Page 85 - Heavenly Signs III by Mel Gable

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Ponzi Comparison

Critics have drawn parallels between Social Security and Ponzi schemes. The vast majority of the money paid
into Social Security taxes is not invested in anything. Instead, the money you pay into the system is used to pay
benefits to those “early investors” who are retired today. When you retire, you will have to rely on the next
generation of workers behind you to pay the taxes that will finance your benefits. The analogy is that Ponzi
schemes and Social Security have similar “structures.” In particular, it has a sustainability problem when the
number of new people paying in is declining. In the case of a Ponzi scheme, the fact that there is no return
generating mechanism other than contributions from new entrants whereas Social Security payouts have always
been openly funded. They are underwritten by incoming tax revenue and the interest on the Treasury bonds held
by or for the Social Security system. The sudden loss of confidence will result in the collapse of a conventional
Ponzi scheme once the scheme's true nature is revealed. Private sector Ponzi schemes are also vulnerable to
collapse because they cannot compel new entrants. However, participation in the Social Security program is a
condition for joining the U.S. labor force. But, what happens when the new generation claims to have lost
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confidence in the Federal Government? Is this bound to happen in the future?

Running out of Money

The real question is what happens when the trust funds run out of money, which is currently expected sometime
in the 2030s. In each year since 1982, Social Security tax receipts, interest payments and other income have
exceeded benefit payments and other expenditures, for example by more than 150 billion dollars in 2004. As the
“baby boomers” move out of the work force and into retirement, however, expenses will come to exceed tax
receipts and then, after several more years, will exceed all system income, including interest. At that point the
system will begin drawing on its Treasury. In 2005, this exhaustion of the Trust Fund was projected to occur in
2041 by the Social Security Administration or 2052 by the Congressional Budget Office. Thereafter, however, the
projection for the date of this event was moved up by a few years after the recession worsened the system's
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financial picture. The 2011 Trustees Report made the following statement.
Annual cost exceeded non-interest income in 2010 and is projected to continue to be larger throughout the remainder of the 75-year
valuation period. Nevertheless, from 2010 through 2022, total trust fund income, including interest income, is more than is necessary
to cover costs, so trust fund assets will continue to grow during that time period. Beginning in 2023, trust fund assets will diminish
until they become exhausted in 2036. Non-interest income is projected to be sufficient to support expenditures at a level of 77 percent
of scheduled benefits after trust fund exhaustion in 2036, and then to decline to 74 percent of scheduled benefits in 2085.

In 2007, the Social Security Trustees suggested that either the payroll tax could increase to 16.41 percent in 2041
and steadily increased to 17.60 percent in 2081 or a cut in benefits by 25 percent in 2041 and steadily increased to
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an overall cut of 30 percent in 2081. What will happen when things get worse in 2017? What will the cut be?
However, under the current law, benefits would be automatically cut to the level of incoming payroll taxes. This
is estimated to be about 25 percent cut in Social Security benefits with no impact on government borrowing.
Nevertheless, if Congress amends the law, it may require additional government borrowing and an increase in the
national debt. This is not a good outlook for this country that has turned its back against God. Is it man’s pride
to believe he is able to solve the financial problems without the blessing from God Himself?

So, how did our country get into debt? It was through the U.S. Constitution. The modern debt ceiling is an
aggregate limit which applies to nearly all federal debt. It was substantially established by Public Debt Acts passed
in 1939 and 1941. The process of setting the debt ceiling is separate and distinct from the Federal budget

141 Laursen, E. (March 12, 2010). "Is Social Security Really a Ponzi Scheme". 1967 Newsweek column by Paul Samuelson:

142 Samuelson, Robert J. (January 14, 2005). "It's More Than Social Security". The Washington Post.
143 "2007 OASDI Trustees Report Conclusions". Social Security Administration. April 23, 2007.