Now Neal & I have both described the problems with Social Security's (& Medicare's) solvency for quite some time - I think that benefits will @ least be reduced as the ratio of people paying into the system continues to dwindle. Politicians are being as cruel as Madoff was by just kicking the entitlement can down the road until disaster strikes the millions of aging people who are mistakenly relying on receiving benefits.
Neal presents in the piece below another worry that brings the insolvency of Social Security to us - not in 2017 as previously forecast - but today.
Some of you know this .. but not enough of you . Madoff did to his investors what the government has been doing to us for over 60 years with Social Security. There is no meaningful difference between the two schemes ... except that one was operated by a private individual who is now in jail, and the other is operated by politicians who enjoy perks, privileges and status in spite of their actions.
Do you need a side-by-side comparison here? Well here's a nifty little chart.
| BERNIE MADOFF | SOCIAL SECURITY |
| Takes money from investors with the promise that the money will be invested and made available to them later | Takes money from wage earners with the promise that the money will be invested in a "Trust Fund" and made available later. |
| Instead of investing the money Madoff spends it on nice homes in the Hamptons and yachts. | Instead of depositing money in a Trust Fund the politicians use it for general spending and vote buying. |
| When the time comes to pay the investors back Madoff simply uses some of the new funds from newer investors to pay back the older investors. | When benefits for older investors become due the politicians pay them with money taken from younger and newer wage earners to pay the geezers. |
| When Madoff's scheme is discovered all hell breaks loose. New investors won't give him any more cash. | When Social Security runs out of money they simply force the taxpayers to send them some more. |
| Bernie Madoff is in jail. | Politicians remain in Washington. |
OK ... I've understood this scheme for some time now, so just what was it that almost slipped by me? For some time now we've been told that it would be 2016 or 2017 before Social Security started paying out more money than it was taking in. Well ... we're here. In 2009 the economy forced many more people than expected into retirement. These people filed for their Social Security benefits. Last year Social Security durned near ran out of money. The benefits paid almost exceeded the taxes collected. There is, of course, no "trust fund" to go to. That money has been spent. For Madoff that was a crime. For our politicians, it wasn't. Now the chief actuary of the Social Security system says that we're going to "go negative" for the next year or two.
Now the politicians will naturally be looking for a solution. They cause the problem because they just couldn't stand seeing all of that money sitting in the trust fund. They just had to get their hands on it ... and leave behind some IOUs. Now the IOUs are due, and there's no money to pay them off. The solution? Well, they'll probably have to raise the retirement age. Then they may well introduce means testing. They'll tell retiring seniors who have done well with their own retirement plans that they may well lose their Social Security benefits. Can they do that? Oh hell yes they can. There is no federal law which guarantees Social Security benefits to anyone who has been forced to pay the taxes.
Then, of course, they'll try to raise the Social Security taxes. The earnings cap for this year is $106,800. My best guess is that the Democrats will propose a change in the law that allows the current earnings cap to stay, or to possibly adjust it to $100,000. Then they will give all income between $100,000 and $250,000 a year a pass .. then all incomes above $250,000 a year will be taxed with no further caps.
Wunnerful wunnerful.
interesting article, but true to an extent. To receive SS benefits, Congress might raise the age limit by one,2 or 3 years and that is it.
ReplyDeleteMore that, govt. would have a revolution on their hands.
SS wil NOT be eliminated, if more money is needed, govt will go to the printing press to print more money, even though
in the long run that will produce inflation - bad for the country.
As it now stands, inflation, from what I hear, will become a headache for govt in 2-3 years,if not sooner.
Re:Madoff. He was a highly respected person, as he held various (not govt) positions in the financial area. His problem was he
promised much higher returns to investors AND he kept his word. That was OK when he managed several million dollars, but as his reputation grew more and more people with large sums of money to invest - would turn to him to manage their money.
In fact there was one Russian mafia organization that gave him money to invest. Common sense tells you, you cannot
invest such large sums of money and continue to give large returns on the money - it is not possible.
Remember, he sent investors monthly statements claiming they earned this large return. He was held in such high esteem,
even govt agencies who were supposed to audit books, looked the other way - did not audit his books.
When he started losing money, and few investors started pulling out - then he, what you say, paid those investors pulling out with
money in his account and with new money. As more and more investors withdrew money, and market not going up much,
he caught himself in a bind. He could afford to redeem money to investors, up to a certain point. He hoped market would turn up a lot - it did not.
All good things come to an end -and his investments and investors lost and lost big. Many well know organizations invested with him
and lost.
He had to buy masions, yachts to give impression of wealth - to entice people to invest with him.
As I understand, his children told him to admit defeat - and that is when everything blew u, and people saw their fortunes
down the drain
By the way, that Russian mafia, to get revenge, might target his family for elimination.
Now, if you want to make money, real money - invested in my ABC fund. I guarantee you - that YOU will loose, but at least you can deduct losses on your income tax (limit $3,000 a year)
Solution is simple - government will use printing press to print money. Remember, government does not have to balance their books,via budget whereas states do. How Calif keeps operating when they are technically bankrupt I do not know. Maybe you do?
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