This is part two in a series.  Part one is: Three Ways to Really Stimulate the Economy Without Looting the American Taxpayer – Part One: Enact the Fairtax.

In 1918, a con man named Charles Ponzi came up with a scheme.  He would buy an asset in one market and immediately sell it in a market where it was worth more.  This in and of itself is not illegal.  But Ponzi promised huge returns in a short amount of time. Rather than buy more assets, he began using the money from new investors to pay the old.

Eventually the scheme collapsed under its own weight, leaving thousands, some who had mortgaged their homes and invested their life savings, without a penny to show for their trust in him.

This is where we get the term “Ponzi Scheme.”  Most recently, Bernie Madoff conned people out of billions of dollars in a similar fashion, but his plan is peanuts compared to the longest running scheme in American history.  It’s been called an “intergenerational Ponzi scheme.”

Most call it “Social Security.”  Consider what Ponzi did, and then consider how Social Security operates:

Under Social Security, lower- and middle-class individuals are forced to pay a significant portion of their gross income–approximately 12 percent–for the alleged purpose of securing their retirement. That money is not saved or invested, but transferred directly to the program’s current beneficiaries–with the "promise" that when current taxpayers get old, the income of future taxpayers will be transferred to them.

New investors are paying in, supplying the returns for older investors, with the promise of a future return.  Exactly what Ponzi did, save one feature:  Ponzi didn’t force anyone to invest with him. 

The government does.

Privatizing Social Security

Every payday, you have money taken out of your pocket and put into this intergenerational Ponzi scheme.  You don’t have a choice in it.  It is just taken.  Your employer has to pay an equal amount.  Again, no choice.

Rather than it being invested, it is paid out to older citizens, who invested earlier.

Looking at it through the prism of history, you can see how this system is going to collapse upon itself.  Shouldn’t we take action to prevent it before it does?

We can, and should, by privatizing Social Security.

Democrats are already using the economic downturn to slam the idea of privatization, as if the current system is more secure than Wall Street. 

Republicans see the need for reform while Democrats say there is no problem.  This is exactly what happened with Freddie Mac and Fannie Mae.  The Republicans cried out for change while the Democrats mocked the idea.

While the Democrats use the economic turmoil to bring the masses closer to the government teat, experts agree:  this is the perfect opportunity to privatize Social Security because the best time to invest is when markets are down:

I’m downright jealous of anyone who’s just getting started with their investing. Not because they’re safely in cash — but because they have such a low starting point to measure their success. Formerly expensive stocks that many investors have found promising for years are now screaming bargains.

…

On top of the big markdowns on most stocks, falling prices are also making dividend payouts look increasingly attractive. During the bull market of the late 1990s, dividend yields on the S&P 500 dropped to nearly 1%. Now, they’re topping 3%. As a result, you don’t just have the potential for large capital gains when the market rebounds — you’ll also get paid while you wait.

and:

This Fool believes that the next several years will provide investment opportunities of a lifetime. You have to get in front of trends, both existing and those yet to unfold. Be flexible. Don’t let the current environment fool you. It’s morning in the world markets.

There are two choices.  One is leaving money in a system you know will eventually fail.  The other is investing your money in a system where the possibility for huge returns exists.

Which would you choose?

The Impact on the Economy

In 2008, Americans paid $805,302,000,000 in Social Security taxes.  The government paid out $625,143,000,000 in benefits.  The difference when into the “Trust Fund,” essentially meaning the government gave it to itself and gave you a promise to repay it.

They currently have $2.4 trillion in promises.  These will have to paid by future generations.  Do you see the Ponzi-esque nature of the beast? 

Now consider what would happen if $805,302,000,000 were invested in American businesses?  Not the investment in government schemes and party payback plans we find in the stimulus plan the Senate voted for yesterday, but actually invested in private enterprise.

It would be like mainlining a Red Bull.

As noted above, right now is a great time to invest.  If you were to take all the Social Security payments each month and invest them, that would be over $67 billion a month.  That would strengthen businesses, plus increase the worth of the investments people already have.  It would benefit you, the business and those who have already seen their investments decline.

But investing it all in the market would be foolish.  Never put your eggs all in one basket.

Diversify Your Social Security Investments

If given a private Social Security account, a person could invest some in mutual funds, but they could also divert a portion to savings.  They could buy bonds.  Think how that would strengthen local banks.

They could buy precious metals, like gold, which is reaching record levels in worth and is expected to keep rising.

They could just put their money in their mattress.  Even that could be safer than what we can expect in the future from Social Security.

There are so many different ways to invest based on your goals and your age. 

Pass It On

Another benefit of private Social Security accounts is the ability to bequeath them when you die.  Currently, the government just keeps your money.  That is why so many claim it is a racist program:

Statistically, black men have the shortest life expectancy and are the ones who get screwed by Social Security. White women (especially those who have never been married) have the longest life expectancy and make out the best.

Therefore, Social Security takes money from poor black men and gives it to rich white women.

The black community would be able to pass that money on rather than just lose it.  Every family would have something to leave behind.  This is another way of building wealth.

Wouldn’t you prefer to help create a wealthier future for your family, rather than give away thousands to a faceless bureaucrat? 

So What Are We Waiting For?

The problem is twofold.  On one hand,  the nanny staters don’t think the average American knows how to take care of themself, and needs the government to provide for them.  At one point that might have been true, but today America is a nation of investors.  Today, “50 percent of households own stock and two-thirds of all voters in the past elections were shareholders.”

Dave Ramsey is one of the most popular radio hosts in the country.  His listeners know how to handle money, or are learning.

Plus, we have the Internet today.  Want to learn to invest?  Here’s a video on Youtube you can watch at the local library.  There are books and magazines, online forums and groups, meetups and clubs, all created to help the average America make a dollar.

Don’t tell us we can’t do it.

The other problem is probably the biggest to overcome.  The government simply needs that money to function.

Remember, the surplus money is sold to the government for a promise to repay it in the future.  That money is then put in the General Fund and used to build frisbee golf courses, areas for dogs to run unleashed and just a little more neon for Las Vegas.

So the Democrats aren’t about to give it up.  Every chance they get, they demonize the idea of allowing you to keep your money.  Scare tactics are a big part of this.  Imagine how a senior citizen feels when they are told the Republicans want to take their Social Security.  This isn’t uncommon.

But what it really comes down to is that it is your property being seized, every payday.  It is your future, or your child or grandchild’s future, being mortgaged for pork and welfare and whatever else the government thinks it needs.  Charles Ponzi bought a heated swimming pool.  Congress buys itself a “$3 million environmentally friendly clubhouse for a municipal golf course.”

Ponzi died penniless in Rio de Janeiro.  Where does America’s future lie?

Photo Credit:

• epicharmus
• xlordashx

Related posts:

• Bernie Madoff v. Social Security
• Compared to the Federal Government, Bernie Madoff is a Piker
• Two Steps To Really Stimulate the Economy
• Three Ways to Really Stimulate the Economy Without Looting the American Taxpayer – Part Three: Why The Democrats Won’t Do It
• You Need to Know this About Social Security and Medicare