Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Ponzi Scheme

Frederic Bastiat Wouldn’t Approve of Social Security

This article was published by The McAlvany Intelligence Advisor on Wednesday, October 12, 2016:  

Frédéric Bastiat

Frédéric Bastiat

Frederic Bastiat was a “classical liberal” who lived briefly in the first half of the 19th century in France. But his legacy, including his development of the fallacy of the broken window through his Parable of the Broken Window continues to resonate today. He is perhaps best known for his definition of “legal plunder”:

But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

When it was enforced at the point of a pistol by a government bureaucrat, Bastiat opposed it:

I do not dispute [politicians’] right to invent social combinations, to advertise them, to advocate them, and to try them upon themselves, at their own expense and risk. But I do dispute their right to impose these plans upon us by law – by force – and to compel us to pay for them with our taxes.

There’s little doubt, then, that Bastiat would support the philosophy of The Bastiat Society, founded a dozen years ago:

Capitalism is the only economic system to produce widespread peace and prosperity. But if those in the private sector do not understand the intellectual and cultural institutions that make entrepreneurship and peaceful trade possible, what chance do they have to withstand a steady series of attacks from those who desire to bring capitalism and personal freedom to an end?

One of the battles that freedom lost was Social Security. Enacted as part of FDR’s Great Society, it remains a fixture that appears to be immovable. Today the only conversation heard is how to keep it from going bankrupt.

All manner of “fixes” are proposed. Obama’s National Commission on Fiscal Responsibility and Reform came up with ten fixes while The Motley Fool proposed 15:

  1. Cut benefits across the board right now;
  2. Change the COLA;
  3. Raise the earnings cap;
  4. Allow beneficiaries to invest in the stock market;
  5. Do nothing and cut benefits when the [trust fund] is depleted;
  6. Do nothing and enact payroll tax hikes when the [trust fund] is depleted;
  7. Offer a buyout [to the wealthy, removing them from the program];
  8. Link life expectancies to benefit levels;
  9. Means-test [to qualify] for benefits;
  10. Raise the full retirement age;
  11. Use the Estate Tax to cover Social Security [shortfalls];
  12. Freeze the purchasing power of benefits [i.e., eliminate COLA altogether];
  13. Freeze the … benefits on a sliding scale;
  14. Transfer [some] costs to [the] government [now]; and/or
  15. Increase the payroll tax on everyone right now.

Social Security has the peculiar characteristics similar to Bernie Madoff’s Ponzi scheme: eventually it is exposed and it ends in bankruptcy. The difference is that Social Security is enforced by people with guns and badges: everyone must be covered and forced to support everyone else, or else.

No one questions the math: the program’s “trust fund” is slowly being liquidated to cover the annual shortfalls between revenues and benefits. Thanks to the Baby Boomers, the liquidation is increasing more rapidly: those Boomers have developed the nasty habit of living longer, far beyond the original mortality tables predicted back in the mid-1930s. There’s also the declining birth rate, which is reducing the number of new entrants into the system whose taxes are needed to support it.

It’s the ideology: freedom versus force. So-called conservatives want to fix it, as do liberals. Conservatives, when pressed, question the intergenerational conflict that requires young people to contribute to a plan paying benefits to seniors. They question the use of resources: tax and spend now, or save and invest for later. Conservatives even argue over who should control the money. They never question its morality.

Liberals think it’s a proper function of government, going along with the Supreme Court’s decision in Helvering v. Davis that the program is constitutional, the Tenth Amendment notwithstanding.

As economist Herb Stein noted: “If something cannot go on forever, it will stop.” With Social Security it will continue as long as it can be patched up with temporary fixes. Eventually the mathematics and the bond market will end it.

Social Security Inching Its Way Toward Bankruptcy, Says CBO

This article appeared online at TheNewAmerican.com on Monday, January 25, 2016:  

The latest report from the Congressional Budget Office (CBO) on the financial condition of Social Security merely confirms what the Social Security trustees have been saying for years: The welfare-state program that spent nearly a trillion dollars last year isn’t sustainable.

In July Treasury Secretary dazzled the press with his waffle: The program is safe and sound, but it faces problems:

Keep Reading…

U.S. Attorney for New York is Swimming in a Sea of Opportunity

This article was published by The McAlvany Intelligence Advisor on Wednesday, December 2, 2015:  

English: New York State Assembly Speaker Sheld...

English: New York State Assembly Speaker Sheldon Silver holding a press conference (Photo credit: Wikipedia)

Preet Bharara’s resume is impressive. Born in India and raised in Eatontown, New Jersey, he graduated from Ranney School, an independent, highly-regarded college preparatory school, in 1986 as valedictorian of his class. From there he went to Harvard College, graduating magna com laude (with great honor) four years later. He received his J.D. (juris doctor) in 1993 from Columbia Law School where he served on the Columbia Law Review.

After a stint as Sen. Chuck Schumer’s chief counsel, he served as an assistant U.S. Attorney in Manhattan for five years, successfully prosecuting bosses of the Gambino and Columbo crime families.

When he was nominated for U.S. Attorney for the Southern District of New York by President Obama in 2009, he breezed through Senate confirmation with no dissents.

Since that time he has scored impressive victories, prosecuting successfully more than

Keep Reading…

Social Security’s Chief Actuary Meets Charles Ponzi

This article was published by the McAlvany Intelligence Advisor on Monday, October 19, 2015:  

English: Mug shot of Charles Ponzi (March 3, 1...

Mug shot of Charles Ponzi

In its apologetic over Social Security, the New York Times saw the most significant problem facing the scheme, according to the program’s chief actuary, Stephen Goss, is “that fewer workers are paying taxes into the program … while more retirees are collecting their checks.”

And thus it has always been: every Ponzi scheme fails when “new” investors cannot be recruited into it in sufficient numbers to pay off the “older” ones. The only reason Social Security has survived for so long – it just turned 80 this year – is because of guns and badges and threats.

Charles Ponzi had no such power. He had to rely on ignorance and greed. His scheme ran for more than a year before the fraud was discovered and he was jailed. His shtick?

Keep Reading…

Social Security Disability: Reaching the End of the road?

This article was published by The McAlvany Intelligence Advisor on Friday, July 24, 2015:  

Social Security Poster: old man

Buried in the annual exclamations of urgency by the trustees of the Social Security system issued on Wednesday was this warning: action by Congress will “give the public adequate time to prepare.” In the short run, some 11 million on Social Security Disability will learn that their benefit checks will drop by $200 a month starting next fall, so they need to get used to that. In the long run everyone receiving anything from the celebrated Ponzi scheme will see their checks go to zero:

Keep Reading…

Senator Menendez’ Co-conspirator Charged With Medicare Fraud

This article first appeared online at TheNewAmerican.com on Wednesday, April 15, 2015: 

Less than two weeks after being indicted on bribery charges along with his friend, New Jersey Senator Bob Menendez, North Palm Beach ophthalmologist Salomon Melgen (shown on right) was charged on Tuesday with 46 counts of healthcare fraud, 19 counts of filing false claims to Medicare, and 11 counts of making false statements to investigators.

A conviction would seriously impact his practice, which, until now, put him at the very top of all doctors in the country receiving reimbursements from Medicare. Each of the healthcare fraud charges could bring

Keep Reading…

The New Third Rail: Cutting Government Spending

This article was first published by The McAlvany Intelligence Advisor on Monday, July 14, 2014:


Historical government spending in the United S...

Historical government spending in the United States from 1902 to 2010

Back in February the Congressional Budget Office (CBO) estimated that the deficit for the 2014 fiscal year would be $514 billion, or about 3 percent of the total economic output of the country. Since this was a nearly 27 percent drop from last year, the implication is that all is well, nothing to see here, move along please. After all, the perception has been that the White House has been spending money faster than at any time in history, running up deficits and the national debt to staggering levels. Half a trillion? Is that all? Pocket change!

Greg Valliere, the chief political strategist for the Potomac Research Group, said at the time that this guaranteed that there would be no pressure for any sort of entitlement reform this year. Jack Lew, Obama’s Treasury Secretary, said the numbers bought some time: “We have a little time to deal with the long term.”

Last week both the White House and the CBO revised downward even further the expected deficit, with Obama taking full credit for the result:

Keep Reading…

Dinesh D’Souza Pleads Guilty, Claims Selective Prosecution


Cover of "The Roots of Obama's Rage"

Cover of The Roots of Obama’s Rage

When Federal District Judge Richard Berman ruled that Dinesh D’Souza, co-producer of the documentary film 2016: Obama’s America, had provided no evidence that he was selectively prosecuted for arranging campaign contributions to a friend in 2012, D’Souza had no other defense. In his plea bargain with Berman on Tuesday, D’Souza pleaded guilty to one of the two counts in the indictment, saying:

Keep Reading…

As Bitcoin prices increase so do concerns

With the price of a single Bitcoin exploding by 4000% just since January and by 400% in the last month, concerns about its legitimacy as a viable internet money that could effectively serve as an alternative to central banks’ currencies are increasing.

The Bitcoin has morphed from an internet algorithm to legitimacy beginning in August when

Keep Reading…

The Implosion of the Social Security Disability Ponzi Scheme Accelerates

Fresh data just released by the trustees of the Social Security Administration show that the number of people receiving benefits from the Disability Insurance Trust Fund has exploded over the last five years, reducing the surplus in that fund from $216 billion in 2008 to just over $100 billion in 2013. There were 7.4 million recipients in January 2009, but as of October 2013, there are nearly 9 million beneficiaries, not including

Keep Reading…

University of California Study: The National Debt is really $70 Trillion

Professor James Hamilton, economics professor at the University of California, San Diego, just published his best estimate of the federal government’s “off-balance-sheet” liabilities and concludes that the real national debt, popularly estimated to be $16.9 trillion, is in fact more than four times larger: $70.086 trillion. This is because of decisions to

Keep Reading…

Federal Court Rules that the Bitcoin is Money

When the Securities and Exchange Commission (SEC) charged that Trendon Shavers, the founder of Bitcoin Savings and Trust (BTCST) was running a Ponzi scheme, Shavers challenged the agency by claiming that bitcoins didn’t fall under their definition of securities and so therefore he and his company were exempt from SEC rules. Federal Judge Amos Mazzant ruled otherwise, which was bad news for Shavers but good news for

Keep Reading…

The Unwinding of the Social Security Ponzi Scheme

This article was originally published in the McAlvany Intelligence Advisor on Monday, July 1st, 2013:


Every Ponzi scheme fails, some sooner than others. The Wall Street Journal just outlined the predictable unraveling of Social Security along with suggestions on how to keep it solvent. None of them will work.

In 2010 Social Security payouts exceeded payroll taxes for the first time since 1983 and it is now dipping into its reserves to stay afloat. The trustees’ report says those reserves will be gone by

Keep Reading…

Social Security Trustees Celebrate: Trust Funds won’t be Broke for Years

With Friday’s announcement by the Trustees of the Social Security Administration that “reserves are still growing and will continue to do so through [the year] 2020,” it didn’t take long for groups like Strengthen Social Security (SSS) to chortle that not only is Social Security “fully affordable and structurally sound, [but it] will

Keep Reading…

More on Ponzi schemes like Social Security

I haven’t seen much lately about Ponzi schemes, much less about how Social Security is a Ponzi scheme “with a gun”. I first became aware of the nature of Social Security when I got into the life insurance business and was able to discern the difference between insurance, and Social Security which

Keep Reading…

14,000 Idle Wind Turbines a Testament to Failed Energy Policies

When Element Power announced on Wednesday the closing of a deal to build wind turbines for Blackrock in Ireland, nothing was said about the more than 14,000 other wind turbines lying idle across the world. Instead, Jim Barry, Managing Director for BlackRock, the world’s largest asset manager, expressed great pleasure at its new venture with Element:

Keep Reading…

Social Security to Run Out of Money Much Sooner Than Estimated

The latest report from the Congressional Budget Office (CBO) about the inevitable insolvency of Social Security is discouraging enough without checking the CBO’s assumptions. A closer look at the report and those assumptions reveals a

Keep Reading…

Bernanke is Bankrupting Social Security

The Fed Is Systematically Destroying Social Security And The Retirement Plans Of Millions

The Social Security trust fund needs to earn interest to achieve levels that will preserve it till 2033; with interest rates close to zero, the trust fund is projected to be depleted ten years earlier – by 2023.

By law, the money deposited in the SS trust fund must be invested in U.S. government securities…In order for SS Ponzi to work, the trust fund, invested in government securities, needs to produce healthy returns. It won’t; it can’t. Thanks QE-genie Bernanke

Social Security Card

Social Security Card (Photo credit: 401(K) 2012)

I learned years ago that Social Security is a Ponzi scheme which would have failed and collapsed (like all of them do eventually) except that it is enforced at the point of a gun.

I remember a conversation with my father-in-law about this. My company was paying a lot of money into Social Security, and he had just started drawing “his money” out. I suggested, tongue-in-cheek, that since it was my company’s money he was getting, why not just let me write him a check directly and save all the trouble of the round trip to Washington.

He was outraged! I mean, his face got all red, and he blustered and fumbled. He could scarcely believe his ears. His favorite FDR program – which was working “so well” he assured me – was being gored, logically, by one of his (not-so-bright) students! But he had no answer. And that ended, for all time, any further conversations about the matter.

Michael Snyder, of Economic Collapse, explains that low interest rates are devastating Social Security, and hastening its eventual demise:

By keeping interest rates at exceptionally low levels, the Federal Reserve is absolutely crushing savers and is systematically destroying Social Security.

Of course, financial viability was never a concern with Social Security. The bulk of the payouts would be coming from payroll taxes and not from earnings. But every little bit helps put off the day of reckoning. That day is getting closer.

Social Security is Cratering

WaPo: FACT CHECK: Social Security adds to budget deficit

“Over 77 years and now through 13 recessions, Social Security has not added one penny to our deficit or our debt,” Rep. Xavier Becerra, D-Calif., said at a recent hearing by the House Ways and Means Social Security subcommittee. Becerra is the top Democrat on the panel.

Roosevelt Signs The : President Roosevelt sign...

President Roosevelt signs Social Security Act (Photo credit: Wikipedia)

Becerra is a fool. He sports an impeachable 17 (on a scale of 100) Freedom Index rating based on his voting record’s hewing (or not!) to the limitations of the Constitution. So his economic ignorance is only exceeded by his Constitutional treachery!

Social Security is broke. It was broke from the moment it started back under FDR because it was based on the flawed premises of a Ponzi scheme. It’s just taken this long for its unwinding to become obvious. So obvious, in fact, that politicians like Becerra are forced to make stupid statements in order to defend it.

WaPo (The Washington Post)—the liberal establishment’s most trusted mouthpiece) admitted:

For nearly three decades Social Security produced big surpluses, collecting more in taxes than it paid in benefits. The government, however, spent that money on other programs, reducing the amount it had to borrow from the public, including foreign investors. That’s why some advocates complain that Congress has “raided” Social Security…

Social Security is now spending a portion of the interest because it needs cash to cover monthly benefit payments. This year Social Security is projected to pay $789 billion in benefits and administrative costs and collect $623 billion in payroll taxes and taxes on benefits, a shortfall of $166 billion.

About $112 billion of the shortfall is from a temporary reduction in the payroll tax that is scheduled to expire in January. There is no question that money adds to the budget deficit because Congress financed the tax cut through borrowing. (my emphasis)

Do you see what just happened here? A liberal politician is trying to defend Social Security, and the liberal WaPo is saying he’s wrong, that Social Security “adds to the budget deficit.”

That’s really quite remarkable, when you think about it.

Allen Stanford’s Ponzi Scheme a Study on Regulatory Capture

Allen Stanford, former chairman of the Stanford Financial Group of Companies, was convicted on Tuesday on 13 counts of fraud, conspiracy, obstructing justice, violating U.S. securities laws—for operating a Ponzi scheme. Sentencing is scheduled for June, which could result in Stanford remaining behind bars for at least another 20 years.

The scheme, valued at $7 billion at its zenith, has only $300 million in various accounts. Another jury has just ruled these accounts may be seized for potential customer restitution.

The Ponzi scheme was elegantly simple. Stanford’s offshore bank in the British overseas territoryof Montserrat was closed down for “irregularities” in the mid-1980s so he moved it to Antig

English: Sailing in Antigua Deutsch: Segeln au...

ua where he ingratiated himself, using investors’ money, with the local government by lending it millions of dollars and building government administration offices and a hospital. Meanwhile his investors were fooled into thinking they were buying ultra-safe Certificates of Deposit paying above-market rates of interest. His influence went way beyond the local government, however, with regular, sometimes daily, flights of U.S. Senators and Congressmen coming to Antigua to partake of Stanford’s generosity and enjoy his lavish parties. As Mikeda Mikel, the owner of a private jet company in Antigua explained: “They were partying on yachts in an exclusive resort, and when you have US politicians supporting a man like Mr. Stanford on an island as small as Antigua…if you had any doubts before [about his honesty] they go out the window. America has sanctioned him [therefore] he’s good to go.”

By investing in regulatory “protection,” Stanford was able to live for years on his investors’ capital without being disturbed by annoying questions into how he could pay such generous dividends to his clients. As Gaston Browne, chairman of the Antigua Labour Party (ALP), which was in power during Sanford’s heyday, said: 

Keep Reading…

Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.