2009-09-20
The Demonick Diatribes - I
Charles Ponzi is a proud papa
The United States Federal Government is a criminal enterprise. It has been running a number of classic Ponzi schemes on the US citizenry for many decades. Similar behavior by private enterprise has gotten them charged under RICO statutes and thrown in jail for long, long sentences. Bernie Madoff was a small fry compared the scam our esteemed leaders have been perpetuating since the 1930s.
The Ponzi scheme is named after an Italian immigrant, Charles Ponzi, who perfected the scam in the 1920s. Ponzi did not invent the scheme, it is probably as old as commerce itself, but Ponzi brought the act to new heights and as reward the scheme now bears his name. (Charles Dickens described the scheme in a novel of the 1850s).
A Ponzi scheme is simple. You payoff previous investors with the proceeds derived from enrolling new investors, and with a tidy percentage being diverted to the perpetrator. As long as new recruits out number previous recruits the scheme can continue, but, as soon as new recruitment falls off the proceeds are not sufficient to keep previous recruits happy and the scheme implodes. Since no conceiveable scheme could continue growing forever, EVERY Ponzi scheme is doomed to collapse. EVERY Ponzi scheme is doomed to collapse. (I thought that well worth repeating). The trick is for the perpetrator to get out and disappear before the end.
Bernie Madoff went a year too far. He could be sipping a fruity drink on a tropical beach somewhere instead of languishing in Federal lockup.
So what Federal programs resemble the scheme described above? You guessed it, Social Security and Medicare. Charles Ponzi can only look down upon the leadership of the USA with pride, knowing they took his scheme to heights unimagined by mere mortals. Only a government could build a criminal enterprise of this magnitude.
Of course current recipients (previous recruitees), generally the elderly, are paid by the proceeds derived from future recipients (new recruitees), and a significant portion of the funds are diverted to the perpetrators, the congress and whatever flavor administration currently occupies the White House. And of course the percentage diverted is 100%, as ALL Social Security proceeds are stolen from the so-called "Social Security Lockbox" every year and diverted to the general fund where they fund all sorts of useful projects, payouts, electioneering, vote paying, and crony and family payoffs. Social Security benefits are then paid out from tax receipts.
It is a grand scheme.
Unfortunately, just because a government engages in a Ponzi scheme does not mean they can avoid the laws of economics. World War II was a godsend to the scheme as at wars weary end it provided millions of horny GIs to start their families all at about the same time. This led to the "baby boom", a bubble of birth of historic proportions moving through time. In the early years as these baby boomers, and I am one, entered the workplace they vastly outnumbered the Social Security beneficiaries. Vast sums of money flowed into the scheme's coffers. In 1940 the ratio was 160 to 1. In 1950 it was 17 to 1. In 1970 it was 3.7 to 1. And, skipping forward into the year 2000 and now 2009, it is 3.3 to 1 slowly drifting to 2 to 1 around 2025. And, it may never get much farther.
Obviously the current numbers cannot be sustained. At 3.3 to 1 the scheme is already losing ground and the baby boom bubble is just starting to retire. In 2015 those born in 1950 will be eligible for standard retirement. They will go from the Ponzi category of "new recruits" to the category of "previous recruits". They will begin to be a drain rather than a source for the scheme. Every year thereafter millions more will begin drawing from the scheme than will begin contributing to the scheme.
(http://www.ssa.gov/history/ratios.html)
EVERY Ponzi scheme is doomed to fail.
Whatever congress crooks will be occupying the seats of power at the time will try to shore up the scheme. They will raise the retirement age. They will raise FICA taxes on those still working (new recruits). They will raise income taxes to attempt to make up the shortfall. They will reduce benefits to try and reduce the losses. The smart ones will take a lesson from the tardiness of Bernie Madoff and take their ill-gotten gains and disappear into private citizenship letting a new crop of wannabe crooks try to sort out the mess and taking the blame.
The foxes have been watching the henhouse, and the inmates have been running the asylum. In the end, the congress crooks will have their pensions at full salary, continually adjusted for inflation, their gold-plated medical insurance paid for life, and the profits from their individual efforts at sweet heart loans, inside options trading, influence peddling, real estate subsidies, and all the other games they run on the rest of us. And, the US citizenry will be left holding the bag with the baby boomers who funded the bankrupt scheme deriving little to no benefits wondering what happened to the promises and asking, "where are all the TRILLIONS that went into the Social Security Lock Box?"
And remember, EVERY Ponzi scheme is doomed to fail.