Government's Ponzi Scheme: 1000 Times Worse than Madoff's

By now we have heard about Bernie Madoff's $50 billion Ponzi scheme, where the life savings of at least hundreds of people – perhaps thousands – went up in smoke. We are all being told that this represents the biggest Ponzi scheme of all time, by a wide margin. Right?

Wrong. Madoff's Ponzi scheme isn't even close to the biggest one ever, by far. The biggest Ponzi scheme is one in which we are all victims, to the tune of close to $50 trillion – not billion. It's the unfunded liabilities of the US Federal Government, particularly Medicare and Social Security.

How does it add up to $50 trillion? In a classical Ponzi scheme, the government has promised pay-outs of monies under the guise of "Social Security" and "Medicare" (among the two largest schemes) for whom taxpayers will be on the hook in the future. What about the Social Security "trust fund?" It consists primarily of IOUs denominated in government bonds, to be paid for by future taxpayers. Madoff would only have been so proud to be in charge of this giant scheme.

There are just over 100 million households in the US, although only approximately half of Americans are significant Federal income taxpayers. What that means is that some 50 million Federal income taxpayers could be the ones carrying the burden of funding this $50 trillion Ponzi scheme. That's $1 million per taxpayer, folks. If the government expands the tax base to 100 million people, it's $500,000 per person. That's the average net worth of all Americans. Everything we own is spoken for in the government's $50 trillion Ponzi scheme.

What's the bottom line? Sure Bernie Madoff is a giant crook, but even this giant pales in comparison to the Ponzi scheme in which we are all victims to the tune of anywhere from $500,000 to $1m each. One can also suspect that this number will increase further, because the government may be expanding its activities into further areas of society, including health care, the banking system, industries such as automobiles, and so forth. Are you enjoying the service you receive at the post office? At your airport's TSA station? Then you will increasingly love the world of entitlement socialism, built on these giant Ponzi schemes.

There are many things of which we can be critical of President George W. Bush, such as the new Medicare Ponzi scheme, the bailout mania, the general insane increase in government spending (all with massive Democrat support in Congress). However, for what it's worth, President Bush warned against, and tried to do something about, two of the biggest problems of all time: He tried to (1) Put the lid on the corrupt Fannie Mae and Freddie Mac that led to the mortgage crisis, and (2) Convert Social Security from a Ponzi scheme to a private 401(k)-style savings account. In future years, historians will look back at those who opposed President Bush's reform proposals in those two areas, in the same way we are now looking at Bernie Madoff, except this Ponzi scheme is 1000x larger.

Disclosure: None.

Comments

[herbert hoover:]

You know what would have been better - investing my retirement money in the stock market! Oh wait, i did. It's only down 70% in the last year.

2008 Dec 19 06:30 AM

[bosun.j:]

Wahlman had me until the last paragraph where he revealed himself to be a neo-CON revisionist.

Bush is not smart enough to know what a ponzi scheme is. His anti-regulatory rhetoric came directly from Banksters like Wahlman for the same reason. Thankfully W used up too much of his "political capitol" with lies and deception that he wasn't able to hand the Banksters SSI on a platter.

No, to steal the retirement of millions of Americans the Banksters first devised 401(k)s and told workers the only way to make anything in the market was to stay in and keep contributing. Much the same as Kenny Boy Lay did.

When the Banksters saw that their greed was about to bring the whole system down before they could steal all they thought was rightfully theirs from the slaves, er, workers, they ran to their Congressional lapdogs and got them to give them directly or indirectly a gift of more than $8 TRILLION.

Still the Banksters are not satisfied.

Still neo-CON shills like Wahlman continue to spew their filth.

2008 Dec 19 07:23 AM

[Tom Wright:]

At least I know where my SS money is going and why and in what totals and that it may not be enough in the future. This current Ponzi scheme had no such warnings or intentions except to make one man filthy rich and his buddies nearly as much so off others who admit they invested because they were GREEDY (and no, that is not good).

2008 Dec 19 07:59 AM

[msoori:]

What a political sheep in wolves clothing story! I guess your 8 years was different than mine xmplary.blogspot.com/2... and definitely that of this guy benturner.wordpress.co...

2008 Dec 19 08:14 AM

[fmccraw:]

The problem with our currently interpreted government / economic system is that we can see this trainwreck coming, but the 2 or 3 concentrated present vested interests can block any change or reform. Maybe the present Bernanke helicopter drops will result in the whole system coming down with a "bang" instead of a "whimper" and we can start over again from the basics - like a one page federal tax guide and no lawyers.

2008 Dec 19 08:19 AM

[Stephen Kanitz:]

Great article. What is called a "Pay as You Go System" , actually means that new entrants are paying first comers, just like Maddof did.

2008 Dec 19 08:40 AM

[farmer448:]

So I guess all insurance is a Ponzi scheme. CDO's derivatives life insurance fire insurance annuities yada yada yada.

But then regulation and reporting is supposed to make exposure (risk) of these vehicles visible to all.

Even for the Free Markets invisible hand to work effectively, information should be readily available so all may evaluate risk. Information monopolies are the root of the problem. Why? You cannot hide it forever. Once hidden, when revealed, wild reactions to the new information is exposed.

So the whining about government Ponzi is barnyard manure. Please help working to how to provide better and more complete information about transactions in the financial markets.

2008 Dec 19 08:50 AM

[a fat panda:]

Comically Bush's solution would have made things worse because they GUARANTEED the level of social security payments even as your PSA dropped 50%. The only difference W would have made is that the bubble would have been longer and bigger.

2008 Dec 19 08:54 AM

[Joyful Alte...:]

Thanks for the interesting links, Msoori.

2008 Dec 19 08:56 AM

[ain't no fo...:]

Agreed bosun, Wahlman's just another radical right wing neo-con trying his best to construct revisionist history and shift the blame away from his own party. He blames the democrats for the massive spending when in fact the explosion in government debt-fueled spending was done by a Republican controlled congress for 12 of the last 14 years.

But yah, I would have loved for their pals on the street to get control of MY social security account... why, maybe I could have let Madoff or Bear Stearns or Lehman manage it for me! I'm sure Chris Cox would have given them glowing referrals!

2008 Dec 19 09:10 AM

[Guero:]

Wahlman: are you drunk? Convert SS into 401k-style savings accounts? Have you been awake the past year? SS needs to be strengthened, revised, updated....but NOT turned into "401k-style" savings accounts.

As a matter of fact, SS will be the only thing saving many of Madoff's victims from spending their golden years eating dog food & mac & sleeping in a box under a bridge.

2008 Dec 19 09:54 AM

[OnMargin:]

if you really want to get up in arms watch IOUSA... 30 min version is out for the those with ADD. posted the link on my site.

2008 Dec 19 10:44 AM

[Dr.Jackpot:]

Since Madoff could not possibly spend 50 billion on himself and unless he actually burned the money, how can one say that 50 $billion has been lost? It seems to me it has merely moved to other accounts within the system. Unfortunate for some but a winner for others. Where am I missing it??

2008 Dec 19 11:54 AM

[notsosmart:]

this author is a joke.dont bother.it would have been too late but one of those shoes might have knocked some sense into this dumb failed pres. had the thrower been more accurate.as a registered independent i vote both sides of the aisle.there is no leadership.this country cant survive pushing phony AAA rated worthless paper.6 years one party controlled the govt.this cant function as 536 people cant readily agree on much.in this fast moving new world the ideas of the founding fathers,good as they were,no longer fit the bill.

2008 Dec 19 01:07 PM

[CLH:]

Very good Anton. The lefties dont like the truth. They think SS works. No way.

2008 Dec 19 02:05 PM

[k9s-4-k8:]

Actually converting the current Social Security system to a 401K style plan now would be brilliant. Best time to buy is when there is blood in the streets. Unfortunately, all politicians and most all Americans aren't smart enough to know better and will default to an irretrievably more socialized bend to the economy as the years pass. The expense of both social security and medicare will overwhelm any chance of a competitive America. We aren't even smart enough to see how Western Europe has seen economic growth and low unemployment rates stifled under the weight of their Utopian ideology.

2008 Dec 19 03:07 PM

[Jack's Pipe:]

"At least I know where my SS money is going"

Haha, yes, it's going to the four winds. Your SS money is already gone. Spent. Both parties caused it. The Democrats are liberal spendthrifts. Most Republicans talk a good game but spend like Democrats in reality. That's why few of them really opposed the bailout. And what do we have to show for all this? A huge series of Ponzi schemes that are going to collapse.

Just say no to the government "privatizing" social security via a different program. Yes to eliminating it altogether.

2008 Dec 19 07:01 PM

[Alan von Al...:]

Good effort, Anton. Unfortunately, it's too late to talk sense.

2008 Dec 19 08:32 PM

[Steven Hansen:]

yes, also too late for me. many years ago, it would have been possible to have personal retirement accounts instead of social security. it is now too late. the social security ponzi scheme would collapse immediately with the federal budget going even more negative today - you still have to pay everyone still in the system.

ss today is an income stream into the government. it distributes much less than it receives to the tune of $3 trillion. This $3 trillion would be additional debt the government must finance.

also consider that even 20 years from today, if the government never paid back the money it stole - the people on ss would still get over 70% of what they were promised because of the income stream.

i do not like ss. but i am afraid it is too late for good options.

2008 Dec 20 02:01 AM

[bush wacked:]

We have all been Bushwacked for the second time. The more I read between the lines and fine print, the madder I become. The Republicans and big business, are out to bust the Unions, started when Regan fired the air port control towers firing. The Senate didnt pass the automotive bail out, letting Georgy boy do it with certain resolutions, make the unions lower their wages. WHY did Bushwacker agree? Republicans are looking way ahead, for if the unions refuse to lower wages, and no more bailouts for the autos accurs, the republicans hope the unions will turn against the democrats, an republican ploy like everything they do, fine print artist, our used car salesmen, they are FAKES, money hungry leaches.

2008 Dec 20 04:54 PM

[brahmburgers:]

In Nevada County, CA. a tractor driver who died a few years ago. Willie had a small private auto wrecking/re-cycling biz. They found him in his tractor cab - keeled over the wheel. They also found lots of dollar bills, all denominations, stuffed in every crevice inside the cap of his old machine - payment from customers. We need more like Willie, who put money away for a rainy day. Unfortunately for him, he didn't get to spending much of the stuff.

2008 Dec 20 07:09 PM

[biomedlives:]

The difference between most insurance and Social Security is that the insurance premiums are reflect sound actuarial analysis of reserves, the premiums themselves, and future liabilities, whereas Social Security's reserves and payroll taxes are inadequate to meet future liabilities. The Ponzi scheme analogy for Social Security is valid, in my view.


On 2008 Dec 19 08:50 AM farmer448 wrote:

> So I guess all insurance is a Ponzi scheme. CDO's derivatives life
> insurance fire insurance annuities yada yada yada.
>
> But then regulation and reporting is supposed to make exposure (risk)
> of these vehicles visible to all.
>
> Even for the Free Markets invisible hand to work effectively, information
> should be readily available so all may evaluate risk. Information
> monopolies are the root of the problem. Why? You cannot hide it
> forever. Once hidden, when revealed, wild reactions to the new information
> is exposed.
>
> So the whining about government Ponzi is barnyard manure. Please
> help working to how to provide better and more complete information
> about transactions in the financial markets.

Jul 24 10:18 AM