Thursday, August 13, 2009

Obama Facing Looming Social Security Crisis

Although calling Social Security a Ponzi scheme — think of the huge frauds that sent billionaires Bernard Madoff and R. Allen Stanford to prison — may be a bit of a stretch, there is one clear similarity.

As in a Ponzi scheme, the concept works fine at first. So long as there are more new "investors" pumping money into the system to pay off the earlier ones, everyone is happy. But at some point not enough new money is coming in and the scheme collapses.

"We had a remarkable 25-year run in terms of the economy. We had this wonderful demographic holiday where the baby boomers were moving through their main earning years," said William Gale, co-director of the nonpartisan Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute.

"Now, the economy's in tatters, the boomers are ready to retire, the world is sick of our debt. The problems are much bigger," said Gale.

With baby boomers working, Social Security — the biggest social spending program — has produced a surplus that has helped finance the rest of the government for the past quarter century. But that will change within a decade.

Trustees of the system recently said that in 2016 — a year earlier than previously forecast — money paid out in benefits will start exceeding the tax dollars flowing in. With no changes, Social Security will be completely depleted in 2037, the trustees said. FULL STORY

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