Bernanke is INSANE

[IceBergSLiM]

The definition of ponzi scheme is that you use new investor proceeds to "create" returns for the older investors. IIRC social security is not covering their liabilities with asset returns, so it's by definition a ponzi scheme.

Also no way we should abandon SS and go to self-saving plan. Most people are idiots and apparently cannot handle stuff like mortgage or credit card contracts, much less portfolio allocation and risk management or for that matter saving money in general.

So then they work till they die.

 

[heyheybooboo]

What started out as reasonable has now turned this into a Fail thread.

Social security will not go 'insolvent'. This myth has been disproved time and again.


And I'm not the guy to defend Bernanke and Greenspan but Senator Bunning is a revisionist cheap-shot Asshole with 'backward' 20/20 sight.

Piling-on Bernanke is not forward-looking. Trashing Greenspan is political theater. Why doesn't that dumb-ass Bunning ask Bernanke how he will balance monetary policy to reduce inflationary pressure as the economy recovers?

If Bernanke has a plan to 'unwind' all the special Fed action taken to keep banks liquid I want to hear about it --- not some asshole ex-ballplayer ranting like a lunatic, trying to cover his old, white, wrinkled ass and place blame.

 

[halik]

So then they work till they die.

Hardly, more like living in poverty and crime. Greeting people at walmart isn't the most lucrative profession and I really don't wanna deal with gangs of silver foxes burgling my townhouse...

 

[Fern]

-snip-
Bernanke's remarks are typical of the rightwing, of the monied elite. Take it out on the little guy, don't mess with my pile... SS obligations aren't the problem- all of the other debt racked up by the Heroes of the Right- RR,

We must've read different articles, because I don't see Bernanke saying anything at all like you are claiming.

Fact is, he's right. The bulk of our money goes to entitlement programs, and that means that the only siginificant cuts come from those.

To cut SS and Medicare doesn't mean you're going to hurt the poor and middle class. Why not 'means test' for benefits? Why should Bill Gates and Warren Buffet, and others like them, draw SS? It's high time people dropped the farcical notion that SS/medicare/medicaid is something other than a welfare/safety net - type program.

http://en.wikipedia.org/wiki/File:Fy2008spendingbycategory.png

SS, Medicare, Welfare, and Medicaid take up more than 50% of our national budget; so stop the FUD about "all of the other debt racked up by the Heroes of the Right".

Fern

 

[Fern]

I've had earned income above the SS maximum almost since I first started working. That is the WORST situation in terms of "efficiency" of payback, since about half of my SS income is above the so-called second "bend" (where each additional average dollar earned per month adds only 15 cents per month in SS benefit). Yet, when I compute how much I've paid into SS over my lifetime (and extrapolate for the remainder of my career) and I compare that amount to the the estimate of how much I'll get paid back in SS benefits each month, I think it will take me only about EIGHT years to get paid back - that's the WORST case.

For those with lower incomes, the situation can only be better. For example, those with incomes below the first "bend" (which is about $760 in 2009) get paid 90% of each average monthly dollar earned. Thus, someone with an average monthly SS wage of 700/month over the course of their career will get paid back 630/month in SS income.

And don't forget that to compute the average SS wage of an individual every past dollar earned is "indexed" to current dollars based on the "National average wage index" for the year in which the dollar was earned. For example, a dollar earned in 1970 gets indexed to $6.68 2009 dollars for the purpose of computing a person's benefit in 2009 (because the average wage was $6,186.24 in 1970 and is $41,334.97 in 2009 - 6.68 times as much).

Putting it all together, the example "first bend" person above will have paid only about 1/13th as much as I have in SS taxes, but will receive a monthly SS benefit greater than 1/3rd my benefit. Thus, the payback period for such an individual will be MUCH faster - less than TWO years.

Edit: Edited to improve clarity.

You need a better calculator.

The maximum annual benefit is about $28K.

Over 8 yrs you recover about $224K ($28K x 8 yrs = $224K)

Let's say you work for 40 yrs, earn $100K.

Over 40 yrs you'd pay in $612K ($100K x 15.3% = $15,300 x 40 yrs = $612,000)

It takes about 22 yrs to break even ($612,000/$28,000 = 21.85 yrs to break even with no interest/earnings etc)

Obviously, with any kind of reasonable compound interest the situation gets far worse.

Edit: My numbers are somewhat off, the 15.3% amount includes Medicare/Medicaid and should likely be reduced to only reflect retirement/old age benefit. (Or esle somehow arrive at a $ amount for Medicare benefits and include that in with the retirememnt benefits)

Fern

 

[piasabird]

Teachers would line up to turn down the payments in lieu of SS payments. There is a federal law that says if you work for the Government/education and you did not pay SS that if you receive an annuity/retirement, that your social security payments will be reduced, sometimes as much as 2/3 of the payments. Often people in this category like myself already paid enough significant quarters in SS taxes to meet the minimum requirement. I think this is an unfair law. The reason why the Government did not pay them SS, is because the Government would then have to pay the Employer's portion of the SS Tax.

 

[piasabird]

You should also examine how SS pays payments to married people whan both the man and the woman have both worked and paid into the system. Often the spouse will sign up for early reduced payments and then one person in the marriage will work till 70 and get the maximum benefits then when one spouse dies the other member of the marriage gets the survivor benefits. This is a lot more complicated than you think.

Another factor is that some people will not live that long. If you die before you reach age 65 and never receive SS then you get the shaft big time. If you had the money someone in your family like a son or daughter could inherit it.

There are a lot of people that die before they reach age 60.

If the government put all your deposits in an interest bearing account you would at least earn interest over the 40 years of employment. Then at the end you could invest for a steady income stream without reducing the principal. Either that or you could at least buy an annuity and get paid over time.

Intel as an example last quarter paid $0.32 per share in dividends. At $21.00 per share if you had $600,000.00 in stock you would have earned $9,142.00 for one quarter of dividends minus the 15% tax. You also would not have to have held the stock for the full quarter to get the dividend.

I am not trying to encourage anyone to invest in only one stock. You should diversify your portfolio.

 

[IceBergSLiM]

Hardly, more like living in poverty and crime. Greeting people at walmart isn't the most lucrative profession and I really don't wanna deal with gangs of silver foxes burgling my townhouse...

Then maybe they should move in with friends or family luck was tradition for thousands of years.

 

[sandorski]

The definition of ponzi scheme is that you use new investor proceeds to "create" returns for the older investors. IIRC social security is not covering their liabilities with asset returns, so it's by definition a ponzi scheme.

Also no way we should abandon SS and go to self-saving plan. Most people are idiots and apparently cannot handle stuff like mortgage or credit card contracts, much less portfolio allocation and risk management or for that matter saving money in general.

Incorrect

 

[Turin39789]

That's one Republican that knows his shit and Bernanke's response makes me want to puke.

lulz. Bunning is a senile old fool who doesn't even have his partys backing for another reelection. Bunning blames Bernanke for the entire mess, Bernanke blames Congress. The wheel is round and it roooools

 

[tcsenter]

Incorrect

Oh, that's right, the SS trust actually earns about 1% interest (while paying out as though it earns 5%), so "technically" its not a Ponzi scheme?

Semantics. Then Madoff wasn't running a Ponzi scheme, either. It was a "program" that paid "benefits" to "contributors" (not investors).

 

[sandorski]

Oh, that's right, the SS trust actually earns about 1% interest (while paying out as though it earns 5%), so "technically" its not a Ponzi scheme?

Semantics. Then Madoff wasn't running a Ponzi scheme, either. It was a "program" that paid "benefits" to "contributors" (not investors).

It is not a Ponzi Scheme. Don't use words you don't understand. Ok?

 

[Fern]

It is not a Ponzi Scheme. Don't use words you don't understand. Ok?

If you said it wasn't a pyramid scheme I could readily agree with you.

However, seems an awful lot like a ponzi scheme to me. I've read articles where people claimed it wasn't like a ponzi scheme, but IMO the distictions they drew were rather insignificant.

If you have a link to a pursausive article explaining why SS is not like a ponzi scheme, pls share it with us.

Fern

 

[Ausm]

lulz. Bunning is a senile old fool who doesn't even have his partys backing for another reelection. Bunning blames Bernanke for the entire mess, Bernanke blames Congress. The wheel is round and it roooools

Just because he doesn't have his parties backing doesn't mean he doesn't know what he is talking about. If you would have listened to the video he clearly and concisely spelled out his case.

 

[halik]

Incorrect

Great argument there. If you're paying dividends from assets rather than returns, it's by definition a ponzi scheme. Madoff was making some returns on his portfolio also, but they were far less than the returns that he gave back to the early investors.

 

[Robor]

Bernanke is honest and transparant like Obama.

You're a douche.

 

[sandorski]

Great argument there. If you're paying dividends from assets rather than returns, it's by definition a ponzi scheme. Madoff was making some returns on his portfolio also, but they were far less than the returns that he gave back to the early investors.

Incorrect comparison.

 

[sandorski]

Ponzi Scheme

 

[halik]

Incorrect comparison.

http://www.mlmstartup.com/articles/ponzi.htm

Not all Ponzi schemes start out as frauds. Sometimes a promoter in good faith really believes the asset will prove profitable. Investment money comes in, but the returns are disappointing. To avoid loss of investor confidence lies are circulated and dividends paid. More money comes in and the possibility of millions of dollars of losses occurs but for the truth being told early.

There was a case earlier this year where SEC/FBI came down on an investment manager because he was using new capital to boost returns on the portfolio.

 

[sandorski]

http://www.mlmstartup.com/articles/ponzi.htm

Not all Ponzi schemes start out as frauds. Sometimes a promoter in good faith really believes the asset will prove profitable. Investment money comes in, but the returns are disappointing. To avoid loss of investor confidence lies are circulated and dividends paid. More money comes in and the possibility of millions of dollars of losses occurs but for the truth being told early.

There was a case earlier this year where SEC/FBI came down on an investment manager because he was using new capital to boost returns on the portfolio.

Your point? I don't deny the existence of Ponzi Schemes, SS just isn't a Ponzi Scheme.

 

[halik]

Your point? I don't deny the existence of Ponzi Schemes, SS just isn't a Ponzi Scheme.

The point is if you're handing back principal to early investors as dividends and restoring your capital position with new investor capital you're running a ponzi scheme. You're claiming high returns that don't exist.

EG:

If I claim I made 50% return on my 1B portfolio in 2009, when in fact I only made 10% (100M*) and just got 400M of new investment, I run a ponzi scheme. The fact that i made some return is irrelevant; the fraud comes from using principal for dividends.

*simple compounding etc.

 

[ayabe]

I'm not a Ben fanboy, but I'll defend him here just on this one point.

He is right in saying that entitlements are where the money is and whether you buy that SS and Medicare will be insolvent or not really isn't the issue. They may be paid for, but at what cost? By ~2017, these expenditures will surpass military spending and encompass the bulk of the federal budget.

Saying that there is fat to be trimmed isn't the same as saying both programs should be killed. There are inefficiencies that have to be dealt with and small tweaks here and there will be mandatory.

That is what he was saying and it's not the doom and gloom some are making it out to be, it's more or less what everyone already knows.

 

[tcsenter]

It is not a Ponzi Scheme. Don't use words you don't understand. Ok?

It is a textbook Ponzi scheme. Repeating that it is not doesn't make it true.

 

[Robor]

I'm not a Ben fanboy, but I'll defend him here just on this one point.

He is right in saying that entitlements are where the money is and whether you buy that SS and Medicare will be insolvent or not really isn't the issue. They may be paid for, but at what cost? By ~2017, these expenditures will surpass military spending and encompass the bulk of the federal budget.

Saying that there is fat to be trimmed isn't the same as saying both programs should be killed. There are inefficiencies that have to be dealt with and small tweaks here and there will be mandatory.

That is what he was saying and it's not the doom and gloom some are making it out to be, it's more or less what everyone already knows.

If that's the case now maybe we should look to reduce some military spending?

 

[sandorski]

The point is if you're handing back principal to early investors as dividends and restoring your capital position with new investor capital you're running a ponzi scheme. You're claiming high returns that don't exist.

Incorrect. A Ponzi Scheme doesn't just try to hand out Returns to those early Investors, but to the most Recent Investors as well. Of course it can't give the New Investor much to begin with, simply because of Limited Funds and you got the Older Investor getting antsy.

SS doesn't promise a quick Return. It merely promises that after 40 years of Input that you'll get a Return.

You may not see the difference, but there's a huge difference between the 2. Mathematically speaking there is absolutely no way a Ponzi Scheme can last, because only New Investors can sustain it. Not just New Investors though, but an ever increasing amount of New Investors is needed. Eventually you run out of people who can become New Investors and the scheme collapses.

A system such as SS however is Mathematically sustainable. As long as the Population remains Constant or Growing there is always a sufficient amount of New Investors to maintain the system. It is not perfect, as the Baby Boom has created a Population Bubble, but the system is perpetually sustainable outside dramatic events such as the Baby Boom.