The Grandest Ponzi Scheme in the History of the World

I’m quite amused at the number of news stories about Bernard Madoff, who “made off” with about $50 Billion in investor’s money…at least that’s the amount we’ve all been told.

His swindle certainly brings into question the effectiveness of the Securities and Exchange Commission. Why did they not audit this company and find the fraud years ago? And, if they can’t find a fraud of this magnitude, just what good are they?

But Bernard Madoff is a kindergartener compared to another group that started their own Ponzi scheme a while back. There’s a ten-ton elephant in the room that we’re not supposed to notice or speak of. All of us are involved in it, whether we like it or not. It is the grandest Ponzi or “pyramid” scheme ever devised by the minds of men.

The scheme was started back in 1935.

Here’s how it works. Every time you earn income, you have to give some of your income to this scheme. In 1935, workers paid one cent of every dollar into the scheme, on a maximum income of $3,000. The scheme promises you (not in writing, like a contract) that at some future date, it will begin paying you a monthly income of an amount they choose. Also, it will provide you with disability and health care benefits at some future date, including prescription drugs benefits.

The owners told everyone that the money was going to be held in a “Trust Fund.” However, the owners collected money from the victims that went directly into the owner’s treasury to be spent as they chose. To make up for the amounts they spent, they presented bonds to the Trust Fund they made up themselves. So, it looked like the fund was solvent, but it just had lots of owner’s bonds as its assets.

When the scheme began, there were about 42 people paying into the scheme for every 1 person getting his benefits. In 2008, there are 3 people paying into the fund for every 1 person collecting benefits. It will be 2-to-1 by the time today’s 20-year-olds want benefits.

Today, you pay 6.2% of the first $102,000 of income into the scheme. That’s over $6,400 a year that you owe the scheme.

I’m certain that by now, you’ve recognized the scheme as Social Security/Medicare.

Social Security has been a pyramid scheme from its inception. Those who paid in first received money from those who paid in second. And on it goes, decade after decade. This worked so long as the small numbers of people when Social Security began was being supported by larger populations resulting from the baby boom.

But, like all pyramid schemes, the whole thing begins to implode once the pyramid stops growing. The baby boomers are now beginning to retire, and the bloated system can no longer sustain itself.

Bernard Madoff may be subject to criminal prosecution and imprisonment. But the criminals in the Congress will never suffer such indignities. Too bad, though. The Social Security/Medicare system will be one of the primary causes of the collapse of the US Federal Government and the American economy.