NCPA - National Center for Policy Analysis


February 4, 2009

The U.S. Securities and Exchange Commission (SEC) was set up to combat fraudulent practices known as Ponzi schemes -- a type of illegal pyramid scheme name for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme in the 1920s. And as long as the number of late comers -- you could call them suckers -- grows, Ponzis have life, says Investor's Business Daily (IBD).

Currently, 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:

  • Trustees tell us that the surplus goes into a $2.2 trillion trust fund to meet future obligations.
  • The problem is that whatever the difference between Social Security taxes taken in and benefits paid out, Congress spends it.
  • The Treasury Department gives the Social Security Trust Fund non-marketable "special issue government securities" that are simply bookkeeping entries that are IOUs.
  • According to estimates, around 2016 the amount of Social Security benefits paid will exceed taxes collected; that means that either Congress will raise taxes and/or slash promised Social Security benefits.

Moreover, the situation will get worse since the number of retirees is predicted to increase relative to the number in the work force 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.

Furthermore, 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 because few politicians are willing to risk their careers alienating today's senior citizens for the benefit of Americans in 2040, says IBD.

Source: Walter E. Williams, "Social Security: National Ponzi Scheme," Investor's Business Daily, February 2, 2009.


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