices
Madoff as Metaphor by Lew Rockwell
Government and Fraud by Dr. Ron Paul
Social Security does sound a bit Ponzi-esque!
There is NO DOUBT that Social Security is legalized stealing. A program that was supposed to be temporary that turned into an ENTITLEMENT program being run UNCONSTITUTIONALLY by the Fed Government is most certainly nefarious as the author describes. Now if we were given a CHOICE to be either in or out of the program, that would be entirely different.
The statement provides no information as to the insurance aspects of Social Security that provides benefits if you die to family members. Chirdren are sent a monthly amount I beieve to the age of 23. Wifes are provided for also and anumber of other benitits are also provided. To get insurance for the coverage provided would cost far more then amount paided by each individual. This is one of the best protections you can obtain for what you pay into the system.
“To get insurance for the coverage provided would cost far more then amount paided by each individual.”
- tell me how this leads to sustainability.
Payment of tax obligations, no matter how you would like to think otherwise, is not “stealing.” “Legal stealing,” as you put it, is oxymoronic: by definition it cannot be theft. As a self employed person, I pay higher FICA taxes than those who work for someone else. Although it takes a bite out of my earnings, I do not begrudge this at all. Taxes pay for public protection, public works and public welfare. If we were to abolish taxation, we would have anarchy. Don’t give me some flip response. Think about it.
They take the money without my permission, sounds like stealing to me. And what is wrong with anarchy? Anarchy is a political system without leaders not an absence of order.
The act of stealing existed before the presence of a formal legal structure. One cannot then use a struture of laws to define what is and is not stealing. As such, I would define stealing as taking property from one person without consent.
Now, you could argue that, by nature of my citizenship, I have abdicated my rights to property (i.e. constented to taxation) since taxes exist here in the U.S. I don’t think of it that way as I have not personally given my consent.
That said, I am not an advocate of anarchism, and I do believe the taxes do have their role in society. But, we were a nation without personal income taxes or Social Security for a long time which was not an anarchist system. So, to argue that the abolition of taxes is equivalent to anarchy is inconsistent.
As a lawyer, I like to recommend that you read “The Law”, by Frederic Bastiat. Perhaps you have already read it - I’d be interested in your thoughts.
Thanks for reading.
So what is your solution? Execute all Amerian citizens over 65? Perhaps we can reinvent the gas ovens that the Nazis used to get rid of their problem. I am 80 years old and I paid social security for 64 years. My “free” medicare program costs $94.00 a month, every month. Try to imagine what the country would be like if Hoover had won over FDR in 1932 and there was no Social Security.
You far right conseratives were kicked out of the government. Now just move to Canada like you promised to do if Obama got elected and bankrupt their economy.
My belief that the Social Security program is a de facto Ponzi scheme which will collapse and bankrupt this country without significant reform is not an indictment of senior citizens. In fact, I believe we have an obligation to those who have contributed to Social Security to deliver payments as promised. However, that does not mean that I think the program was a good idea in the first place - nor do I believe that the program should continue for current workers.
I am not a “far right conservative” - I am socially very liberal, but I do not believe in the welfare/warfare/nanny state that we have created. FDR was a key contributor to this New America which will collapse. By the way, I supported Obama over McCain, but did not vote for either one.
The SOLUTION is PRIVATE RETIREMENT ACCOUNTS that are actually INVESTED in SOMETHING such as mutual funds, stocks, bonds.
Hey, 80 year old guy: I bet you feel like a schmuck to PAY IN FOR 64 years (!) and not be even CLOSE to being a millionaire like you SHOULD have been if the government didn’t FOOL an ignorant group of citizens back in 1935 and beyond.
Social Security (and Medicare) are going to BANKRUPT the United States in th enear future.
But what does the 80 year old guy care? As long as he gets HIS…
Socialism creates jealousy, envy, class warfare. It is detrimental to freedom and INDIVIDUAL RESPONSIBILITY.
Check out MY website:
www.socialsecurityisascam.com
“To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhors is sinful and tyrannical.”
Thomas Jefferson
=======================================================
That sums up Social Security to me. But what does a liberal/marxist politician care about “sinful and tyrannical”?
Hey, 80 year old guy. You were SUPPOSED to be dead at age 65! You have been collecting for an extra 15 years more than Social Security intended to pay you. Good for you, but bad for the younger taxpayers who SUPPORT YOU and not THEIR OWN FAMILES with the COMPULSORY FICA TAX we have withheld from our paychecks each week.
Selfish, ignorant, financially challenged, people like the 80 year old guy may finally realize that they wasted 64 years paying into a Ponzi scheme (if they EVEN realize that fact!) and now demand the crumbs that Social Security provides for them.
Ignorance is the most expensive commodity in the United States. Look what it has done to the country.
Thanks, 80 year old guy…
“Karen the Lawyer” is self employed so she pays 12.4% of her salary in FICA TAX alone (we other folks pay 6.2% FICA TAX, and our employer pays 6.2%), not including 25% Federal, 3% State, sales tax, property tax, bridge/highway tolls, etc. That must be close to 50% of her slary TO THE GOVERNMENT!!!
But she does not begrudge that. She is a LAWYER. If she is any good, she probably earns way over $100,000 per year to cover all of these taxes and still live fine. She gets her $100,000 from HER CLIENTS.
Karen, you are a hero to us all…
No one pays taxes, the Gov TAKES taxes. I would be fair if one could opt out social security, then you would collect nothing in your old age. This would of course assume you were a wise investor, or making enough that you caould clearly see you didnt need a gov handout in retirement. True we all have to pay to provide services we all use, but some taxes could be optional when the benefits are directly paid to the individual based on what they paid in. It’s 100% fair. What I think will be coming soon are “senior cities”, with free health care, 0 cost housing you must apply for, and different levels of such depending on how much you paid in, or can supplement with your savings. Luxury concentration camps if you will, but we have to something. At last count there were 140,000 homeless people in Los Angeles, that we know of, and many are seniors.
People do opt out, though it’s not easy to do. In fact, you never have to get a SS# in the first place. I know several people without them. They went to college, own businesses and travel the world without one.
Yes, it does seem to be a Ponzi scheme, and I don’t expect to collect a dime of all the money we have paid into the system. But, the people who are collecting and benefitting from the money are our parents and grandparents, and who is going to deny them money? I do think there should be a cutoff limit as in a muti-billionaire should not collect SS $ to provide more for the poor, widows and children. My grandmother is almost 97, and SS is her only source of income and helps to pay for her care. I can’t deny her anything!
Social Security or FICA taxes were once kept in their own private account to accumulate and grow to pay out benefits for years to come. If it would have remained so, the baby boomers (to which I belong) would have paid in to a group of recipients much smaller in comparison. Plenty of money would have been left to support the boomers in their later years, or if they would have become disabled.The future generation of earners would not have been so badly burdened. I believe it was during the 1960’s and the Viet Nam war that these funds were opened up and included into the regular tax stream to support that war. Why not re-separate those funds again. I am 51, with many more years to work as do many of the boomers. Stop this stealing of SS funds now for a better future for all of us down the road. SS is not the problem. Politicians are.
The premise of the article is SOCIAL SECURITY, not taxes as a whole. Your argument that taxes are legal and necessary is valid, as a society you have an obligation to pay for services rendered (police, fire, roads, etc.). Social Security is not a fee for services tax, instead it is a forced retirement plan that you do not own and have an expected return of less than 0%. The system was purposefully designed to pay out less than was contributed, that is evident from the very fact that the life expectancy in the US of the average man was only 58 when the program was created. No one in their right mind would ever voluntarily contribute to such a plan, so the only way for the govt. to implement it is to force it on us. The only problem with the scheme, I mean program, is that the age has not been reset (yet) and life expectancy has grown since inception. Whatever your stance on it is, there is no argument that it is going to fail in the foreseeable future, and again, no one would ever willingly invest in a scheme, sorry I keep forgetting, a program that publicly states it is destined to failure.
Social Security or FICA taxes were once kept in their own private account to accumulate and grow to pay out benefits for years to come. If it would have remained so, the baby boomers (to which I belong) would have paid in to a group of recipients much smaller in comparison. Plenty of money would have been left to support the boomers in their later years, or if they would have become disabled.The future generation of earners would not have been so badly burdened. I believe it was during the 1960’s and the Viet Nam war that these funds were opened up and included into the regular tax stream to support that war. Why not re-separate those funds again. I am 51, with many more years to work as do many of the boomers. Stop this stealing of SS funds now for a better future for all of us down the road. SS is not the problem. Politicians are.
Social Security in the USA is a great program but has many flaws. Many people pay in for years and die before they ever collect a dime. In Europe you can elect to have your S/S paid out in one lump sum if you wish to have it paid out.
In the USA this is not possible. In Europe if you are diagnosed with a terminal illness of any kind or just want to open a business for yourself you have the option of getting back what you paid into the system. However, you cannot draw S/S. You would have to start over and go back to work for 10 or more years to collect anything from S/S.
Government should not be able to use one dime of that money. It belongs to the tax payers that pay into the system. S/S money should be invested to make it grow to keep up with inflation. Retirees count on that money to live!
This may be off topic, but after reading the various retorts from Bernard, including the following:
“Selfish, ignorant, financially challenged, people like the 80 year old guy…”
I’ll pay for your one-way ticket to Canada, even after taxes.
Jerk.
The Social Security System is a “scheme” operated by politicians who use it as their personal “piggy bank”. As long as our politicians use (borrow) with no intention of repayment, it is eventually doomed to fail! It is is not a question of whether it will someday burst. Rather, it is a question when?
Chris in Dallas:
Where am I wrong?
Why don’t you pay my share for the 80 year old guy and make yourself FEEL really good?
Dumbass.
Just have to jump in here. While most people are born, some like bernie seem to have been hatched. Definately no parental love or elder respect there. Social security would be totaly solvent if it had not been raided. Anytime you get billions of dollars in any one place someone is going to find a way to get at the money. It’s just a matter of time. Yes the money is gone.-went into the general fund. If the money had been left alone there would be more than enough for the future generations of retiring people that payed into it. And thank god that it wasn’t invested into stocks and bonds. 401Ks across this nation have lost 40+percent in just this last year alone. My father and countless more like him never collected a dime because they died before they could collect. That money alone could have been left in the fund to further increase the value of the fund for countless years to come. But no, the temptation was too great. The country needed money and it was there. It wasn’t a ponzi scheme, but now is thanks to the theft and diversion of millions of fund dollars it is so easy to call it one. What a spin. We will probably eventually find out this was written by Rush Limbaugh.
The question one must ask a social security advocate apologist is:
Why am I COMPELLED to participate in social security? If social security is such a great deal, why is the money WITHHELD without my permission?
If social security is such a great deal, people would not NEED to invest in 401k plans, ROTH IRAs, mutual funds, etc. People would flock to put MORE of their money in VOLUNTARILY.
Jf blames me and “Rush Limbaugh” (?) when we want control of OUR OWN money to INVEST ourselves. I was down 40% a few weeks ago. Now I am down only 15%. In the last 3 years I had GAINS of over 20% EACH YEAR. So one bad year is why stocks average about 11% per year and Social Security is a financial BLACK HOLE. One who RELIES on Social Security actually LOSES over time, because nothing is invested. Common sense. A 5th grader can figure this out.
You liberals who love social security complain because people who have it are poor, but then catsigate those of us who wanted better for everyone, but have figured out that it is a SCAM.
www.socialsecurityisascam.com
“And thank god that it wasn’t invested into stocks and bonds. 401Ks across this nation have lost 40+percent in just this last year alone”
this is completely inaccurate. when you include dividends the dow industrial average is about 10 times higher right this second than where it was 30 years ago. not to mention the fact that anyone within 10 years of retirement now should have had most of their money in corp bonds and treasuries (which is essentially where all the SS money is now) and if you hadnt noticed treasuries are at historic highs. So i would say private accounts would haved faired significantly better over the last 30 years.
the problem with SS is it DISCOURAGED savings which is a major problem in this country now. seniors rely upon SS now bc for years they under saved based on the assumption they could fall back on it. So now the ponzi scheme, which regardless of how it got to be is what we are left with, is coming to a head with no solution in site and a congress intent upon maintianing the status quo. Couple that with the exponential rise in healthcare costs, an aging populus, increased military and national security expenses, and we are left with a tremendous amount of debt unlikely to be repaid anytime this century.
I hope that instead of increasing income taxes they create a national sales tax and earmark the money for paying down the debt. Ive begrudingly come to terms with no SS money bc I really cant complain too much about my life.
The fact is that over 50% of our annual national budget is being spent on 12% of the population. There is some serious generational inequity that has been the bane of my existence since I went to work for the social security administration in the 70’s. I saw the wage records…I saw the payouts and I was stunned! My grandfather paid in less than $300 in his entire life…he was a farmer…but when it came time to collect, his monthly payments exceeded his entire lifetime contribution! Then he went on to collect for over 20 years.
And the AARP who’s very cushy existence is based on lying to their members about their ‘entitlements’ have created a false belief that all elderly are poor. Do some research…they hold the largest portion of the weath in this country. Yes there are poor elderly…but they are a very small percentage of the elderly population.
Want to see poor elderly…wait till my generation retires into this bankrupty ponzi scheme. We’ve been devastated by the stock market crash….the housing crash…and now the social security crash.
Look out kids…we’ll moving in with you!
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