The Coming Collapse of the Social Security Ponzi Scheme

Ponzi Sceme signEveryone knows that the Social Security System is a giant Ponzi scheme. While this is nothing new to those who study such things, private sector Ponzi schemes pale in comparison to the coming of “The Great Social Security Ponzi Collapse.”

Future generations will study how our society could have been so silly as to launch such a scheme and why our primitive society continued to pretend that there wasn’t a serious structural problem until it was too late. Future generations would wonder why no one did anything about it, once it implodes and takes the entire Federal apparatus down with it. (Which may not be such a bad thing, anyway.)

Problem 1. Too few workers to fund the benefits. As in any good Ponzi, the money that recipients are being paid today, is not their money. That is not to say that those people who were working in the ’70s and ’80s and are now retired didn’t contribute; they did. They didn’t have a choice. The money was taken from them by the government. But the money that was taken from them wasn’t saved or invested; it was spent. It was given to the previous rung in the Ponzi, those who retired in the ’50s and ’60s. This is the hallmark of a Ponzi scheme. New investors are rounded up to pay the previous investors. Unlike classic Ponzis where individuals voluntarily contribute for a stated return, we suckers don’t have a choice when it comes to the Social Security Ponzi. The Government makes us play, whether we want to or not. New suckers are forced into the Ponzi, just by getting a job.

Like all Ponzi schemes, they fail because no Ponzi promoter, not even the federal government, can defy the mathematical laws of exponential growth. Eventually you run out of contributors to keep the system afloat and it comes collapsing down under the weight of its poor conception.

Depending on whose statistics you use, the number of persons contributing to each beneficiary is 1.75 for private employees, or 3 for all employees. What this means is that each working husband and wife, in addition to paying bills, mortgages, student loans and raising children, are also supporting a retiree. And when you add in the huge number of baby boomers who are expected to start drawing benefits, and the fewer workers left in their wake, you don’t have to be a rocket scientist to figure out that this Ponzi scheme is heading toward the dustbin of history.

Problem 2. It’s already insolvent. In a July 11, 2012 article in Bloomberg news, Lawrence Kotlikoff, in an article entitled “Social Security Hole Overwhelms Taxes, Cuts,” notes the following:

“The proof is buried deep in the [Social Security] trustees’ own 2012 report in a complex table, numbered IV.B6. The system’s actuaries prepare the report’s tables… Clearly this year, as in others, the trustees ignored table IV.B6….Table IV.B6 is a long-run balance sheet for Social Security. It shows that the system’s $88.9 trillion in liabilities exceed its $68.4 trillion in assets by $20.5 trillion.

The liabilities are the present value of the system’s projected benefit payments, whereas the assets are the system’s $2.7 trillion trust fund plus $65.7 trillion in projected taxes, also valued in the present.
The $20.5 trillion fiscal gap separating Social Security’s liabilities and assets — its unfunded liability — is enormous; it is 1.4 times U.S. gross domestic product and 34 times annual Social Security taxes.”

Let me make it simple. The Social Security Trust fund is $20.5 trillion dollars in the hole. The author asserts that no combination of taxes or cuts can cover such a huge deficit. The problem with the word “trillion” that no one seems to get is that a trillion is in reality 1,000 billions. To put it another way, we’ll need over 20,000 billions to cover the hole. The .5 trillion, represents 500 billion dollars.

Add to the already raging federal deficit of $15.8 trillion along with the range of federal expenduitres and the enormity of the problem comes into view.

Granted the Federal Government has the power to print money to escape this liquidity trap, but once again, everything has a cost. 100 years from now, students will be looking at this mess and laugh and wonder how a reasonably intelligent people could concoct such a patently ridiculous system. Our Social Security Ponzi, where our politicians promised us “something for nothing” will join the Tulip Mania of 1637, the South Sea Bubble and host of other economic shocks, panics and calamities. They will wonder how it could happen, and the answer is always the same: The promise of something for nothing – it’s at the heart of every scam.

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