IS the US Economy a Ponzi Scheme?

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Well, at least Social Security is. If you don't think so, see this brief video:

http://www.moneyshow.com/video/video.asp?wid=4176&t=3&scode=010473

 

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No.

There is nothing wrong with Social Security except the fact that in order to repay the loans from its surplus fund (to handle the baby boom) rich people will have to pay taxes. Hence the emergency, panic, etc.

It is a transfer payment, a welfare setup ( a bad, regressive one). There is no Ponzi arrangement at all. There is no investment, no return on investment, no covering returns on early investors with later investments to seduce new ones.

 

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The surplus fund was merged into the general funds of the Treasury some years ago, and spent. I.e. the "surplus fund" does no longer exist. - It is now the same pot as the national debt, which is going deeper into the hole by 1.8 trillion dollars this FY (by September 2009) All there is a growing stack of IOUs from the Treasury to the SS administration.

I will admit that with modest effort, one can find out that the payments workers make into social security monthly are being immediately paid out to those now collecting is a difference from the Ponzi's secrecy mode, but many American do not understand this and the government never makes much effort to give them the correct understanding. Certainly, the Government NEVER calls SS a welfare scheme. I.e. like Ponzi, the government misrepresents what it actually is, if you are correct and it is actually a welfare scheme. I think it is more of a scheme to reduce the amount the Treasury must borrow via public auction of bonds. It is becoming less effective at that now. I.e. this year, for the first time SS will pay out more than it collects for the Treasury! It is all down hill as a fund raiser from now on, I think.

Nor is there in a Ponzi scheme - here SS and Ponzi are identical.

That is not correct. I am an "early investor" and collecting, just like the first into a Ponzi scheme. - I have already gotten back about twice what I put in in nominal term and nearly breaking even in purchasing power now.

True the government does not "seduce" new investors (contributors to SS) - It has no need to - It MANDATES BY LAW that they contribute.
If Madoff had had that power he would be deep sea fishing on his 40 foot yacht now.

SS is the biggest Ponzi scheme ever invented. A young person starting to work now will be lucky to get 5 Cents on the dollar invested as a return later in terms of purchasing power, and he had not choice about "investing." Except for the fact the lawyers are paid first, Madoff's investors would get more than 5 cents on the dollar.

 

That and the treasury bond market...yes!

 

The US government is careful not to describe anything popular that it does as welfare or socialism. That would offend its corporate support.

But describing SS as a Ponzi scheme plays into the hands of the wingnut brigade, in their attempts to destroy anything that might lead to them being taxed for the benefit of somebody else.

The "merger" was a series of loans, technically, which are to be repaid from tax receipts. The beneficiaries of these loans - military contractors, mostly - realize that there is only one way to pay them back. They are trying to destroy SS before that happens.

A Ponzi scheme is presented as an investment - that is its formal description, legally on record. That presentation is the central lie.

SS is set up as a transfer payment, formally and publicly and on the record. People lying about it doesn't change that - and most of the people lying about it these days are trying to wreck it, not boost it. The comparisons between SS and some hypothetical investment in the stock market, for example, are not coming from the Social Security Administration.

Please to read carefully. There is no such thing as an "early investor" - you received no shares, no ownership of equity, no statements of return on investment. You were not solicited for more investment, nor could you at any time withdraw your money even in theory. Your misleading interpretation of your situation is your own, not the PR efforts of the managers of the plan.

I am sorry to be blunt, but that is Fox News nonsense. The young person has already received his return - the old people of his community, even the unlucky and bereft, are and have been living in reasonable dignity for the most part, not starving and homeless by the tens of thousands as they were before Social Security. That's where his money went, and it was a reasonably good deal.

 

I will agree that formally I was not and investor in SS - it is even called a tax, I think; but functionally I put money in and I as an early contributor have gotten much more than twice that amount back nominally and am at least even now in purchasing power I would guess - never tried to calculate that. Functionally this is like an investment.

I will agree that the young man has already receive a return, not sure it is a "benefit." Namely he and wife do not live with the still living grand parents, their parents etc. as they did in the days before social security and other factors changed the typical way of life. Hell they probably do not even live in the same state.

In the pre SS days most of the old were taken care of by family, and lived with some of the better off of the next or second generation. Times are diffenent now. I don't know, but suspect there are more mal-nurished and homeless now than back then when life was simpler and most died within 50 miles of where they were born - every one knew everyone etc.

 

I'd bet heavily the other way - figured as a percentage of the old, anyway.

The old were the poorest age class in the US in the 1930s - and that means something.

They do that now - because the kids can afford them, the kids are very likely to be alive and working, etc.

As an intuition sharpener, recall that marriages back then lasted almost exactly the same number of years as they do now - only the end of them was more likely death and less likely divorce. There was no such thing as infertility treatment - involuntarily childless couples were fairly common. Alcoholism was as prevalent then as now, gambling addictions common, crippling injuries serious blows to income and status. There was no safe place for savings - banks were not insured, etc. Old age was a feared state.

 

Another reason why "Yes" is the correct answer is the likelyhood that the CPI correction will be changed and / or the max payout will be limted to keep it feasible for the decreasing number of workers to support the growing number of retiring "baby boomers" is that the real value of the dollar is dropping:

"... The dollar declined to the lowest level this year against six major U.S. trading partners ...
Federal Reserve Chairman Ben S. Bernanke told Congress last month that policy makers will maintain a “highly accommodative” monetary policy for an extended period. {Read that as "print dollars."} ... Ben Bernanke is making it clear that although he has an exit strategy, he’s not going to use it any time soon. That’s probably been a small negative for the dollar.

The dollar fell 1.6 percent last month to $1.4257 per euro {on 31 July} in New York, from $1.4033 on June 30. The U.S. currency fell 1.7 percent to 94.68 yen, from 96.36 yen a month earlier. ... The Dollar Index, which the ICE futures exchange uses to track the currency against counterparts including the yen, pound and Swedish krona, touched 78.22 yesterday, the lowest since Dec. 18. The index dropped 2.3 percent in July. ..."

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=avw3GQSozn2Q

I.e. Young people, forced to send taxes to us older folks now may even eventually get their dollars back - but what will they buy? If they do get back what they put in, then SS is a Ponzi scheme with a guarantee that you will get your money back. - Sort of like buying a 30 year Treasury bond today if you are in your late 30s. Would you do that if not forced to?


Thus the two main difference between standard Ponzi scheme and SS are:
(1) You have no choice. - You must give significant part of your income to Ponzi each year.
(2) You probably will get your money back, if you retire early and live to "ripe old age." (Die at 70 and your really are screwed.)

 

Where does this bizarre language of "getting your dollars back" come from? That is Fox News framing.

Do you regard money you give to panhandlers as wasted if you don't "get your dollars back"? Money you spend on roads and fire departments and ER facilities?

There is no such thing as "getting your dollars back" from Social Security. There is no investment, no return, no pile of your dollars in the system somewhere and no claims of any such. There is no mystery about where your Social Security dollar has gone - you probably know someone who got it in the mail.

I really don't see how adopting the vocabulary of the wingnut right improves any discussion of Social Security.

 

billy has the first dollar he made. he seems like that type anyway....a hoarder.

 

I am much more of a left wing nut, especially in my youth. I am, also like Marx in that I think economic self interest drives many, but not all, decisions regarding money. The rich will screw the poor if they can get richer by doing so, as a general rule, etc. Few are as understand as how to best do this (get "filthy rich") as Henry Ford was - I.e. pay your workers well so they can buy your cars, make mass marketing, boost volume & efficiency of production etc. GWB certainly was very ignorant and short sighted here - much more like the typical Republican who does not understand the benefits of ALL becoming more prosperous together as Ford did.

I don't listen to Fox news, so did not know that I sounded like them, if that is true. It could just be the "broken clock" effect (fox being the clock). What I said they may have too (twice a day the broken clock is correct.)

But to the point about "getting dollar back" that I do use as guide to investments. I.e. at least the purchasing power back and hope for more. When it comes to government spending my tax dollars, then I want society to get value for them. Thus the group doing the investing (be that only me of 300,000,000 Americans) should want to "get their tax dollars back" at least in purchasing power, I think.

There is a thread about "Where should NASA go next?” I shocked most by saying "home" I have opposed the manned space program from before NASA existed as it does not get the dollar back even 10% as well as an instrument program does. Many more reasons and details in my posts in that thread.

Perhaps Fox and I may use the same words, but I doubt that they, like me, want to abolish local funding of all schools to make all truly have equal and good educational opportunities for all and spend big on it. The GI bill (WWII ed prog for vets) was one of the best dollar back investment America ever made, IMHO. The era when US needed a lot of strong backs and weak minds is long gone. (But we still fund education the same local way! Assuring big supply of weak minds via rat infested schools with no books in the "library") The US is going down the tubes now in large part as it does not educate all it brains as many of the growing US competitors do.

I started the thread: "How dumb can US voters be?" just before GWB ran the second time for POTUS - If Joe American had had half the educational opportunities I had, GWB would never even come close to a second term and we would not be about to go into deep, long lasting depression - Education is a great "dollar back" investment.

 

This stuff about SS being a Ponzi scheme is standard wingnut boilerplate - couple of times a month in the newspaper letters, all the time on the radio rants, etc. It's how they were trying to sell the country on putting all the SS money into the stock market - that was in 2004, 2005.

I'm familiar with your general take on things, and do not confuse you with those guys. But the stopped clock effect works in reverse too, you know, if you are right most of the time.

Social Security has almost nothing in common with a Ponzi scheme - beginning with complete transparency and no central beneficiary getting rich; going on to no investment, return, or even pool of invested money; including the lack of a pyramid in its designed functioning (the increase in lifespan and the baby boom were neither one expected in the setup), the lack of calibration of return to total investment, and so forth. The government is taking money from the wage-earner, and giving it to old people. That way lots of unlucky or unwise old people don't have to live on shoplifted cat food and irregular charity, as in the past. That is not a Ponzi scheme. It is welfare. Socialism.

 

That is quite correct, I think. The mis-represntation, lack of claity, intentional miss leading of many by doing this welfare via a special tax, instead of the general taxes, and always referring to SS as "Your Social Security." is flat out dis honest attempt to diguise this public welfare as YOUR Social Security investment for your old age.

Have you read any of the SS booklets? NEVER do they say SS is a public welfare system. They intentionally mislead, as Ponzi did, what is happening to make the financially innocent think they are investing in their OWN future with their monthly payments. If they were not trying to tick the public, they would honestly call SS, as you did, a public welfare system. The government is no more honest here than Madoff was - they intentionally decieve as all Ponzi artists do.

 

The deatils of the sales pitch are not the defining features of a Ponzi scheme - had Madoff informed the early investors of exactly what was going on, it would still have been a Ponzi scheme, merely with more schemers.

Not all lies are the same lie.

The government is of course misleading the American public by allowing that public to pretend there is some kind of investment involved, despite the plain facts unconcealed by anyone. But so are the critics of Social Security, when they throw around words like "Ponzi scheme". Of the two misrepresentations, the government's is more accurate - there is a kind of investment, in political leverage and what accountants call "good will". But there is no Ponzi at the center, profiting; no pyramid arrangement built in, with an exponentially expanding base of suckers assumed.

 

Perhaps "profiting" is not the right word, but the government is collect the money and currently spending it (not on yachts and fancy houses as Madoff did, but spending it just the same.) Currently because the total salaries have decreased for the first time in many years the SS tax is producing less revenue than it did last year. Even though the baby boomers have just started to retire and collect SS, the money paid out under SS is greater than the collection of SS taxes brings in. I.e. SS is now falling deeper in the hole and will with each passing year until either promises given are revoked or SS collapses - in either case, this is just like any other Ponzi scheme. -Contributors get nothing, or much less, when the collapse comes than they were promised.

I agree that there is no "exponentially expanding base of suckers assumed" -For two reasons:
(1)Suckers are not require for SS as you have no choice - the law forces you to contribute to SS (up to a large limit) ever month you legally work for money.
(2) The ratio of collectors to contributors is not constant of decreasing as in the early stages of a Ponzi scheme - it is steadily increasing as the population ages.

Not all Ponzi schemes have the same ratio. For example a chain letter can tell you to make 3 or five copies to send to others and one dollar to name at the top of the list. The "exponential" increase in contrubutors is not a necessary part of most Ponzi schemes. In fact, such a rapid increase just insures that they will quickly collapse. The better designed Ponzi schemes try to keep the ratio of payers to collectors constant for as long as possible. The US's SS Ponzi could have do that for at least a century if not for "Woman's Lib"and birth control pills. Women have grown stubborn - They refuse to remain "bare foot and pregnate" like the good lord intended. I don't know what the modern world is comming to!

There certainly is a "pyramid arrangement built in" SS assumes that there will be more payers into the system than collectors taking money out and or that the payers will pay in lfor a longer period than the collectors will take out. In addition to the stubborn women just mentioned the dam doctors and hospitals are making that assumption false (people are living longer) I think the only soultion is a few packs of cigarettes sent with every SS check. Probably need a few TV ads like: "You eraned it. Light up and enjoy now that you have retired." or "Have a smoke before your first untrained sky dive.- GHB,father of GWB, always smokes before his."

 

Not much on thread, but neither is the recent SS diversion, which I now stop as it is not much a dispute (mainly between iceaura and me) about facts but over a name being appropriate discription or not for Social Security. As just noticed this CPI graph I will post it as it is what corrects SS. Note we are now with slight de-flation. I am courious to see if the government will actually reduce my SS payments for 2010. If they do - there will be a lot of protest as medical costs and many food items keep going up. (Old people not buying the things like new DVDs, digital cameras, computers, etc. that are going down in price and taking the CPI down.)

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A 9 trillion dollar US debt is $29,000 / man, woman and child.

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Only way to pay it is to flood market with dollars. Photo shows what than means.

I told you long ago to get into a sound currency like the Brazilian Real or Norwegian Kroner. Via ADRs is the easiest way to do that. If not in ADRs, at least into TIPs.

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Buffett did point out where we are headed in terms of dealing with the massive deficits that have arisen from the bailouts:

"... Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: 'By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.' ..."

From: http://articles.moneycentral.msn.co...msnnl_6009.13.5.23&REFCD=emmsnnl_6009.13.5.23

 

Consumer electronics comprise only a small portion of the CPI goods basket. The main factor driving down the CPI in the last couple of years is the collapse in energy prices.

Actually, I'm given to believe that the energy component is the only one that has decreased: prices on DVDs, camera, computers, etc. are flat or even up.

 

Ah, but the pyramid arrangement is as much a part of SS as a Ponzi scheme. The allocation of benefits assumes an exponentially expanding base of workers to fund it. And, just like the Ponzi scheme, the trouble arises when that assumption encounters a contrary reality.