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News & Issues > Perry Calls Ss Ponzi Scheme. is He Correct?
 

Perry Calls Ss Ponzi Scheme. is He Correct?


Presidential Candidate Rick Perry continues to call Social Security a "Ponzi Scheme" designed to lie to younger workers."  As much as I hate to agree with Perry, he is correct to some extent.

The Social Security Trust Fund, quite frankly, does not exist and has not existed since the days of LBJ when he moved the funds into the General Fund, thus, for all intent and purposes, dissolving the Trust Fund. Yet, American workers and others have been led to believe that the money withheld from their paychecks in FICA taxes and matched by their employers is still placed in a special  "Trust"  fund, earning and compounding interest until they reach retirement age, at which time it is paid back to them in monthly installments.

(The "others" include the disabled, minor chidren of deceased workers, and widows of workers, all of whom also qualify for SS benefits.)

The truth of the matter is that the money that the Federal government receives from FICA taxes goes directly into the general fund rather than into some non-existent 'trust'.

What the federal government does, and has done, at least for the last twenty-five years, is pay the benefits to elibible beneficiaries at any given time; then it 'loans' itself the rest of the money to be spent as it sees fit....often on defense, which is usually its biggest expense. 

So, yes, that makes it a kind of "ponzi" scheme because the government is robbing from Peter (Soclal Security) to pay Paul (any number of federal expenses).  A ponzi scheme collapses when Peter cannot produce enough income to continue covering Paul's share of the pie.

The thing that distinguishes Social Security from a "true" Ponzi scheme is that it is NOT the only income the federal government has...the government also collects other taxes from its citizens in the form of personal and corporate income tax.

Furthermore, recently the government has generated revenue from other sources as well. For instance, the Fed recently sold some of its shares in one of the auto industries. Furthermore, GM has now paid back its debt with interest as has Bank of America.  Other loans the Feds made are quietly being reduced as well.  For instance, AIG sold one of its subsidiaries overseas a couple of weeks ago and turned that money over to the government in partial payment of its debt.

Depending on which website one reads and its point of view, currently Social Security is not generating enough income to meet its obligations to its beneficiaries or it is actually operating with a surplus of about two trillion plus right now. Either way, this is a fact. The government currently owes the Social Security Administration some 2.5 trillion dollars.

These figures are a little dated, but they illustrate the point.  According to Newsburglar, "As of December 2008, approximately $2.4 Trillion of the $4.3 Trillion in “Intragovernmental Holdings”...is held in the Old-Age and Survivors and Disability Insurance (OASDI) Trust Fund (which we now know doesn't really exist)."

The author continues to assert:

 

As a result of the tax increases instituted by the 1983 Amendments, over the last 25 years the Social Security system has collected more taxes than it has paid out. Excess Social Security receipts are “invested” in special securities issued by the federal government. These securities are held in the (OASDI) Trust Fund. The Social Security receipts that are exchanged for these special Treasuries have been spent by Congress on general budget items over the last 25 years.

It is currently projected that Social Security tax receipts will exceed Social Security payments until 2017. In other words, the amount of Treasuries held in the Trust Fund will keep increasing for the next seven years. In even more words, payroll tax receipts will exceed Social Security payments for the next seven years.

Drawing Down on the Trust Fund

If no changes are made to system, around 2017 Social Security payments will begin to exceed Payroll tax receipts. Even if changes are made, at some point in the next few decades, payments will exceed receipts.

At that point, the Trust Fund will begin redeeming the special Treasuries. In order to pay these Treasuries back, the U.S. government will either have to raise income taxes or (more likely) borrow additional amounts, i.e., real Treasuries.

Under the current rules, and depending upon future economic growth, the Social Security Trust Fund is projected to be depleted sometime between 2042 and 2052. Once the Trust Fund is depleted, we get to the Unfunded (i.e. $13.6 Trillion) part of our Social Security future.

The only difference between what occurs before the Trust Fund is depleted and after the Trust Fund is depleted is that there are no Special Treasuries to redeem before Social Security payments are made.

https://newsburglar.com/2009/04/07/social-security-trust-fund-balance/

That's one viewpoint:  Now's here's the other:
This just in from the trustees that issue the annual report on the health of those two pillars of the modern entitlement state: Medicare and Social Security. For the first time in its history the Social Security program will pay out more money than it takes in. This watershed event will occur this year, to the tune of $41 Billion dollars. Under any rational accounting standards this makes the Social Security program bankrupt. And that's right now, not in 25 years when the so-called Trust Fund becomes insolvent.

You see, most pension programs hold income producing assets in their Trust Funds. Stocks, bonds, real estate, oil and gas partnerships, that sort of thing. A fully funded pension program owns enough of those assets to pay its liabilities even if the company closes its doors and not a penny more of new money comes in from current employees.Social Security plays by a different set of rules enshrined under the New Deal and Great Society programs. These are the same rules that landed Bernie Madoff in jail. Although the Social Security system has been regularly taking in billions for decades and socking it into its Trust Fund just like a normal pension plan, Congress has just as regularly been draining the money out for currentspending. All of the money collected from every American's paycheck throughout all of our careers is now gone. In its place are not stocks, bonds, real estate, and oil and gas partnership. In its place are IOUs from Harry Reid, Nancy Pelosi, Charlie Rangel, and Barney Frank. $2.5 Trillion dollars worth of IOUs.

https://www.realclearmarkets.com/articles/2010/08/09/not_in_25_years_social_security_is_bankrupt_now_98611.html 

It is not difficult to discern which party supports which viewpoint.  Of course, I would be remiss if I did not givc my opinion.  I tend to believe the first and here is why.  I have spent the last three years, beginning with the inauguration of Barak Obama, in researching both sides of the issues.  I voted for Obama, although he was not my first choice--that honor went to Hillary Clinton.  However, I have become convinced that the American public is being repeatedly misled by the Republican congressmen and by their mouthpieces,  Fox News and Rush Limbaugh.  Why?  Because Big Business is bankrolling them and it is in the interest of Big Business to work to present this side of the coin.

I do not make those statements lightly.  I have meticulously researched statement after statement of the far right...both in the Press and individually.  What I have found is that both have lied over and over again to the American people.  That is not to say that the Dems have never lied to us, because they have.  But what history and today's climate reflect is that Dems work for the common good, while Repubs work for the good of the wealthy, especially the fabuously wealthy.  That's not I, folks.  Is it you? 

One can agree or disagree with me at his will.  I offer these as my credentials.  I have an IQ of 130;I read vociferously, both on and off line on these issues,  I have an exceptional memory, and I am not easily fooled.  Many of you on Facebook are former students of mine.  You know that I would NEVER deliberately mislead you about ANYTHING.

The other thing that I have become totally convinced about is that during a recession one DOES NOT cut spending.  That only further stagnates the economy.  History has taught us that,  if nothing else.  One works his way out of the recession; then when times are good, he looks for ways to reduce the National debt.  That is nothing more than Economics 101. 

As a journalist, the truth is always my first benchmark, not a political alliance.


 



posted on Sept 4, 2011 8:59 AM ()

Comments:

Social Security is not a tax – it is a transfer payment.
Social Security contributes not one cent to the deficit. It currently has a surplus. This will not be the case a few years from now as the retirement of baby boomers will cause great strains on the system.

A Ponzi scheme is a pyramid wherein monies coming in from later entrants is used to pay profits to the original entrants. This is by far not the case with the Social Security fund. A Ponzi scheme has no assets.

Social Security is a manifestation of the social contract adopted by the U.S. government after the devastation of the Great Depression. It is a reaction to the law of the jungle, survival of the fittest, of which Rick Perry is a leading advocate.

Under Perry’s plan, we would go back to the time when seniors were cared for by their families, if they were not alone, or went off and died quietly, which is a Republican manifesto.
comment by tealstar on Sept 5, 2011 7:32 AM ()
When are we going to stop throwing away lives and money on the altar of
war. That would solve misery and our national debt. Social Security
would be secure. Rick Perry is dangerous and even looks like George W. and thumbs down on foreign involvement.
comment by elderjane on Sept 5, 2011 5:29 AM ()
A Ponzi scheme is a fraudulent investment plan in which the investments of later investors are used to pay earlier investors. In the case of our social security system the problem is going to be not enough younger investors to fund the payments to the elderly (and disabled) population.

So the practice of wrongfully borrowing from Social Security to fund other projects isn't what makes it a Ponzi scheme, it's a different issue.
comment by troutbend on Sept 4, 2011 8:54 PM ()
I don't think I said anything about Social Security being broke, I just defined a ponzi scheme (as did Teal).
reply by troutbend on Sept 5, 2011 5:00 PM ()
That's not necessarily true, Laura. That's a myth perpetrated by the Republicans to scare people. Here are the actual facts. Social Security is NOT broke...the federal government is. Both sides agree that SS will continue until 2017 to bring in more money than it is putting out. Right now, the federal government owes SS 2.5 trillion dollars. After 2017 the federal government will have to start putting that money back into SS because it has a fiduciary duty to do so. That will carry SS until 2050. The way to solve SS is easy. First, get the money back into a trust and out of the hands of greedy government. Secondly, increase people's contributions based on the rate of inflation, three, increase the age for collecting benefits to 66 or 67 and finally, NEVER cut benefits. The Repubs. want to end SS because they don't want to have to pay back that 2.5 trillion plus compounded interest. Well, I'm on to their little scam, and I will fight them tooth and toenail to save SS from their filthy hands.
reply by redimpala on Sept 4, 2011 9:14 PM ()
The memory ain't bad for an old man!!!
comment by greatmartin on Sept 4, 2011 12:56 PM ()
Touche! My hat is off to you on this one!
reply by redimpala on Sept 4, 2011 7:09 PM ()
The move to pull the Social Security money out of a trust and into the general fund was wrongheaded and, to my way of thinking, pushed by the necessity of funding the Vietnam War. The size of the baby boom generation was a known fact. The U.S. government still has a sacred, fidiciary trust to uphold for the millions and millions of citizens who have paid into Social Security. We will have to fight like hell to keep the Republicans and the Tea Party Taliban from destroying it.
comment by marta on Sept 4, 2011 11:57 AM ()
Amen, Sister! And I intend to do just that. SS is NOT broke....the government is and it wants to keep riding the SS gravy train by trying to convince the American public that it is broke.
reply by redimpala on Sept 4, 2011 7:10 PM ()
I think most Americans already know that the SS fund is really the debt that the Fed Guv owes. It is nothing new. Perry is right. Pretty observant for a guy who wants to secede from the Union.
comment by jondude on Sept 4, 2011 10:11 AM ()
Yes, he is. I have to give him that one. And he is going to run it right down our throats from now until he is defeated.
reply by redimpala on Sept 4, 2011 10:17 AM ()
Correct me if I am wrong but wasn't it LBJ w3ho first put it into the general funds?
comment by greatmartin on Sept 4, 2011 9:05 AM ()
According to Snopes, you are correct. I'm changing it right now. Thank you, Martin for catching that error. I appreciate it.
reply by redimpala on Sept 4, 2011 10:11 AM ()
I'm not sure. Let me check that out. If it is so, I will make the correction.
reply by redimpala on Sept 4, 2011 10:07 AM ()

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