Monday, March 15, 2010

Social Security Ponzi Scheme: An "Offer" You Can't Refuse

I would like to offer you a deal.

I will put a gun to your head (ok, it's not really an "offer") and take a significant percentage of your monthly income for the next 30 or 40 years (the number could change so I will get back to you). I will guarantee you a benefit at some point to be paid out of a "fund", but I can't tell you how much it will be, and I will not pay you a market rate of interest nor will you have any say over how your (I mean "our" - did I add a "y" to that word…silly me) money will be spent. In fact, I will not even invest the money. You see, I need it to pay back people I made this same deal with a long time ago. Oh, by the way, my colleagues will need to borrow from this "fund", but don’t worry, they have given me IOU's which I keep in a three ring binder in an office in Parkersburg, West Virginia.

How much in IOU's, you ask? Oh, only about $2.5 trillion. Can we sell the IOU's in the open market and raise cash? No, they are non negotiable. How much are we collecting this year versus how much we are paying out? Well, we are a little behind this year - only about $29 billion. Don't worry, my buddies and I will be around for a while so when your time comes to receive the benefit, we will make this "offer" to others…What, you could make million's of dollars in compound interest if you could keep your own money and invest it? Again, uh, this is really not a negotiation...You're going to call the police? I am the police...

Someone explain to me how Social Security is not a form of organized crime?


CrisisMaven said...

Now the chicken come home to roost - this is the beginning of inevitable sovereign default and bankruptcy, after which even these IOUs are worthless. Siphoning money out of Social Security via these IOUs in effect will just mean you were paying a higher, non-redeemable income tax all those years.

Doug Reich said...

To add insult to injury, I did some simple math.

Say you make $100,000 per year for the next 40 years.

SS Tax is 6% (or so) so you pay in $6,000 per year for 40 years or $240,000.

However, each year, you could have taken that $6,000 and invested it, and through compound interest at 5%means you would have earned $485,000.

Added to the $240,000, your total after 40 years would be about $725,000.

The article says SS pays on average about $1,000 per month right now which means over the course of a 20 year retirement, they will pay you $12,000 per year or about $240,000.

Just think, if you kept your money, you could earn about 5% on your $725,000 savings which equates to $36,000 per year - without eating into your principal! In other words, you could make 3 times the amount SS is paying you and still have $725,000 in the bank.

Then, beyond that injustice, consider the loss of potential capital to the marketplace, capital that could have gone into productive enterprise instead gets squandered by the government.

A total loss on an unimaginable scale.

Jason said...

"Again, uh, this is really not a negotiation...You're going to call the police? I am the police..."

Well said sir, well said.

The contradiction made me laugh at first. If I took a more "balanced", flexible, unserious, laid back approach to life I might say that contradictions can exist, and how can an ignorant moron like myself possibly manage my own savings or choose a competent, trustworthy investment expert. But alas, I have a mind, and I use it, so that laughter quickly turned to disgust with the cowardly collectivist intellectuals, politicians, and anyone else who doesn't think.

Doug Reich said...


Thanks for the comment.

It's funny - this idea that people shouldn't be allowed to plan for their own future. It's so condescending and so typical of the central planner mindset.

Under their logic, why should the state allow you to choose your own profession, your spouse, where you live, etc.? Of course, in communist countries or any dictatorship, you are not allowed to make these decisions which is exactly the point.

SS is one major step down the road to dictatorship. It's economically devastating and a complete ripoff, but perhaps more importantly, it sets the precedent and establishes the principle that the state knows better than you what to do with your money and with your life.

It's sickening.

Beth said...

Of course its not really a retirement plan any more than Medicare is insurance. They are both massive wealth redistribution schemes where politicians get the credit for being generous.

Beth said...
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