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Addressing Social Security's Ponzi Scheme

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Ever since the creation of Social Security in 1935, politicians of all stripes have denied that this system is in any way problematic. They may have disagreed with its creation -- as articulated by Barry Goldwater in 1964, for example -- but no candidate at the presidential contender level had yet pointed out that the emperor has no clothes.

Until now.

Rick Perry frankly admitting that Social Security is a Ponzi Scheme reminds us of those people who were ridiculed in the decade before the Dec. 11, 2008, arrest of Bernie Madoff. Those who pointed out that Madoff was most likely running a Ponzi Scheme were met with ignorance, ridicule and even anger.

Same thing today with Rick Perry and Social Security.

There is a difference, though. Madoff operated in relative obscurity to the common man, so to undress his scam prior to Dec. 11, 2008, took considerable skill and knowledge of accounting. In contrast, the mechanics of the Social Security system has been hiding in plain sight for decades.

Everyone with even the most basic understanding of mathematics knows the nature of the Social Security system. It is not in dispute. The government itself has argued the truth in the courts. It is simply a tax-and-benefit system that gives a vague appearance of being "savings" in "accounts." In reality, there are no such things -- no savings and no accounts.

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President Roosevelt argued before the passage of the Social Security Act that it was a forced savings program, effectively insurance. This was challenged in the courts on constitutional grounds, at which point President Roosevelt's lawyers changed their tune and told the truth: It's just a tax-and-benefit program. No savings, no accounts. Roosevelt won the constitutional argument in the courts.

So the facts are not in dispute. The money that's being collected in the name of Social Security is not saved. It is spent immediately on general government expenses, just like the use of proceeds from any other tax. Benefits come exclusively from those who are paying taxes during the year the benefits are paid. A chain letter, in other words.

Call it whatever you want -- Ponzi Scheme, chain letter, fraud, Madoff. Except this Madoff isn't $50 billion, but rather on the general order of $50 trillion -- a thousand times worse. Madoff got 150 years behind bars for his $50 billion sleight-of-hand. Has a single member of the U.S. Congress voting for Social Security been sentenced or even brought to trial?

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