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http://www.gmu.edu/departments/economics/wew/articles/09/TheNationalPonziScheme.htmThe National Ponzi Scheme



The U.S. Securities and Exchange Commission (SEC) was set up to combat fraudulent practices. The SEC's website explains that "Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s." It goes on to say, "Decades later, the Ponzi scheme continues to work on the 'rob-Peter-to-pay-Paul' principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses." That is how the SEC described the recent Bernard Madoff $50 billion Ponzi scheme, "a stunning fraud that appears to be of epic proportions."

A Ponzi scheme does not generate any wealth whatsoever; that is why it ultimately collapses. As Circuit Judge Anderson said in the 1922 Lowell v. Brown case, the Ponzi scheme was "simply the old fraud of paying the earlier comers out of the contributions of the later comers." So long as the number of late comers -- you might call them suckers -- grows, the fraudulent scheme has life.

We have a national Ponzi scheme where Congress collects about $785 billion in Social Security taxes from about 163 million workers to send out $585 billion to 50 million Social Security recipients. Social Security's trustees tell us that the surplus goes into a $2.2 trillion trust fund to meet future obligations. The problem is whatever difference between Social Security taxes and benefits paid out is spent by Congress. What the Treasury Department does is give the Social Security Trust Fund non-marketable "special issue government securities" that are simply bookkeeping entries that are IOUs.

According to Social Security trustee estimates, around 2016 the amount of Social Security benefits paid will exceed taxes collected. That means one of two things, or both, must happen: Congress will raise taxes and/or slash promised Social Security benefits. Each year the situation will get worse since the number of retirees is predicted to increase relative to the number in the workforce paying taxes. In 1940, there were 42 workers per retiree, in 1950 there were 16, today there are 3 and in 20 or 30 years there will be 2 or fewer workers per retiree.

Social Security is unsustainable because it is not meeting the first order condition of a Ponzi scheme, namely expanding the pool of suckers. Social Security has been one congressional lie after another since its inception. Here's what a 1936 Social Security pamphlet said: "After the first 3 years -- that is to say, beginning in 1940 -- you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year ... beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. ... And finally, beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay." The pamphlet also said, "Beginning November 24, 1936, the United States government will set up a Social Security account for you. ... The checks will come to you as a right."

That's another lie. In .Flemming vs Nestor (1960), the U.S. Supreme court held that you have no "accrued property rights" to a Social Security check. That means Congress can do anything it wishes with Social Security. There is little or nothing that can be done to prevent the economic and political chaos that will result from the collapse of Social Security.

Today's recipients of Social Security, along with their powerful AARP lobby, represent a powerful political force. Few politicians are willing to risk their careers alienating today's senior citizens for the benefit of Americans in 2040. After all what do today's seniors and politicians care about a 2040 calamity? They will be dead by then.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

comments?

clean'

CS, if you will hire only two Mexicans that pay into the SS system and those two get two and those two get two etc,,, my gawd, we'd have a SS surplus that would take care of every American citizen forever. Have you per chance run these numbers through the Republican party? Everyone knows they can't do math but this is simple addition and I'm sure you could teach the Repugnuts just how much such a "Ponzi Scheme" would benefit their sorry asses.

Why Sarah Palin just might be able to feed more mouths in her own family values style. We're all waiting with baited breath to hear about the next little out of wedlock bastard they produce. If Sarah hired two Mexicans that paid into the SS system and those two hired two and those two hired two...

We need ot get Dobson in on this so he can quit his "bitchin".

Maybe your selective memory isn't as good as it used to be, but Bush tried to get a social security reform bill
through the democratic congress, but they said "No thanks, SS is fine just like it is."

You can thank your liberal jackasses when you or your children are left holding the bag, and
there's nothing in it.

clean'

Excuse me, but your hero Bush the war criminal, tried to privatize SS into his own special interest group. The Repugnuts don't think people need SS, and their stand on the issue of reform is to tell everyone to become entreprenuers independent of government assistance. In other words, let the poor and needy starve on the streets.

My selective memory will never forget Bush and his criminal administration. They can run but they cannot hide. They will forever be as Nazi Germany and remembered with the same disgust. So, you can thank your MFSOB's for holding the bag on every conceiveable evil they created. It is they who have blood on their hands. And it will be your children's children who carry their fathers legacy of lies that killed many in your own family.

As Roz pointed out if Bush had had his way the social security system would now be down the crapper since he wanted to put it in the hands of his buddies the crooks on wall street and millions who now draw there ss would be out on the street...but I'm sure you won't apply for yours clean since you won't need it.

As usual, left wingers don't let pesky little things like facts get in the way of their ideology.

The plan was voluntary. No one was required to invest a portion of their SS payments into
a different savings plan. They didn't have to invest any money if they didn't want to. They
could stay 100% in the SS plan. The people who paid into the system had the choice as to
where their money was to be invested, not the government. In any case, a certain percentage of
the payments were to stay within the Social Security plan.

The liberals didn't like it because they wouldn't have full access to the SS payments anymore,
so they defeated the bill.

Now, if you want to actually debate that, instead of rambling nonsense.....nah... not
going to happen.


clean'

Says the King of Rambling Nonsense.

You make me laugh...to think anyone would trust or believe anything that came out of the bush white house and believe they were actually concerned with the majority of Americans and not their buddies...that would be like believing anything on fox news.

Cleansore (like all FundaGenitals) believes everything he sees on Fox News.

Bush's new deal was not a voluntary plan. The existing SS system funds would have been diverted into his investment schemes and a new way of paying out to workers and others needing assistance would have been less than they now receive. Not to mention interest payments for playing in Bush's stock market scheme backed by his cronies. People would have been literally on the street starving.

The existing system works just fine. It is the Repugnuts who do not want to hire Mexicans, blacks, other minorities that would pay into the SS system and any other people the Repugnuts don't like. Let's face it, the Right-of-Whitie-Repugnuts see themselves as better and more superior humans than anyone else. They want to take the government back as they like to spew it, into the past where people had no health care and no way of providing food for their families. Where the black man was forced to say "yes Masser" and "yessir boss". And it is their welfare that they intend to protect at the expense of the poor, the working class, the immigrants and whoever else isn't in their Klannish circle of wealthy smug snarled faced repulsive assholes. I have no respect for the Repugnut lynch mob. None at all.

The Republicans always try to figure a way to scam the poor people.

Everybody knows it, even the poor Redneck FundaGenital Fascists who are among those getting pranged.

So......why in the world do the poor Redneck FundaGenital Fascists continue to support the Republicans who are pranging them?????

Yes, it is hard to believe and mystifying.

Well......it's because.......

1. They are really stupid.

2. Due to their desperately low self-esteem, they desperately want to separate themselves from the poor and align themselves with the Republicans (who they perceive as rich and powerful). They have aspirations of being like the Republicans.

Alas, their head is in their ass.

Pax!

it's got to be that false Prosperity Doctrine that keeps the uneducated ignorant and in denial.