It’s Still Ponzi View 20110912

View 692 Monday, September 12, 2011

It’s still a Ponzi Scheme, and the media are still crucifying Perry for calling it that. Doubtless all this will come up in the Republican debates this evening (1700 PDT), and I presume that Perry is prepared for it.

If the Social Security funds were actually put into a Trust Fund, it would still be a Ponzi scheme even if it only promised to give everyone who contributed their money back, because a great number of people who never paid into Social Security are entitled to benefits. Those benefits have been ever-growing from the day Social Security was founded. Assuming that is true, there are still more future obligations not only to those who paid into Social Security but to others on Disability who never paid into it at all than there is money coming into the system. Everything previously paid into the Social Security System has gone into the general fund which was spent on armies and civil servants and cannon and roads and bunny inspectors, SEALS and Department of Education SWAT teams, Air Force One and a jet fleet for Speaker Pelosi, the Capitol Police and the District of Columbia Education System, and a ton of benefits to anyone who could afford a lobbyist and the minimum pay to play fees. That money is gone, and it can only be replaced by taxes, which just at the moment don’t cover current expenses – the US is running at a deficit. It’s as if Madoff ran out of money and was borrowing heavily as he continued to persuade people to invest in his funds with promises of lavish payouts.

That’s a Ponzi scheme.

Madoff pretended that the funds he took in were invested cleverly at compound interest, and that was how he would get the money to pay out more than he took in.

Social Security doesn’t even pretend to invest the funds at compound interest. It puts the money in the general fund and replaces it with a Treasury bond. I don’t know, but I presume that the interest from the bond would go to the Fund (although I don’t think Treasury bonds actually have coupons and interest payments) but since any income to the Fund would immediately go to pay bunny inspectors and people to raid Gibson Guitar, that doesn’t solve the problem. The only ways Social Security can generate more money for the Fund would be to increase the number of people paying into it, to raise the rate at which the contributors pay, or to find ways to tax people not eligible to draw from it. One proposal is to require everyone to pay the FICA tax on every cent of wage income; another is to add interest and other non-wage income to the income eligible for Social Security tax. These are the fixes that will make Social Security less of a Ponzi scheme. Think of Madoff: suppose he could get more out of his investors, while finding ways actually to invest the money at compound interest.

We will have to “fix” Social Security by lowering benefits, changing eligibility ages, eliminating some benefits for those not taxed (possibly placing them on welfare rolls, which doesn’t lower the total spending, but at least helps “save” Social Security) and eventually finding a way actually to invest some of the income at compound interest; and eventually, perhaps, Social Security won’t be a Ponzi Scheme. But it is one now, it always has been, and this has been known from the day of its inception. To say that Perry is not competent to be President because he actually says it is a Ponzi Scheme says a very great deal about the media and the political analysts, and the whole political system, and nothing it says is good.

When you are in a hole, it may be that you can’t stop digging. You may need to turn it into a tunnel. But you darned well better recognize that you are in a hole.

Of course there is another approach:

Subj: Can government lies calm the markets?

http://finance.townhall.com/columnists/mikeshedlock/2011/09/11/will_markets_buy_government_lies/print

Jerry,

About 10 years ago, I went to send a letter to all my clients and I called Social Security a ponzi shemem and the legal department at my firm would not let me send out the letter; the head of compliance agreed with me but would not let me put it in writing!

So, will the debate be televised tonight? I tried to find the last one before Obama’s big important speach and could not find it.

Oh, and have you seen any details on the important, urgent bill we need to pass for him so he can fix everything? I saw on yahoo that President Obama was brandishing his bill, but I could find no links to an actual bill.

Hope you, your family and Sable are all well.

Alan

A show with everything but Yul Brynner

Murray Head

Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.

Winston Churchill <http://www.brainyquote.com/quotes/quotes/w/winstonchu164131.html>

The debate: http://cnnpressroom.blogs.cnn.com/2011/09/12/tune-in-first-ever-cnn-tea-party-republican-debate/

I have not seen the American Jobs Act, nor have I any reliable communication from anyone who has seen it. I think it’s coming Real Soon Now, but I can’t be sure. I find it interesting that Congress is being chided for not passing it immediately when, to the best I know, no one including President Obama has actually seen the bill. Perhaps I am mistaken.

Social Security and Ponzi Schemes

But Jerry… Social Security can’t be a Ponzi scheme… ‘Cause the Social Security Administration tells us so!

http://www.ssa.gov/history/ponzi.htm

Karl

They certainly do, and conclude that Social Security is sound and permanent and wonderful. They also leave out a great deal about tax raises, benefit growth, and repeated crises as they hasten to tell you that Social Security isn’t a Ponzi Scheme because, because, well because it just isn’t…