Bernanke is INSANE

[sandorski]

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

It is not. Repeating that it is does not make it True.

 

[IceBergSLiM]

it isn't exactly a ponzi scheme because there isn't a single person or few people at the top of the pyramid making off with the money. That is the difference. Though it surely still is a scheme just maybe not pyramid shaped. lol

 

[sandorski]

it isn't exactly a ponzi scheme because there isn't a single person or few people at the top of the pyramid making off with the money. That is the difference. Though it surely still is a scheme just maybe not pyramid shaped. lol

Sentences are a "scheme" too.

 

[ayabe]

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

Sure, I'm onboard with that, but even if we stay in Iraq and Afghanistan another 10 years, military spending won't scale like these entitlement programs will. We're talking exponential levels of growth between now and then, it's some scary shit if you look at the numbers involved as a % of GDP - we can't let it get to that point or there won't be money for anything else - regardless of who's doing the math.

 

[IceBergSLiM]

Sentences are a "scheme" too.

yes iin the literal sense. I was meaning scheme in the sense that its a conniving underhanded scam.

 

[BoberFett]

Is there a more useless waste of space on this forum than sandorkski? I'm unable to think of one.

 

[sandorski]

yes iin the literal sense. I was meaning scheme in the sense that its a conniving underhanded scam.

Ya, I know you were. Just pointing out that it's a poor choice of word as your adding a connotation to it.

 

[sandorski]

Is there a more useless waste of space on this forum than sandorkski? I'm unable to think of one.

Ask your mirror.

 

[tcsenter]

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.

You moron, this is the flawed assumption of all Ponzi schemes that makes it unsustainable. "As long as new investors enter at or above a certain rate, it will go on forever."

This assumption is inherently part of what defines a Ponzi scheme, not the duration that it could go on. A Ponzi scheme that lasts 100 years is still a Ponzi scheme.

 

[Hayabusa Rider]

We need the government to take over health care, and this is proof.

Heh, yeah.

People bitch about the Iraq War, SS and a whole bunch of things and blame the government for it, then in the next breath tell us how great government run UHC would be. It's the same bureaucracy in action.

Cognitive dissonance.

 

[sandorski]

You moron, this is the flawed assumption of all Ponzi schemes that makes it unsustainable. "As long as new investors enter at or above a certain rate, it will go on forever."

This assumption is inherently part of what defines a Ponzi scheme, not the duration that it could go on. A Ponzi scheme that lasts 100 years is still a Ponzi scheme.

Incorrect. SS doesn't "Assume" anything, it is Mathematically sustainable. Ponzi schemes are not.

 

[halik]

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.

Couple points on where you are very wrong:

1) SS does promise high return - the people that are getting SS payments right now are getting more than what the asset pool generated. The difference is being funded by new investors (people that are paying in).

2) All Ponzi schemes are Mathematically sustainable if you assume grown of new population (more and more new investors!). They all collapse when that assumption is proved incorrect (baby booom vs gen x)

 

[halik]

Incorrect. SS doesn't "Assume" anything, it is Mathematically sustainable. Ponzi schemes are not.

In your own argument you were assuming population growth, which is identical to "more and more investors".

Strictly speaking SS should only be able to pay out return on assets to the retirees. If they're getting more, it's being funded by new investors a la ponzi. That is the reason why there's a problem and "shortfall" in the fund - they're paying out of principal which is NOT sustainable.


EDIT:
I just realized there's a chance this whole thing could be a miscommunication. My argument is that SS is *currently* operating as a ponzi scheme, not that the whole concept of SS is a ponzi scheme.

 

[Fern]

it isn't exactly a ponzi scheme because there isn't a single person or few people at the top of the pyramid making off with the money. That is the difference. Though it surely still is a scheme just maybe not pyramid shaped. lol

You're conflating a "Ponzi" scheme with a "Pyramid" scheme. They are two seperate and different things.

Fern

 

[Fern]

Incorrect. SS doesn't "Assume" anything, it is Mathematically sustainable. Ponzi schemes are not.

No it's not.

That's why SS taxes continually increase.

The SS admin is paying 'benefits' (like dividends in a ponzi scheme) it cannot sustain.

Like a ponzi scheme, SS will collapse upon itself unless FICA (or investment in the case of ponzi schemes) is raised, or benefits (divdends etc for a ponzi scheme) are reduced.

Also similar to a ponzi scheme, the early retirees (investors) made out quite well.

Fern

 

[sandorski]

No it's not.

That's why SS taxes continually increase.

The SS admin is paying 'benefits' (like dividends in a ponzi scheme) it cannot sustain.

Like a ponzi scheme, SS will collapse upon itself unless FICA (or investment in the case of ponzi schemes) is raised, or benefits (divdends etc for a ponzi scheme) are reduced.

Also similar to a ponzi scheme, the early retirees (investors) made out quite well.

Fern

They Increase due to Inflation. That is an entirely separate thing.

 

[sandorski]

In your own argument you were assuming population growth, which is identical to "more and more investors".

Strictly speaking SS should only be able to pay out return on assets to the retirees. If they're getting more, it's being funded by new investors a la ponzi. That is the reason why there's a problem and "shortfall" in the fund - they're paying out of principal which is NOT sustainable.


EDIT:
I just realized there's a chance this whole thing could be a miscommunication. My argument is that SS is *currently* operating as a ponzi scheme, not that the whole concept of SS is a ponzi scheme.

No, I'm arguing a Constant or Increasing population.

re: edit: Well, it is currently not Self-Sustaining, due to the BBaby Boom, but that doesn't make it Ponzi like. I certain;y wouldn't term it like that anyway.

 

[Fern]

They Increase due to Inflation. That is an entirely separate thing.

That's how the increase is measured, not why there's an increase. Without that increase SS would have imploded.

Plus the FICA rate itself has been increased over 20 times, and that's got nothing to do with inflation.

And it's only a matter of time before some other changes will be required. It's only a few years (and depending upon the economy may be sooner) before we start paying out more than we receive.

Once we hit that point, we've got problems. While, yeah, we've got money in the 'trust fund' to make up for the shortfall for some time, the problem is that money is in IUO's (special SS Bonds). That means we'll be selling more treasuries to repay SS so it can continue to make payments.

How much in treasuries can our government float? Will all that debt financing drive interest rates up because there's to much debt chasing to few $'s?

Debt is already consuming a substantial portion of our annual budget.

Oops, I've gotten off-track here a bit.

Fern

 

[BoberFett]

Ask your mirror.

Been scouring the grade schools for comebacks, have you?

 

[shira]

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

You've overlooked the fact that SS uses indexing. As I showed in my example, 1$ of SS tax paid in 1970 is evaluated as $6.68 in SS taxes paid in 2009.

If you're in between the first and second "bends" in the SS formula (where most earners are), every dollar of SS wages earned "between the bends" in 1970 is worth 6.68*.32 = $2.14 in monthly benefit. 1970 dollars below the FIRST bend are worth 6.68*.9 = $6.01 in benefits. Even 1970 dollars above the second bend are worth $1.00

That's why the payback period is MUCH shorter than the 22 years you've indicated.

Edit: Obviously, dollars earned in later years - 1980, 1990, etc, don't get indexed as heavily. But the cumulative effect is that you get your (inflated) dollars back pretty quickly.

 

[halik]

No, I'm arguing a Constant or Increasing population.

re: edit: Well, it is currently not Self-Sustaining, due to the BBaby Boom, but that doesn't make it Ponzi like. I certain;y wouldn't term it like that anyway.

Heh so it was mis-communication after all. SS in the basic sense is no different than any other pooled portfolio out there, the issue is if it continues to hand out principal as benefits, it is a de facto ponzi scheme.

Endowments and other pools have to dip below the high water market to support their operations every so often, the difference is that they don't keep on doing it structurally w/o making changes in their investment strategy and/or redemption rate.

 

[shira]

Heh so it was mis-communication after all. SS in the basic sense is no different than any other pooled portfolio out there, the issue is if it continues to hand out principal as benefits, it is a de facto ponzi scheme.

Endowments and other pools have to dip below the high water market to support their operations every so often, the difference is that they don't keep on doing it structurally w/o making changes in their investment strategy and/or redemption rate.

SS can easily be fixed with a few minor adjustments:

Phase in a delayed retirement age (maybe to age 70 by 2030). Considering that U.S. life expectancy is steadily rising, this change makes sense not only from a financial perspective, but from the perspective that age 65 in 1960 is more like age 75 in 2009.

Increase the SS tax rate slightly. Even an increase of a couple of tenths of a percentage point (from 6.2 to 6.4 %) would be adequate.

Increase the amount of income subject to SS tax.

Change the SS COLA formula to match the inflation rate for retirees. The SS COLA is based on the change in the cost of living for wage earners, not retirees (for whom the cost of living doesn't increase as rapidly).

With just those changes, even current benefit levels can probably be maintained indefinitely. If necessary, benefits could be means-tested (those with more outside income during retirement could receive slightly reduced SS benefits).

Frankly, it amazes me that people focus on SS when the REAL problem is the solvency of Medicare.

 

[Fern]

You've overlooked the fact that SS uses indexing. As I showed in my example, 1$ of SS tax paid in 1970 is evaluated as $6.68 in SS taxes paid in 2009.

If you're in between the first and second "bends" in the SS formula (where most earners are), every dollar of SS wages earned "between the bends" in 1970 is worth 6.68*.32 = $2.14 in monthly benefit. 1970 dollars below the FIRST bend are worth 6.68*.9 = $6.01 in benefits. Even 1970 dollars above the second bend are worth $1.00

That's why the payback period is MUCH shorter than the 22 years you've indicated.

Edit: Obviously, dollars earned in later years - 1980, 1990, etc, don't get indexed as heavily. But the cumulative effect is that you get your (inflated) dollars back pretty quickly.

Well, something's wrong.

If you recouped it that fast seems you'd have a pretty high RoR, and that's not the case with SS.

Here's a RoR calculator for SS:

http://politicalcalculations.blogspot.com/2007/01/approximating-social-securitys-rate-of.html

Here's an older article form the NYT

According to the Congressional Research Service, an average earner retiring this year at 65 would take 18.8 years to recover employer-employee Social Security taxes for Old-Age and Survivors Insurance plus interest (taking into account future cost of living adjustments and continued accrual of interest).

http://www.nytimes.com/1995/08/28/opinion/l-how-long-to-recoup-social-security-tax-232795.html


Might be a good idea to check out the older CRS report and compare to your calcs.

Fern

 

[Robor]

Sure, I'm onboard with that, but even if we stay in Iraq and Afghanistan another 10 years, military spending won't scale like these entitlement programs will. We're talking exponential levels of growth between now and then, it's some scary shit if you look at the numbers involved as a % of GDP - we can't let it get to that point or there won't be money for anything else - regardless of who's doing the math.

I don't disagree with you there. My comment was directed at people who get hysterical about social programs but are so protective of the *BY FAR* biggest defense spending of any country in the world.

 

[shira]

Well, something's wrong.

According to the Congressional Research Service, an average earner retiring this year at 65 would take 18.8 years to recover employer-employee Social Security taxes for Old-Age and Survivors Insurance plus interest (taking into account future cost of living adjustments and continued accrual of interest).

Fern

Actually, I don't think there's a problem. I've bolded the two factors that I didn't include in my own calculation.

The original comment I responded to concerned how long it took a wage earner to get paid back his own contributions. So the employer contribution wouldn't properly be considered for that calculation. That alone cuts the payback time above in half - to 9.4 years.

The other factor - accrued interest that the wage-earner WOULD have collected had he kept his money rather than paying it in SS taxes - is a totally valid consideration: When I pay a dollar into SS in 1970, it's going to be a lot more dollars in 2009. However, the original comment said, "How long does it take to get back the dollars you pay into SS?" I took that literally, and my simple-minded calculation yielded 8 years for my own worst-case situation.