The Largest Ponzi Scheme Ever (No, I Am Not Talking About Bernie Madoff's Scam)

Evening, folks!

Yesterday afternoon, the online gambling community took a huge blow when the Department of Justice (DOJ) filed charges against the owners of three of the largest online poker sites (PokerStars, Full Tilt Poker, and Absolute Poker) and their banking associates.  In the brief, the Manhattan U.S. Attorney asserted that these individuals "concocted an elaborate criminal fraud scheme"; the DOJ is seeking $3 billion in penalties (see: http://sports.espn.go.com/espn/poker/news/story?id=6362238).

I honestly can't say who is right here (I keep reading conflicting reports on the legality of online money games), but that's not really what I want to discuss.  This story got me thinking about huge money-making schemes, so naturally, I thought about Bernie Madoff's huge Ponzi scheme.  Of course, that made me think of the largest Ponzi scheme in the world: our very own government's Social Security program.

Yes, people.  Social Security, as it is now constructed, is a Ponzi scheme.  Before I provide evidence supporting this claim, let's look at the Securities and Exchange Commission's definition of a Ponzi scheme:

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. http://www.sec.gov/answers/ponzi.htm

To clarify this definition, let's look at a real-life example of a Ponzi scheme (this is also from the SEC's website):

These schemes are named after Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. At a time when the annual interest rate for bank accounts was five percent, Ponzi promised investors that he could provide a 50% return in just 90 days. Ponzi initially bought a small number of international mail coupons in support of his scheme, but quickly switched to using incoming funds to pay off earlier investors. 


(I made the last phrase bold for emphasis).

Does everyone understand what is happening here?  Essentially a Ponzi schemer takes money from initial investors; then, this schemer will find a second group of investors, and use their investment money to pay off the first group of investors.  After that, the schemer will find a third group of investors and use their money to pay off the second group of investors, and so on and so forth.  This cycle will continue until the schemer runs out of investors or when several groups of investors withdraw money at the same time.

Now that we know what a Ponzi scheme is, we have to ask this question: does Social Security fit into the Ponzi scheme category?  It fits pretty snuggly, in fact.  Social Security is dependent on new investors (younger, working people) paying into the system in order to pay off earlier investors (older, retired people).

Sounds familiar, right?  It better.  To me, it sounds exactly like the "payment of purported returns to existing investors from funds contributed by new investors" part of the SEC's definition of Ponzi scheme.

In essence, the only real differences between Social Security and Bernie Madoff's scheme are that the US government has declared Social Security to be legal, and, Social Security is way, way bigger than Madoff's scam (as you will see).

Anyways, like all Ponzi schemes, Social Security is going to collapse.  As I mentioned in an earlier post (see: http://eaynuf.blogspot.com/2011/04/young-and-screwed-americas-youths.html), Social Security will be bankrupt by 2039 (at the latest).  This will happen because of numerous factors: first the government spent money from the Social Security trust funds (much like Madoff did with his investors' funds).  Second, there will be millions of people drawing checks from Social Security concurrently (remember that several investors withdrawing funding at the same time is a devastating flaw in all Ponzi schemes).  Finally, there will not be enough new people paying into Social Security to keep it going (the second deadly blow to Ponzi schemes).

All in all, this makes Social Security the largest (yet legal) Ponzi scheme in the world.  Over the next 28 years, our government's massive scam will cost us trillions of dollars (I am estimating somewhere in the $30 trillion range.  According to the CBO, Social Security will make up around 5% of GDP until it tanks in 2039.  Assuming the US's real GDP increases at about 3% annually, the total number of dollars spent on Social Security between now and 2039 is about $32 trillion).

And remember, young people, that Social Security will collapse before we get any payments back.  Just like the last investors in Bernie Madoff's Ponzi scheme, we will lose all the money we ever put into the program.  It hurts to think about that, doesn't it?

BB

A Fascinating Story

As many of you probably know, President Obama was schmoozing with wealthy and well-connected individuals at a fund-raising party last night in Chicago.  Our leader decided that event was a perfect time to rip into his GOP enemies, accusing them (especially Paul Ryan) of horrible things like creating unfunded liabilities (Medicare Part D, the Iraq War, etc.) and not-so-horrible things, like believing he's stupid.

The President is probably right about the GOP believing he (and the rest of his party) is an idiot.  And he is certainly right about the GOP (despite claiming to be the party of smaller government) creating several unfunded initiatives while Bush was in office.

Partisan douchebaggery makes for a fine story, right?  Nope.  The interesting part of this story has to do with readers' comments (I'm taking these from Yahoo!'s article:  http://news.yahoo.com/s/yblog_theticket/20110415/ts_yblog_theticket/obama-caught-on-audio-slamming-gop#mwpphu-container).

"Its amazing how a free people can be dictated to by their elected servants the politicians" one reader wrote.  


Another reader asked, "When is Washington going to start doing what is best for the PEOPLE???????????????????"


Comments like these are prevalent (feel free to browse through them at the link I posted above).


You can also see thousands of complaints like these on pretty much any politics-based article on Yahoo! (check out this article on the federal budget battle): http://news.yahoo.com/s/ap/us_spending_showdown.

"That's not interesting," you say.  "It's no secret that Americans are pissed at our government".  Duh.  That's not what I'm talking about.

The interesting part of this story is that people complain about their government's actions and their legislators ignore those complaints.  Stunningly, our fellow Americans go right back to complaining about the government      
and government officials just go right on about their business, ignoring their constituents' criticisms in the process.

This pattern is interesting to me.  The relationship we have with our representatives is almost like an unhealthy domestic relationship: one partner complains (the citizens), and the other (government officials) just ignores his or her companion .  That's a recipe for a domestic (and national) implosion.

When exactly did we accept this interpretation of our partnership ?  When did we as a people decide we are going to be treated like annoyances rather than partners?  I'm pretty sure we never actively accepted this arrangement, but that's just the way the system evolved.

Now that we know what is happening between us and our politicians, where are our torches and pitchforks?  Why aren't we in the streets protesting day after day after day?  Why aren't we embarrassing our leaders in front of the world with long and furious rants?    

This crap should disgust all Americans (especially young Americans because we didn't make the country this way: we were born into this trash).  Our relationship with our representatives and officials should be more like the relationship between a just, rational, decent employer (the citizens) and a diligent, honest, well-paid employee (our officials): both groups can prosper if they work hard for each other.

Some times, the employee needs to lead the way for his or her employer.  Other times, the employer needs to metaphorically kick his or her employees' butts.  I believe this is one of those times when the boss (the citizens) needs to kick his employees' (officials') behinds until they can't sit down anymore.

We should be out in the streets protesting and getting in our representatives' faces.  We should be harassing our legislators until they can't take it anymore.  In this busy day and age, this is what is necessary to keep our powerful and arrogant officials in line: vigilant surveillance and aggressive, impassioned, persistent pestering.    

Instead, I guess, for most people democracy is just too much of a bother.  Shame on you, America.  You have given away what is most precious to humanity: freedom.

The Young and the Screwed: America's Youths Respond

Good evening!

Ok, this might sound like a bit of a militant post, but I am fed up with the epic failures of our elders and so-called "leaders".  I really don't understand why more young people aren't calling their representatives and demanding changes.  Have we as a nation become afraid of our rulers?  I am pretty sure that's not how a democratic republic is supposed to work.

Anyways, I am in the process of starting a Facebook group in the hopes of uniting people.  Here is the "Info" page, complete with accusations, rants, and nice graphs:

This Facebook group is for young Americans who hate the fact that our futures are being sold by today’s politicians in exchange for campaign funding and votes from special interest groups (SIG’s).  We believe these unscrupulous individuals have had enough fun, and it is time for them to pay for their fiscal and political orgies.  If we sit back and do nothing, we will pay a hefty price because our leaders and their financial supporters intend to pass their bills down to us. 

Let’s take a quick look at a couple problems that today’s (and yesterday’s) leaders have failed to address; as you will see, these issues will weigh heavily on our chances of living prosperous lives. 

First up is the national debt.  As of this post (April 14, 2011), our federal government has racked up an astronomical debt of $14.26 trillion (see: http://www.publicdebt.treas.gov/).  This accumulation of yearly deficits is the result of decades of fiscal child abuse.  For well over 50 years, our federal government has spent more than it has received in taxes (I will acknowledge that there are a few years when the government ran a surplus), thus leading to today’s huge public debt.  Please take a look at the following graphs (courtesy of www.usgovernmentspending.com):

 
 

(Sorry about the grainy images. I haven't figured out how to properly put them on my blog posts). 

As I stated, year after year, our rulers have demonstrated their willingness to spend more than they gathered in taxes (see: the graph on the left).  As a result, our public debt (the accumulation of all of the deficits from previous years) has ballooned to horrendously large levels (see: the graph on the right).  Specifically, between 1960 and today, the national debt increased from $287 billion to approximately $15 trillion!  It would have been nice if the voters and politicians who came before us would have stood up and done something, but, they did not; they have instead decided to be bad citizens and pass their debts down to us.   

Anyways, like all debt situations, the borrowers (our federal government agencies and “leaders” in this case) will have to repay their lenders.  But, where will the borrowers get the funds to make these payments?  Answer: your paychecks (through higher income tax burdens). 

Now, let us turn our attention to Social Security.  This year (2011) the first of the Baby Boomer generation (generally defined as those born between 1946 and 1964) will be turning 65 and retiring from their full-time occupations.  That means, of course, that these individuals will begin collecting Social Security checks this year, as well. 

How is this a problem for young people?  Well, there are about 76 million Baby Boomers in this country (source: www.prb.org) and Social Security is not in good financial shape.  According to a recent Congressional Budget Office (CBO) report (see: http://cboblog.cbo.gov/?p=1498), the Social Security Administration will be totally bankrupt by 2039 (most of us will be getting ready to retire around 2050, so we will have just missed out on getting retirement benefits). 

Notice what is being asked of us here: we are supposed to pay into Social Security our whole lives in order to support our elders (the same elders who have screwed us over with poor fiscal management leading to a massive public debt that we are expected to help pay back); additionally, due to the massive number of soon-to-be retirees, our payroll taxes are likely to increase.  However, shortly before we retire, the Social Security trusts we paid into our entire careers will be bankrupt.  If that is not a cruel scam of the highest order, I do not know what one is.    

And we are supposed to accept this arrangement while we are saddled with an average of $24,000 of student loan debt, rising health care costs, and middling job prospects (see: http://www.msnbc.msn.com/id/40772705/ns/business-cnbc_tv/).  This deal sounds reasonable, right?

Wrong.  Screw this.  Our countrymen have sold us out, and it is time for us to fight back.  These people (some of them are Boomers, legislators, special interest groups, Wall Street bankers, parents and grandparents) should be forced to face the facts: they have screwed up and we are not going to clean up their messes.     

  

*****By the way, there are many Facebook groups whose sole purpose is to complain about the American government.  This group is different: we want active participation.  We want people who are ready to go toe-to-toe with the people who have tried to screw us over (previous generations of careless voters, special interest groups, and politicians).  Are you too afraid to do anything about this problem?  If so, then go away.  If not, then join us and fight for your future today!

A Brief Look at Our Country's Political and Economic Problems

As promised yesterday, I am going to write about the USA's current economic and political climate and how our futures are being affected by today's issues.  (This is kind of a long post, but it contains important information for all young persons).

It is no secret that it is difficult for many Americans to find jobs today.  After all, the overall unemployment rate is 8.8%.  However, the employment situation is much worse for young people.  About 15% of us between the ages of 20 and 24 do not have jobs.  Additionally, approximately 9.1%  of people between 25 and 34 are unemployed.  Finally, 24.5% of working-age teenagers have no job (part-time or otherwise).  (To see general unemployment statistics, feel free to visit this website: http://bls.gov/news.release/pdf/empsit.pdf).

Being unemployed is not the only economic problem young Americans are facing.  The average college graduate in 2009 left school with $24,000 in student loan debt.  And that figure is likely to go up, given the fact that tuition is increasing 3 times faster than the rate of inflation and government grants, loans and scholarships are most likely going to shrink due to federal budget cuts.

It gets better (sarcasm).  

President Obama gave a speech at George Washington University today in order to discuss his plans to decrease the federal deficit by a total of $4 trillion over the next 12 years.  Some of his ideas are good (especially those involving tax reform and cuts to unnecessary programs).  Other ideas are troubling.

The most troubling of Obama's proposals is the "debt failsafe" that would start in 2014.  This program will make large cuts across the federal government's budget, provided the federal deficit situation has not improved (I have no idea who gets to decide whether or not the debt situation has improved).  While that sounds like a good idea, there is a catch (as always): these cuts would not apply to Social Security, Medicare, and certain unlisted low-income programs.

Why is this a problem, you ask?  Well, this debt failsafe would cut funding for many education initiatives (I am talking about loans, scholarships, and grants) soon-to-be college students will depend on.  The most troubling aspect about this program, though, is that while young people's education funding is being slashed, older Americans and retirees will not share our pain.  

And here is some more good news (that is more sarcasm, if you could not tell).  Starting this year, the first of the Baby Boomer generation (a generation consisting of roughly 77 million people) will be retiring, and, therefore, collecting Social Security and Medicare benefits.  For those who do not already know, Social Security and Medicare are already cash-strapped programs: according to Congressional Budget Office estimates (CBO), Social Security will be bankrupt by 2042 at the latest.  So, those programs will go bankrupt just around the time we will be retiring; in other words, we will pay most of our working lives into those programs to support others, but we will probably not be able to enjoy the same retirement benefits the generations that came before us did.  Does that sound like an agreeable arrangement to you?  

The real question I have is this: Why are we young people expected to accept this arrangement?  In essence, I believe the reason is politics.  Current and soon-to-be retirees are a very large and politically active subset of the American population.  In order for elected officials to maintain their offices, they have to appeal to these voters.  And the best way for officials to do that is to pass resolutions that benefit those active voters.

To recap, the previous generations want us to deal with fewer programs to help us afford college (even though we need to go to college to compete in the globalized economy), accept higher Social Security burdens to fund the Baby Boomers' retirement (even though we will likely not benefit from those programs when we retire) and agree to inevitable, higher future tax rates to help pay off the nation's $15 trillion debt (a debt that we did not incur).  And we are supposed to do this while we are paying off student loans, contributing to our own retirement plans, improving America's standing in the foreign community, and raising children.  These messes are being passed down to us by our leaders and elders because of politics.  We can do something about this, but we young people need to work together.

At the end of the day, I have decided that enough is enough.  I want a new deal.  And I am pretty sure you do, too.       

Until tomorrow,

BB
EAYNUF Founder

Welcome to EAYNUF

Greetings!

I started this blog because I needed a platform from which I can speak honestly, openly, and frequently with my fellow young Americans (the late Gen X'ers, the Gen Y'ers, and the Gen Z'ers).  Additionally, I wanted this blog to be a place where young people can come for information and analyses on events that will directly and indirectly affect their lives.  Lastly (but crucially), I wanted this blog to be a launch pad for something the USA has needed for a long time: a widespread unification of mature people who will cooperate for the benefit of the country.

Now that I have briefly introduced the purposes of this blog, I will speak about myself a little bit.  I am from the great city of Cleveland, Ohio.  (Don't laugh: Cleveland really is great).  I recently dropped out of a Ph.D. program in economics (I did learn a lot about applied economics before I left) to pursue an M.D./Ph.D. dual degree. I love learning, thinking, arguing, watching sports, listening to music, and drinking good wine.     

I believe that is enough for now.  Please come back tomorrow for my opinions on the USA's political and economic troubles.

Welcome, once again, to EAYNUF!

BB