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Torch Sessions

The Federal Ponzi Scheme
by Joseph Branco

April 25, 2005

Ketchikan, Alaska - We have begun hearing again about the get rich quick schemes collectively defined as Ponzi Schemes. The basic premise of these scams is that for a miniscule investment you will receive a great deal of money later. The problem is that the money isn't expertly invested or creating jobs and selling products. No, the money for the initial investors comes from new people entering the scam. New money collected is paid to those already in the program. The people just joining are promised that their money will come from new "investors". This is a pyramid scheme.

As anyone alive in the 80's can attest, the problem comes when there are no new subscribers because then the last ones in have paid their money but will never receive the promised benefit. Does this sound like something we know? Let me see - you pay a little bit in (say 6.2% of your income) for a number of years, then when you have worked enough you stop paying in and begin collecting, but you collect much more than you paid in, and you are paid not with the money you put in but with money from new "subscribers". This sounds an awful lot like the Federal Ponzi Scheme (FPS) or better known as Social Security.

If you are one of the fortunate investors that got into the program early and are already collecting your benefits you are lucky that this federally mandated subscription program exists. What if you are one of those people that paid into the scheme all along but had the misfortune to die before reaching the magic payout age, you get nothing and neither does your surviving family member. Remember, this is money you earned that was withheld from you without your consent. But that is the key way that you can pay-off a pyramid scheme - you have to hope some people don't try to collect.

Lawmakers now are forecasting the collapse of Social Security. It is inevitable in its current form. The individual benefits paid out are greater than the individual taxes collected. This issue is called the "political third rail" because there is such heated debate on both sides. The heated debate usually comes from denial. A group of citizens believe that if you scream loudly about an issue it can be blocked from debate. There is usually the tired invocation of "what about the children?" or slightly modified to "what about the elderly?". Both of these rants impose victim status on these constituencies. Today's seniors are capable and intelligent and cannot be easily fooled by the rhetoric that the Republicans want to starve them or reduce their benefits. The debate is about whether a future generation should be able to keep a small portion of the money they have earned as piece of their personal property. If a person pays into Social Security for 30 years and dies at 60 years old, a portion of the contribution should pass on to their heirs. Since it is still a federally imposed retirement savings plan there should be some retained value. Or have I failed to see the flaws in Social Security.

In the real world, people who perpetuate Ponzi cons are sent to jail. Shouldn't Congress be held to the same standard?

Joseph Branco is a freelance writer living in Ketchikan, Alaska.
Contact Joseph Branco at branco(AT)

Jospeh Branco ©2005
All Rights Reserved

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