IS the US Economy a Ponzi Scheme?

And that is made perfectly clear in the SS literature, which features ubiquitous usage of the qualifier "estimated" when the term "benefit" is used. It's also made very clear that how much you ultimately collect will depend on how long you live, when you retire, etc.

That's a pedantic requirement - where the money comes from and goes to is a matter of public record, easily known by anyone with the basic background in the subject, or just access to Wikipedia. You're going to have to produce an example of the government actually making misleading statements if you want to make the "clearly misrepresenting" charge stick. What you have so far is "failing to go out of their way to make everything crystal clear to people who haven't even bothered to learn the basics of the subject."

Said another way, people who don't understand that the operation of a government agency is subject to legal revision should not be the normative case in assessing the implications of a statement about future government operations. Our time would be better spent providing such people with a basic, elementary-school-level education in how governments work, rather than stuffing every public document with inane disclaimers about how laws are mutable. Shit, there's hardly a day that goes by without budget hawks making a stink in the media about how entitlement spending needs to be reduced, the government in general gutted, etc., so by now anyone that doesn't understand that these things are mutable should probably be prevented from ever voting again, on grounds of gross stupidity/ignorance.

It would make exactly one retiree's worth of difference, which is the most that any one person can expect.

And, again, you could donate the money to help out retirees in the US. Or you could donate it to groups that lobby for your preferred reforms of Social Security.

Point is that continuing to take the money undermines a lot of your credibility when making arguments such as these. And that leaves you looking less like a principled SS activist, and more like your usual "stupid Americans are all going to die" scold.

And they'll be correct: that's exactly what an "entitlement" is. The reforms in question are related to the issue of exactly what entitlements which people are entitled to, and who should pay for them. And the problem of self-interest remains regardless of how Social Security is described. Pointing out that it's a welfare system and not an investment account will not make the cravenly self-interested any happier about giving up their entitlements. It will just make them openly oppose welfare. The entire reason that the false narrative about SS being a savings account persists is that a considerable number of people wouldn't support it otherwise.

 

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It can, but often does not (that is why when you want it to be so restricted one states: ROE, Return on Investment.) For example: A college eduction pays big returns. I hope he returns the favor, etc. There is no presumption of any investment fund just because the word used is "return."

Also I clearly have stated that the returns I have been promised will be paid from the contributions of future workers - Never have I suggested that there was some fund from which I would in my turn collect my return / benefit from. I do get a return for my current contributions. I have only noted that the Government will compute for your what your financial (return) (benefit) is expected to be (if rules do not change).

Note either "return"or "benefit" can be used in these sentences and the meaning is unchanged. You are imposing the idea that use of return is only permitted if there is some fund from which it is paid. Again if this semantic is such a big deal, feel free to replace my "returns" with "benefits" - my points remain unchanged.

"Return," in general only requires that one makes some current effort for which one expects some future "benefit" or "return" for that effort.

 

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Given that the government doesn't use the term 'return' in the literature in question, this is no longer relevant anyway.

Moreover, I don't see anything left of your allegations of the government portraying SS as an investment fund, absent any verbiage that implies such.

The irony is that there is exactly such a fund, and it is what is paying much of your current benefits. But it's a temporary thing, and people paying SS taxes now are not contributing to it.

 

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OK I agree to drop the return vs benefit discussion. I think it was you who started itbut did not go back to check.

I made no such allegation. I alledge that SS is a Ponzi scheme as, until very recently, it pays out to current recipients only from the funds supplied by the contributors. (Now it is using money from the general taxes to buy back some of the bonds it gave SS earlier so SS can pay the current law's requirements. I expect this will be the case at least until the last of the baby boomers retires. Perhaps SS will always need money from general taxation until prior promises are reduced. The forecast that this need of general tax income would not occur until 2017 has clearly been proven wrong.)

I don't see it that way. I think one is more creditable when calling on others to change the system if you too will be hurt by the change. If I were not collecting I have nothing to lose by advocating that the system be changed. For example I do not smoke so my calling for smoking to be banded is less creditable, less likely to make a change, cost me nothing, etc. than if a smoker does so.

 

Misrepresentation of the funding structure as consisting of an investment fund is crucial to the definition of "Ponzi scheme." A welfare system that funds current benefits with current taxes is not a Ponzi scheme unless those taxes are defrauded into believing that they're contributing to an investment fund.

You're messing up the accounting: Social Security is paying benefits by drawing on its trust fund. That said trust fund consists of treasury securities is a separate issue. If I cash in a treasury bond and spend the money on a new bicycle, we wouldn't say that "general taxes are being used to buy me a bicycle." That's money I saved and invested, not some claim on the tax income of others. This distinction is important, even if the immediate source of the actual money in my account was the Treasury. After all, the prior source of the Treasury's money was my bond purchase.

Well, that is the entire point of the trust fund, so yeah.

Except it's when the last of the baby boomers dies, not retires.

The laws would have to be changed to permit general fund revenues to be transferred into Social Security. The two are separate financial entities.

Again, that's because you're messing up the accounting. 2017 is when the trust fund is expected to run out of reserves, at which point we have to do some combination of raising SS taxes and reducing SS benefits. SS is not currently dependent on "general fund" revenues any more than the CCP is: they are spending money that they saved during years of excess revenue, and which was invested in US treasury bonds. That the Treasury needs to tax people to meet its obligations is just an artifact of the fact that they spent the money that SS loaned to them on other things. If they'd just sat on it, they could now pay it back without any need for taxation (excluding the interest, of course). That the Treasury needs to tax citizens to repay its creditors has no bearing on the solvency of said creditors.

You stand to lose your entitlement regardless of what (if anything) you're currently doing with it.

 

No, that is false, but you keep insisting on it. For example (and proof your statement is false), in US law (and/or IRS ruling, I forget which) a chain letter asking you to send a dollar to each of the people listed in the letter (and copies of letter with your name at the bottom to be sent to others) is defined as an illegal Ponzi scheme. There is no "investment fund," even implied in a chain letter Ponzi.*

The essence / definition of a Ponzi scheme is that those now collecting are getting the money (or other valuable service - see footnote) from those now paying in.
(No need to even imply the existence of any investment fund. BTW there was no such fund in Ponzi's original plan. He merely bought German postal stamps and resold them later at a profit, which he shared with his capital backers.)

Perhaps when SS has used up all the bonds it has and is funded from general taxation, you could argue that SS is no longer a Ponzi scheme because some of the funds paid out are not coming from the contributors paying in to SS. (For example, corporate income taxes will be part of the source of the money that SS is paying out then.)

Because you assume a falsehood, all of the rest of your posts built on that are false too.
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*Most interesting chain letter I ever got had seven names at the bottom. I was instructed to go to their home at night during the next week and shit on the lawn.
It promised that soon my lawn would be fertilized for free. PS, it did not mention any "investment fund."

 

If the US's Social Security productively invested the SS taxes collected, as Canada's plan does, then I would not call it a Ponsi scheme.

" Canada Pension Plan Investment Board offered A$3.47 billion ($3.1 billion) for Macquarie Group Ltd.- backed Intoll Group in its second attempt to buy an Australian toll-road operator in eight months. ..." From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=aIAjf5v7oJTs&pos=3

US's SS works like any other Ponsi scheme - pays out so long as the current income is greater, Or when it is not, prints money to pay out the legally mandated benefits.

 

Yeah we stand firm here on Investing, abroad Canada owns mines and industry all over the world.

Plus we have a policy of tax first then spend.

If memory serves me correct The USA spends first then taxes,(Very Danergouse)

 

"... Treasury two-year note yields fell to a record low as reports showed that consumer confidence plunged to the lowest level in a year and retail sales declined, heightening concern the economic recovery is stalling.

Yields on 10-year notes traded near a 14-month low this week after minutes of the Federal Reserve’s June meeting showed policy makers noted that risks to the recovery increased. Housing starts and sales of existing homes declined last month, reports next week are forecast to show. ...

The benchmark 10-year note yield fell 14 basis points, or 0.14 percentage point, to 2.92 percent yesterday in New York, from 3.06 percent on July 9, according to BGCantor Market Data. ...

The two-year note yield dropped for the seventh straight week, falling 4 basis points to 0.59 percent and touching its owest level ever, 0.5765 percent. ..."

From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=aO.drb_yGNHA&pos=4

Billy T comment: Historic low rate implies historic high price. I.e. the Treasury is selling at highest ever price the 2 year notes as many are seeking the cover of "the never to lose" capital government note but don't want to go longer term as also fear falling dollar value. Likewise, the buying of foreign bonds and gold is at all time high rate. Many fear stocks etc will lose value.

 

More evidence:

"... Baby Boomers are expected to collect benefits longer than previous generations as average life expectancy continues to climb. In 1940, for example, U.S. life expectancy at birth was 61.4 (men) and 65.7 (women). Those figures now stand at 75.4 and 80.

With more people collecting benefits for a longer period of time, the Social Security Administration (SSA) reports that there are only three workers per beneficiary today, a figure that is expected to drop to just two workers within 40 years. That’s a dramatic decrease from 1950 when there were 16 workers per beneficiary, and compelling evidence of a program with trouble on the horizon.

Shifting demographics combined with the effects of a deep recession to produce even more sobering figures in the Social Security Board of Trustees’ 2009 Annual Report on the health of the Social Security Trust Funds. According to the report, tax revenues will fall below Social Security program costs for the first time in 2016,* a year earlier than estimated in the 2008 report. The trustees also estimated that the program will become insolvent by 2037, four years earlier than predicted just one year ago ..."

From: http://manofthehouse.com/money/plan...&utm_medium=cpc&utm_campaign=Outloud-Outbrain

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* I think that may mean exactly what it states, because I recall reading that in 2009 for the first time in history, in part because of the sluggish economy and large number not working at all or in lower paying jobs, the income to SS via the SS tax was less than the SS payments. I.e. the SS had to sell some of the government's IOUs back to the government as current income would not cover the out go.

To put the above statement about 2016 into other words, admittedly hard to believe**, it is that in 2016 the SS pay out will exceed the total US tax collections! I think this is likely, but only because I think by 2016 the US will be in deep, long lasting, depression, worse than the one of 1929. Not only will a large fraction of the baby boomers be collecting then, but everyone without work will start their SS at age 62

** Perhaps what they intended to state is that by 2016, all of the IOUs that SS currently owns will have been sold back to the government and from that time forward, only the printing presses will make the money SS distributes.

 

Billy T up dating this, for only three months of time passed:

Yesterday the yield on the 10 year bond was 2.55% and Housing is much further into the toilet now, not to mention the danger to the banks the "pull -back" suits represent. I.e. owners, including the NY division of the FED, of the "toxic trash" packages of mortgages are now in the courts trying to get the banks, which put these packages together, sold them with AA ratings, and did not due "due diligence" as they represented they had, to buy back the packages they sold. - That false representation makes a strong case that the packages were fraud and must be pull back - i.e. Banks instead of the buyers will eat the losses, that are estimated to be as high as 170 billion dollars. That will necessitate a second bank bailout, BB2, the twin brother of QE2.

Also up dating the US debt increase in the last 3 months: That is about 350 billion dollars! US is going down the tubes, faster and faster, now. As Ponzi plans do.

Some good advice I heard last week: "Enjoy the music while it lasts, but dance near the door."

 

“…Treasury SecretaryTimothy F. Geithner said the U.S. won’t use the dollar as a trade weapon and he repeated his support for a “strong dollar”… “
From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=aCk6Dn0h3qAE&pos=3

“…The Fed’s support for asset values isn’t helping the “real” economy, and is creating “dangerous signs of a potential free fall” in the dollar and will be unsustainable …{but} … Chairman Ben S. Bernanke said the central bank must focus on the U.S. rather than overseas economies. …”
From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=adPtBcbSL4lQ&pos=1

Billy T comment:
This reminds me of the politician who at Woman’s Rights meeting said: “Every woman who wants or needs a husband has a right to one.”
And later that day at the Men’s hunting lodge said: “No man needs to marry his girl friend, just because she got pregnant.”

As in any Ponzi scheme they promise the impossible.

 

"... the most important fact is that we {the USA} are absolutely, positively at the epicenter of one of the vastest expansions of the money supply in history right now. Look at what the Federal Reserve is doing: It’s creating enormous amounts of money – almost $2 trillion in the last 24 months. Altogether, the government has already guaranteed $12.7 trillion in mortgages and debt.

And by buying more Treasuries, the Fed is monetizing U.S. debt by supplying credit to the U.S. government. That’s the No. 1 action to take if you want to guarantee hyperinflation. It’s Zimbabwe finance... straight out of the Mugabe play book. The Fed’s actions are not only wrong-headed, they’re criminal.
It’s paying back old debt with new money, a veritable Ponzi scheme.

From: http://www.moneymorning.com/reports/Dollar_MMDOL1010.pdf

Billy T comment: Why my Dollar wealth is now 2/3 in TIPs plus, seven precious metal miners, Telecom VZ, Electric SO, and a few very promising early stage drug developers like SPHRY & VRTX plus three generic drug companies (Teva, Par, RDY), four to six oil stocks, six Chinese stocks selling to the population (internet eduction, hogs, medical services, etc.) and Union Pacific which hauls coal to west coast ports for China bound ships, even when US economy is dead.

SUMMARY: If you have got any "skin" in a Ponzi scheme, the trick is to get out before it collapse, even if you do so a little early.

 

Thats a bit gloomy isnt it..

 

True, but very likely to be true as all Ponzi schemes collapse in the end.

 

Time to up-data this old thread:

If you can, please tell which, if any, of the above stated facts is false. (Final bold text is an opinion, not a fact, but it validity or not has occupied most posts here.)

Whether or not you want to call Social Security a "Ponzi scheme" as this source did, is largely a matter of how it is defined. I think Maddoff ran a Ponzi scheme and did so for the same reason Ponzi did. I.e Ponzi originally had a money making plan that worked (buying international postage stamps cheaper in Italy than in the US, as I recall to resell them in the US) but conditions changed (like with Maddoff) and he had promised his capital supplying investors repayments he could only make from funds collected from current investors (again like Maddoff) but both did not start out to run what is now called a "Ponzi scheme."

To me the definition of a Ponzi scheme is promises made to pay in the future when the only way that can be done is from collections made in the future, instead of from the profits from successful investments. I.e that is exactly what SS is now.

Already part of the SS payments are by printing press money, as collections are ~4% less than pay outs, but the trust fund got more than the 4% difference as interest on the bonds it hold in 2011. As noted below the rate of interest the trust fund gets is getting is rapidly declining now; the number of people expecting to collect is rapidly increasing (many more baby boomers are now starting to collect than those now collecting are dying, plus their life expectancies are increasing.); and what each gets is slightly increasing with the CPI adjustment; the number of workers paying the SS tax is declining (in part due to the demographics, but also because the work force participation rate is dropping)

So it does not take a "rocket scientist" to see that like Ponzi & Maddoff, the well intended SS program is now in increasingly deep trouble trying to keep its promises. - I.e. becoming a "Ponzi scheme." When it collapses, as all Ponzis do, depends on how long the US government can run trillion dollar deficits via printing press dollars, now that for two years China has been a net seller of Treasury bonds. Also there is the legal problem that by current US law, SS is not allowed to borrow to make its payments. I.e. by or before 2033, when all the bonds in the SS trust fund have been cashed in for dollars, ONLY printing press dollars can make up the difference be SS pay out and SS tax collections.

PS it is interesting to read in post 110, made almost exactly 2 years ago, that then the expectations for when the SS pay out would exceeded SS tax collection (something that happen - 2 years ago) was projected to occur in 2016! Even the CBO has a long history of very optimistic projections.

 

The whole issue is whether the facts in question support the scary, prejudicial claim at the end. They don't. The Social Security Administration is perfectly well aware of the demographic and financial outlook, and concludes that the Trust Fund will be exhausted - as planned - in a couple of decades, and that the long-run gap between payroll tax revenues and SS outlays in the subsequent four decades averages about 20%.

And since there exists only one valid definition of "Ponzi scheme" - which is a fraudulent investment operation characteristized by embezzelement and opacity and so does not apply to Social Security - that matter is exactly one of whether you are being honest or trying to use scary, invalid comparisons to cow your audience.

A Ponzi scheme is a fraudulent investment scheme, as you say. That does not apply to Social Security, because Social Security is not any kind of investment scheme, nor is it fraudulent.

If you want to engage in an analysis of Social Security's finances, I suggest that you do so honestly, rather than insisting on couching it in prejudicial, invalid comparisons.

That does not imply that said payments are "printing press money." The Federal government has this source of real income known as "tax revenues" that they can use to fund outlays. The Federal government can also borrow money from other sources. Unless you can show that the value of said bond revenue was wiped out by inflation caused by issuing money to pay it, then your claim of "printing press money" is false. Until you at least attempt to show such, you are just bullshitting here, without even attempting to be serious.

And the Trust Fund was created exactly to be depleted to cover the population bulge in question. Your insinutation that this expected, intentional depletion of the Trust Fund represents some kind of systemic crisis or warning sign is bullshit. Your implication that people believe that Social Security is supposed to be some kind of investment fund that takes in savings from workers and grows it for their retirement is false.

All you've shown is that the Trust Fund will run out of money in about 2 decades - exactly as it was designed to do at its inception. That does not represent any challenge whatsoever to Social Security - rather the opposite. The long-term (i.e., starting two decades from now) challenge is to close the small gap between expected payroll taxes and expected Social Security outlays. This issue is neither urgent nor particularly severe. A small hike in payroll taxes and a small cut in benefits, done slowly over decades, will be sufficient to address it.

You have not established that. A welfare transfer payment system that runs into demographic issues is still not a "Ponzi Scheme."

That's silly - the government can raise taxes, cut social security benefits, cut other spending to cover Social Security, or just borrow money.

Moreover, it is not possible to pay Social Security benefits with "printing press dollars," as Social Security benefits are indexed to inflation. So unless you mean something strange by "printing press dollars" - i.e., not inflationary monetary expansion - then you are not making any sense.

 

Based on the dismal record of SS´s ability to predict when the SS tax would not cover the SS payments, I have zero confidence in their projections.
Here is what they said recently:

I noted this gross error in post 104 made on 28May10 but did not then know it was a 148 billion dollar mistake. Don´t try to give me some BS about "no one could predict the deep recession" which began in last part of 2008. They knew all about it in late 2009 when they put forth their silly, but optimistic, non-sense.
One could certainly question their honesty or if honest, then their economic forecasting abilities. (You may chose which type of fool they are.)
Governments never fore see black clouds coming and tell the people all is well for the foreseeable future. Why peolple like me can get rich when trading stocks with those who believe their government.

Certainly, SS obligations could be paid only by a combination of the SStax collections and general tax collections BUT then some other expenses of the government would need some greater combination of of printing press dollars or borrowing. Robbing Peter to pay Paul, where Peter and Paul are needed expenditures of different government agencies, both of which must be paid, does not solve the problems made by increasing the debt via more borrowing or paying bills with freshly printed dollars as both actions have the effect of decreasing the value of the dollar - screwing the very old that SS was supposed to help - the retired who live on a fixed income.

Perhaps for people with your level of understanding of SS and the trust fund, yes; but >90% of the populations does think of SS as part of THEIR retirement saving plan. In large part because that is how the SS literature they were given describes it! - Always calling it "YOUR Social Security" and NEVER your transfer payments to help the currently old live better. If you ask SS as you near retirement age they will even calculated what you can expect to collect from YOUR SS based on your pay in record.

 

A couple of small errors during a time of higher-than-normal volatility in the various indicators is par for the course. I note that you do not disagree materially with any of the Social Security Administration's current projections, even as you attack their reliability and impugn my judgement for endorsing them. It seems that you are so caught up in asserting your own supremacy to myself and the Social Security Administration that you did not notice that you are presently in agreement on all of the baseline facts and expectations.

 

Again you speculate on my motivations and mental processes, as you do off thread in most posts, but yes I have no grounds for saying that “facts” SS is currently releasing are false information, so I accept their statements as fact - Just as I did in post 104 when SS was telling that what happen two years ago would not occur until 2017. When it did occur in 2010, SS then said, as you do now, that it was just a one time abnormality that collections were less than payout but would not become a permanent condition until 2017 - but in fact that happens every year now and the CBO has said it is already a permanent condition.

It is strange that you believe the Chinese politicos always lie, to make things look better than they are, but US politicos don´t do that. As if the Chinese were some sort of different humans from the Americans. I think both distort the facts when they think it helps their re-elections and that they are not likely to get caught. That was basically the “crime” of guy kicked out of the CCP (along with murdering wife) for his misrepresentation of conditions in province he ruled (was “mayor” of) but just like in the US his real crime was to try take power away from the current leaders. Probably the Chinese politicos do more of this, not because they are any different from American politicos, but because the Chinese press is more contolled and less likely to expose them (unless they are no longer in good standing with the main CCP leadership.)

BTW, I would not call 148 billion dollar mistake a "small error" but you do. Also note the gap between SS collection and pay out has been even greater than that first year´s 148 billion - the original SS miscalculation grows larger every year - what would the magnitude of the error need to be before you call it a "modest" error instead of a "small" error? Perhaps you think the >1 trillion annual increases in the Federal debt are just "modest difficulties" for those not yet born?