This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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.

>> Get your financial news on the go with TheStreet's iPad app.

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?

1 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs