Social Security is a Scam

     Well everyone, it is time to admit it. We’ve been duped. Tricked. Suckered into believing in the criminally fraudulent Ponzi Scheme that is Social Security. Our leaders have known this for decades. Social Security is unsustainable.

     First, what is a Ponzi Scheme? Originating in the 1920’s from Charles Ponzi, a Ponzi Scheme is “An operation that pays alleged "investment returns" to clients from the clients' own paid-in funds and with payments by subsequent clients, rather than from investments in productive assets or securities. The scheme entices new entrants by false promises of returns that are unrealistically high, ever-rising, or even abnormally-stable, all of which require ever-increasing inflows and hordes of additional dupes, to keep all the fakery going. Unless the scheme keeps growing and spreading, in time it must collapse, as the outflows swamp inflows; the game of "musical chairs" halts when claims exceed cash (insolvency).” [1]

     This is what we currently see happening to the Social Security system, outflow is swamping inflow. It’s been happening since 2010. Recent reports showed a negative cash flow around $74 billion dollars back in 2014, and in 2015 the gap was around $84 billion. [2]

     Moreover, Social Security’s combined reserves (primarily Treasury Notes) will be depleted by 2034. [3] This is absolutely terrifying from the standpoint of the 90’s generation (and even earlier), who will be forced to bite the bullet and suffer the fallout from this system and its inevitable insolvency. (Really, Social Security has been insolvent for years, and so has Medicare, but we continue to borrow and increase tax rates to pay for the increasing outflow of cash from the system). Really, as it always turns out to be, the government is at fault. In the 1960s Congress and the Treasury began raiding the Social Security fund, to finance general outlays, typical of a Ponzi Scheme. Over the long term, this strategy would not succeed. The system was destined to fail from the start, and it’s sad to look back now and realize the huge mistake we made.

     Is there any possible way to avoid future insolvency and re-shape the system to where it could be sustainable? Possibly. In theory, per Richard M. Salsman of Forbes: “Here's a plan – call it the Salsman Plan – that would ensure electoral support from all three groups, and thus potentially guarantee a political landslide for the candidate who proposes it. First, tell the elderly that they'll no longer be subject to political scare tactics, because immediately they'll be given an account in their name that's full of U.S. Treasury bills and bonds, whose worth equals the present value of what they'd otherwise receive in Social Security checks for the likely balance of their lives. They can do what they wish with their new account: cash it out now, slowly liquidate it over time, perhaps buy an annuity, or keep most of it as is. Second, tell the young and the middle-aged they will no longer have to pay the 15.3% payroll tax, and they too will immediately receive an account in their name with U.S. Treasury bills and bonds, based on what they've already paid in so far. They too can do what they wish with their sudden investment windfall. Social Security, no longer empowered to tax payrolls or send retiree checks, would then be closed overnight.

     How much new Treasury debt would be needed to create these new investment accounts? Actuaries would have to calculate the precise sum, but they already tell us that roughly $3 trillion sits in trust fund vaults as non-tradable T-Bonds. Simply transfer these to the new private accounts and declare them tradable. Next we must add the latest actuarial estimate of Social Security's short-fall (its magnitude of insolvency) – aka, it's "unfunded liability" (in present value terms). That's about $20 trillion (see page 67 of the Trustees' 2011 Annual Report), for a total of $23 trillion. Radical as this plan may appear, it simply acknowledges reality by transforming the implicit debt of the U.S. into explicit debt (an investment security) to be held in portfolios, traded, or sold. We add this $23 trillion new explicit debt to the existing national debt of $15 trillion, which is eagerly held all over the world and pays an average yield of only 2.91%. The new total national debt of $38 trillion may appear excessive, but the implicit debt of the U.S. is probably already embodied in market estimates of U.S. creditworthiness, hence U.S. bond yields, so my plan alone shouldn't boost yields. There'd be added interest expense, of course, but without Social Security we'd also have more saving and investment plus greater incentive to work and produce, so the economy would grow faster. To be prudent, Washington could sell its vast tracts of Western lands and use the proceeds to repay some debt – then make sure bond yields stay low by issuing a gold-linked dollar.” [4]

     Drastic changes need to be made to combat the scam that is Social Security. The first step to change is to educate yourself on the topic, understand how it is a scam, why it needs to be changed, and how we as a nation can change it. Within the next two decades we will see how that all unravels.




[1] Social Security is a Ponzi Scheme

[2] Social Security’s cash flow

[3] Social Security’s path to insolvency

[4] The Salsman Plan