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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 63091  
Subject: Such different conclusions Date: 2/17/2007 10:47 PM
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I recently read an eye-opening post by MadCapitalist, here:

http://boards.fool.com/Message.asp?mid=25187482

If he's currently in your p-box, trust me, it's worth peeking for this post. There are no gratuitous bashes of Lib'ruls or touts of the virtues of the Market, red in tooth and claw. It's some enlightening exposition of his personal financial experiences. It touched me, personally, because I saw a fair amount of myself in what he wrote. Though there's always the possibility it's just projection on my part.

What I don't really get is how we ended up with such different perspectives on the politics of financial issues, given some of his experiences. How can you do what he's done, make the mistakes he's made, and still think that being broke is solely about being personally irresponsible?

I believe in personal responsibility, but I also think that's not the whole picture. Sometimes you make errors in life. Usually, a lot of errors. Even if you have the best intentions, even if you learn from your mistakes, sometimes you still end up at zero, financially. Not everyone who ends up in debt gets there because they couldn't grasp the principle of Not Buying Stuff You Can't Afford.

Sure, it's still "your fault." But there's no need to attach so much moral freight to the "fault" part of it. The real character flaw is not in making mistakes, but in being unwilling or unable to learn from them.

I got lucky. I turned myself around at 30, and made enough money to retire at 39. But I can easily see how it doesn't work out that way for everyone. I support government safety nets, because I know what it's like when you hit bottom, and I know it isn't always the result of sloth and irresponsibility. Lots of hard workers end up in bad situations at some point in their lives, and I don't know how anyone who has been in that position fails to gain that sense of perspective.

I do understand resenting the taxes that support those programs. When I was struggling, FICA was a pretty big chunk of my income. Particularly when I was self-employed. Now that I'm fairly comfortable financially, I don't resent taxes so much, even though I pay more now than I ever did. It's just that I don't need the tax money as much.

- Gus
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Author: rainphakir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2280 of 63091
Subject: Re: Such different conclusions Date: 2/18/2007 11:29 AM
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If he's currently in your p-box, trust me, it's worth peeking for this post

This is precisely why I don't p-box. Every person has his 'story', and there is value in listening :-)

Unfortunately the hate-filled intolerance exhibited on RECF was overwhelming and I've curtailed reading RECF. Now, I use 'high rec' numbers in conjunction with 'subject' to selectively read RECF.

Thanks for pointing it out :-)
Ralph

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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2369 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 8:05 AM
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{{What I don't really get is how we ended up with such different perspectives on the politics of financial issues, given some of his experiences. How can you do what he's done, make the mistakes he's made, and still think that being broke is solely about being personally irresponsible?}}


Did you read what he wrote? The reason he was broke was because of the choices he made. It would irresponsible of him to demand that the government bail him out after his own choices caused the problems.



c

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2371 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 9:15 AM
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I believe in personal responsibility, but I also think that's not the whole picture. Sometimes you make errors in life. Usually, a lot of errors. Even if you have the best intentions, even if you learn from your mistakes, sometimes you still end up at zero, financially. Not everyone who ends up in debt gets there because they couldn't grasp the principle of Not Buying Stuff You Can't Afford.

Sure, it's still "your fault." But there's no need to attach so much moral freight to the "fault" part of it. The real character flaw is not in making mistakes, but in being unwilling or unable to learn from them.


Gus,

But as long as people do not attach the "moral freight" and step up and take responsibility for both the decisions and the consequences then nothing was learned. It's really not so much a matter of "this is a bad person" as understanding how what you do will affect your own future.

In essence I think that's the lesson that needs to be gleaned from MC's story. His behavior continued to be destructive until he took responsibility for the consequences.

For example, it's perfectly within your rights to quit a job you don't like, but you must understand and be prepared for the consequences - such as in the short term you won't have a steady income and in the long term it'll begin to look quit negative on your resume.

I'm sure that during the "heat of the moment" MC felt he was making the right decision, however, when compared to the long view I think it's fairly obvious he made many less than optimal decisions.

In my own case, after child #2, I told my DW that I would never just "up and quit a job" that when thing got bad enough I'd begin looking for another and I wouldn't quit the current job until a replacement had be found. I did actually run into this situation twice since that commitment. In the first case, I found the job and switched. In the second case, I took a gamble and notified my boss that I was seriously looking and had lined up several interviews. In the second case, my boss quickly rectified the situation and I kept my job.

Like many things in life, careful consideration of the consequences leads to much better solutions than just taking immediate action based upon your emotions.

Jim

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2373 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 9:47 AM
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What I don't really get is how we ended up with such different perspectives on the politics of financial issues, given some of his experiences. How can you do what he's done, make the mistakes he's made, and still think that being broke is solely about being personally irresponsible?

There is often a disconnect between theory and reality. One anecdotal story: I have a brother-in-law of the anarchist/libertarian persuasion. He hates the government. He's an electrician for, wait, wait, yes, the government. (municipal mass transit) He hates paying taxes. His paycheck comes, in part from, wait, wait, yes, taxes. I have pointed out this apparent discrepancy - but only once - because he becomes completely irrational when talking about it.

In that same vein, some people latch on to a particular economic theory - or religion - or philosophy - and don't consider the obvious contradictions within, the bad parts, or the good parts of other, competing ideas. This also goes for liberals, communists, neo-conservatives, Randists, Catholics, anarchists, and so on.

This particular poster is a radical, in his own way, and I would not expect him to change his political stripes based on his own personal situation or misfortune. (No, I'm not saying that everyone who suffers financial reverses should automatically become a welfare statist, pure socialist, or communist either.)

I do find it funny (not ha-ha funny) that someone in this position - many many someone's in this position - are those who holler loudest about "let me invest my own Social Security because I'll do better", completely ignoring the possibility (likelihood of at least some, given the size of the sample) that a significant number will end up destitute, and will have nothing left but the advice of some who say "Well you can always get a job at Wal-Mart", pretending that 3,500 Wal-Marts can employ the 20 million 70+ year olds when things get tight.

Still, I don't expect "evidence" to sway their opinions, if "personal experience" hasn't done so. There are some, like my brother-in-law for instance, who will never consider an alternative, even if it comes up and smacks them square in the face. Indeed, they will somehow pervert the experience into "If only the government hadn't taken all that money from me I'd be doing fine", even as they cash their meager Social Security check to buy themselves some groceries to eat while they sit and listen and dittohead the radio talk shows which convince them to continue voting against their own interests.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2383 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 11:05 AM
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<<I do find it funny (not ha-ha funny) that someone in this position - many many someone's in this position - are those who holler loudest about "let me invest my own Social Security because I'll do better", completely ignoring the possibility (likelihood of at least some, given the size of the sample) that a significant number will end up destitute, and will have nothing left but the advice of some who say "Well you can always get a job at Wal-Mart", pretending that 3,500 Wal-Marts can employ the 20 million 70+ year olds when things get tight.>>


Well Goofyhoofy, I don't think you've considered the possibility that Americans may choose to redirect the huge amount they currently pay into Social Security and Medicare to new programs, leaving the existing, grossly underfunded programs to collapse, or to pay greatly reduced benefits. After all, that is the usual fate of Ponzi schemes that make enormous promises but are grossly underfunded to pay all the promises people are expecting.

In a poll taken a few days ago among people on this board, 80% said they expected to receive less then the benefits currently promised or none at all. With that as the increasing reality among those paying these taxes, I suspect it's quite likely that these programs will experience huge changes or be abandonned. People aren't likely to want to pay huge amounts in taxes when they are convinced they will get little or nothing in benefits for themselves, let along pay sharply more in taxes to keep such program solvent.

Indeed, President Bush's offer of part ownership in one's payment of Social Security taxes can be viewed as a way of offering people ownership of part of what they pay as an incentive to continue supporting the program.

In any case, concentrating much or (for many people) all of their hope for retirement in such grossly underfunded programs hardly seems prudent. Better the bankruptcy you might make for yourself than the bankruptcy that has already been engineered by government.



Seattle Pioneer







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Author: ogrecat Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2428 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 2:37 PM
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Did you read what he wrote? The reason he was broke was because of the choices he made. It would irresponsible of him to demand that the government bail him out after his own choices caused the problems.

Not everyone has parents to bail them out.

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Author: FCorelli Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2434 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 3:02 PM
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Did you read what he wrote? The reason he was broke was because of the choices he made. It would irresponsible of him to demand that the government bail him out after his own choices caused the problems.
cm


Too much luck going on here. His parents. He kept getting jobs when he shouldn't have. A frend gave him a lucrative position. He has an apparentently lucrative job today which is itself, a piling-on of serendipity over the yrs. His parets set him up pretty well and look at teh thnaks they get. If he's earning in the Top 5% (my estimate)well, we cant all just fall into that segment after 15+ yrs of flipping off the world now can we? Most people who arent irresponsible work hard their whole lives and will never make that much. I guess they're making bad choices too. Her didn't get cancer at age 25 and die. He didn't get can't cancer at age 25 and LIVE. All he's doing is showing up, getting a better deal than most people, and throwing a lot of that away, and he wants credit for not dying in his sleep.

Actually he sounds like one of the people who keeps telling me how great his family is and how much in love he is... but sounds like he's trying to convince himself of it more than he cares about convincing me

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2449 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 4:20 PM
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Well Goofyhoofy, I don't think you've considered the possibility that Americans may choose to redirect the huge amount they currently pay into Social Security and Medicare to new programs, leaving the existing, grossly underfunded programs to collapse, or to pay greatly reduced benefits. After all, that is the usual fate of Ponzi schemes that make enormous promises but are grossly underfunded to pay all the promises people are expecting.

This is a perfect example of showing your predisposed bias in the face of facts, so thank you for posting it.

Let me decompose some of it. First, it is not a Ponzi scheme, as you have been told before. It fulfills none of the requirement of a Ponzi scheme. http://en.wikipedia.org/wiki/Ponzi_scheme I understand that kind of hyperbolic language goes over well on that other retirement board, but here I think we'd appreciate a more factual approach. The reality is that Social Security works like an insurance product, paying out benefits out of current revenues. There is no "get rich" aspect, it is not short term, there is no schemer, no one is absconding with the funds.

In any case, concentrating much or (for many people) all of their hope for retirement in such grossly underfunded programs hardly seems prudent. Better the bankruptcy you might make for yourself than the bankruptcy that has already been engineered by government.

Again, you use the language so loosely as to make it devoid of meaning. In MadCap's case - or in the millions of other which might parallel it, those people could go "bankrupt" just as they lose their ability to earn anything in the corporate world. That's "bankrupt", as in no income, no assets. Zero. Nada. No money to pay rent, mortgage, food. Broke. Busted.

In the case of Social Security, alarmists such as yourself throw around the word "bankrupt", but even the most pessimistic projections show that the program would pay 90% of promised benefits. That's still enough for recipients to pay rent, food, perhaps have a telephone. Not a great life, I'll grant you, but it's not "bankrupt" in the sense of the original post (on another board) which engendered this thread.

Words have meaning. You shouldn't use it one way in one sentence, a completely different way in the next, and pretend you have proved something.

[I know your solution to the SS problem is "means-testing", but for me that's a complete non-starter. Oh, it's an attractive idea on its face, I'll grant you, but it takes Social Security from a universal participatory program where everyone contributes and everyone receives (not in perfect harmony, given differing life spans, contribution rates, etc.) to a welfare program where everyone contributes but only some receive. I'll make a not-terribly prescient prediction that about 12 minutes after such a change is enacted, the Wall Street Journal, Rush Limbaugh, you and your cohorts on the other board will be screaming about this "DAMN WELFARE PROGRAM" and crying about how people should prepare for themselves, and why should you be taxed to support them." It's politics, which is a real part of the situation, and one which your solution, as admirable as it might sound, completely ignores.]

In a poll taken a few days ago among people on this board, 80% said they expected to receive less then the benefits currently promised or none at all

Funny. Polls in the 1970's said exactly the same thing, and then Ronald Reagan (of all people) raised the SS contributions and put the program "on a firm footing", and for the next 25 years we have paid 100% of the promise. It would not be so hard to put the program back on a 100% footing again, heck for half the money we have pissed away in Iraq (where did that money come from, again?) we could do it. With a raise of the cap we could deal with 75% of it, and with minor tweaks elsewhere the rest could be done. Of course the anti-tax Right sees "raising the cap" as a tax increase, and so they scream their heads off; the Left sees the Right spending billions and trillions on corporate welfare - all with magic money from nowhere - and wonders why we can't do the same for Social Security.

Indeed, President Bush's offer of part ownership in one's payment of Social Security taxes can be viewed as a way of offering people ownership of part of what they pay as an incentive to continue supporting the program.

Indeed, yourself. The "part ownership" is a chimera, as false as "We'll be greeted with flowers", unless you can explain how an underfunded program can afford to be even more underfunded while you divert some of the incoming revenues elsewhere, even while you pay out the benefits promised, which you claim to care about. Along the way, perhaps you can revisit all those great arguments made, about how swell it's working in Britain (the program has completely changed twice now and is heavily regulated as the market makers used high fees and penalties to empty the small so-called pension accounts), or in Chile, held up as a model of success, except oops, a mere two years later the Chilean government is talking about taking the program out of private hands and putting it back on government footing. And why? Because the private program wasn't producing enough income for people to live on, and they are facing a "destitute in the streets" program of significantly higher proportion than when they had the government system.

I'm in this for selfish reasons. I think it's better for me not to have a large destitute population, rummaging garbage cans and doing who knows what else just to stay alive. I think it helps flatten the business cycle, shallowing the depths of recessions and depressions (and so does Alan Greenspan, Peter Lynch, and Warren Buffett, among others). I think it helps our country and our economy, and I think it has done so, reliably, for almost 80 years.

And you go around hollering "bankrupt".
 


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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2453 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 5:04 PM
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Goofy: "I'm in this for selfish reasons. I think it's better for me not to have a large destitute population, rummaging garbage cans and doing who knows what else just to stay alive"

Sometimes I wonder why we are fighting so hard to keep the same very people who are going to drown from throwing away their remaining life jackets.

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2474 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 8:47 PM
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The reality is that Social Security works like an insurance product, paying out benefits out of current revenues. There is no "get rich" aspect, it is not short term, there is no schemer, no one is absconding with the funds.

That's a key point, I think. I didn't start viewing it that way myself until a few days ago, when I tried to articulate what happens when people who have no private retirement savings collect benefits. Some of them pay into the system and never collect anything because they die before they retire. Some collect more than they paid in. The only systems I know of that work that way are insurance plans.

- Gus

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2477 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 9:12 PM
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Goofy,

You keep stating SS is not a Ponzi scheme. Yet if looked in its totality it has a key characteristic of Ponzi schemes:

That is it takes money from a large group of individuals (current workers) and distributes it to a smaller group of people (current beneficiaries).

As time passes, the number of current workers has fallen and the number of beneficiaries has risen. This has lead the constant decline in the ratio of benefits received vs. the money paid.

The very first beneficiary made out like a bandit:

Ida May Fuller (September 6, 1874 - 1975) was the first U.S. citizen to be the recipient of a monthly benefit Social Security check on January 31, 1940, a check for $22.54. Fuller lived in Brattleboro, Vermont and retired in 1939 and had paid just three years of payroll taxes. Nevertheless, she received monthly Social Security checks until her death in 1975 at age 100. By the time of her death, Fuller had collected $22,888.92 from Social Security monthly benefits, even though she had contributed only $24.75 to the system. This is roughly an annualized return of 22%.

http://en.wikipedia.org/wiki/Ida_May_Fuller

Later beneficiaries have suffered a huge decline in their benefits.

In my own case my very rough estimates are that I'll pay out >$2 (in pre-2000 dollars) for every dollar (in 2028 dollars) according to the current payout formula. After accounting for inflation the actual payout is much MUCH worse.

I do not know the current average statistics for a persons payout vs amount paid in. However, there is some very sobering information in this wikipedia article:

From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 7% of national income (gross domestic product) to 13%. Two-thirds of the increase occurs in Medicare.

http://en.wikipedia.org/wiki/Social_Security_(United_States)#Demographic_and_revenue_projections

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Author: alan81 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2478 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 9:17 PM
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The thing that struck me was the whole aspect of business failure. He claims it his fault and will do better next time. I think that is a common belief. The reality is that in this country over 75% of businesses don't make it. We hear time and time again here of someone losing their job, taking the life savings and starting a business... only to lose everything and start over. This process of starting businesses and failing is one of things that makes this country great! However, there is a tremendous amount of fallout from it that needs to be taken care of.

I am not saying starting a business is a bad idea, it just has to be planned for. You also need to realize that four out of five times you will lose everything you put into the business, and that has to be an acceptable outcome. I used to work for a very large corporation (Intel) and they would start new businesses all the time. Even with the huge amount of history, planning, and infrastructure of a large corporation, there new businesses would still fail between 75 and 80% of the time. However, the few businesses that would make it would usually pay for all the ones that went under. As a corporation, it makes sense to start these businesses to see which will go and which will fail, as on average they will make money at it.

However, as an individual, you have 20% chance of becoming Bill Gates (or perhaps some lesser very rich person:-), but you have an 80% chance of losing everything you have. As a society we need to be able to deal with the 80% that fail, while they are getting back on their feet to hopefully try again. I think having a safety net is one of the things that allows people to take chances like this and have the potential to be great, without ending up destitute. The nature of that safety net ia of course another thing of great debate:-)
--Alan

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Author: totolapse Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2488 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 11:39 PM
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What I don't really get is how we ended up with such different perspectives on the politics of financial issues, given some of his experiences. How can you do what he's done, make the mistakes he's made, and still think that being broke is solely about being personally irresponsible?

My two bits.

After reading the thread up to now I am surprised that someone hasn't suggested that one of MadCaps regulators was off when he was younger and as he aged something changed and it became less of a problem.

That is what it looks like to me. Quitting on the spur of the moment because you "know better" is one of the characteristics of the Bipolars. I'm not suggesting that MC is bipolar, but that behavior, done multiple times suggests to me there is a physical problem to be looked for.

I'm just semi-interested because MC reminds me of someone who quit programming jobs and to apply to be CEOs of different companies absolutely convinced that he could do it. It would be funny except for the absolute devastation that happens when the mania goes to far. He was brilliant though.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2491 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 11:49 PM
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<<The reality is that Social Security works like an insurance product, paying out benefits out of current revenues. There is no "get rich" aspect, it is not short term, there is no schemer, no one is absconding with the funds.

That's a key point, I think. I didn't start viewing it that way myself until a few days ago, when I tried to articulate what happens when people who have no private retirement savings collect benefits. Some of them pay into the system and never collect anything because they die before they retire. Some collect more than they paid in. The only systems I know of that work that way are insurance plans.

- Gus
>>


Well now --- insurance companies are required to have substantial reserves to back up the promises they make. When someone buys an annuity, that money is invested and earns dividends and interest to reduce the cost of the annuity, and the invested money becomes assets available to redeem the contract for benefits.

That's quite different from Social Security and Medicare, which have only the sketchiest of assets to back up enormous promises of benefits. The only thing that keeps them afloat is the fact that the government compels people to pay huge amounts of income in taxes. Should the taxpayers decide they no longer wish to do so and redirect where that tax money goes, the programs would collapse in short order.


And of course there are schemers and of course they have been absconding with the tax money since the inception of the program. The schemers are the people receiving benefits who perpetually demand ever larger benefits they haven't paid for, which prevents the programs from accumulating reserves to pay benefits. And even the trivial reserves accumulated in recent decades are used by politicians to fund their spending.

The only reason these programs have survived is because of ever higher tax rates and ever larger numbers of people required to pay them on ever higher percentages of their income.

An insurance company selling an annuity doesn't get to go back and demand ever higher payments than was agreed to to sell the contract in the first place. Social Security and Medicare depend on raising taxes to survive, and have had those taxes raised many times in the past, and the only ways for them to continue to survive will be to raised them many times in the future.



Seattle Pioneer


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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2492 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 11:53 PM
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The very first beneficiary made out like a bandit:

The fact that Ida May Fuller "made out like a bandit" does NOT make it a Ponzi scheme. If you live to 104, YOU will make out like a bandit. The person who dies on their 62nd birthday after having paid in for years will make nothing. That's insurance, no different than you paying your homeowners insurance your whole life without a claim, or conversely, paying in on Tuesday and having your house burn down on Wednesday.

Please go back and READ what a "Ponzi scheme" is. Social Security isn't. http://en.wikipedia.org/wiki/Ponzi_scheme our constant use of false and inflammatory language only demonstrates the thinness of your argument.

Incidentally, SS taxes began being paid in 1937. The first benefits were provided in 1940, so it's not as though some people got a completely free ride. Everybody paid in something. Ida May was an outlier, who did better than most. Some people die early and do worse. That's insurance for you.

That is it takes money from a large group of individuals (current workers) and distributes it to a smaller group of people (current beneficiaries).

Yeah, like "insurance."

As time passes, the number of current workers has fallen and the number of beneficiaries has risen. This has lead the constant decline in the ratio of benefits received vs. the money paid.

I do not dispute that the ratios have changed. So what? I pay more for my insurance today than I did - for equivalent service - a decade ago. I pay for "maternity benefits" for other people, since I have no children, and Mrs. Goofy is beyond childbearing age. If you are looking for perfect symmetry, you are not going to find it. In many things - not just Social Security.

In my own case my very rough estimates are that I'll pay out >$2 (in pre-2000 dollars) for every dollar (in 2028 dollars) according to the current payout formula. After accounting for inflation the actual payout is much MUCH worse.

That's entirely possible. The same would be true if you purchased a life insurance annuity product with a disability benefit. You are playing the "it must work out evenly for me" game, even as we all agree (except you, apparently) that Social Security does not work that way. You may come out ahead. It depends how long you live, and what your best earning quarters are.

BTW, did you include in your calculation the very real benefit of having a disability insurance product for your entire working life? No? Quell surprise.

However, there is some very sobering information in this wikipedia article: From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 7% of national income (gross domestic product) to 13%. Two-thirds of the increase occurs in Medicare.

Yes, that is "sobering." What is sobering is that you have focused entirely on Social Security, when the real problem is Medicare.

The "return" from Social Security depends on many things, and if you want to know whether you will get back what you put in, there are several threads which explain it - (which is dependent on when you start taking, how long you live, and so on.)

Start here:
http://boards.fool.com/Message.asp?mid=23720653

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Author: ogrecat Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2493 of 63091
Subject: Re: Such different conclusions Date: 2/19/2007 11:58 PM
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Yes, that is "sobering." What is sobering is that you have focused entirely on Social Security, when the real problem is Medicare.

The "return" from Social Security depends on many things, and if you want to know whether you will get back what you put in, there are several threads which explain it - (which is dependent on when you start taking, how long you live, and so on.)


Neo-con rule: Social Security & Medicare must always be mentioned together.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2495 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 12:12 AM
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<<The very first beneficiary made out like a bandit:

The fact that Ida May Fuller "made out like a bandit" does NOT make it a Ponzi scheme. If you live to 104, YOU will make out like a bandit. The person who dies on their 62nd birthday after having paid in for years will make nothing. That's insurance, no different than you paying your homeowners insurance your whole life without a claim, or conversely, paying in on Tuesday and having your house burn down on Wednesday.
>>


No insurance plan offers to pay you a fixed annuity, and then increases it repeatedly over the years and adds a comprhensive medical care benefit to that as well. The increases in benefits promised have come from the pockets of current workers, not the people receiving benefits.


You can keep calling it insurance if you like, but you can't show me any similar actual insurance plan. And that's because you are paying out enormously more in benefits than people have paid in.

The people receiving that huge benefit are the people in the early stages of the Ponzi scheme. Social Security and Medicare survive only because the government lines up new generations of gullible fools and extracts ever more tax money from them whether they like it or not.

If Gen X, Y and Z compel government to free them from paying taxes into that system, it collapses almost immedietely, like any Ponzi scheme.


So calling it insurance doesn't make it so.



Seattle Pioneer

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2506 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 8:13 AM
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I am surprised that someone hasn't suggested that one of MadCaps regulators was off when he was younger and as he aged something changed and it became less of a problem.

Reading some of his subsequent posts in the same thread, both on RECF and BRK.A, I'm not sure it's less of a problem. He gets very angry over some pretty trivial stuff.

Quitting on the spur of the moment because you "know better" is one of the characteristics of the Bipolars.

Urg, that's kind of worrisome, because the main thing that prompted me to think "maybe we're somewhat alike" was my work experience, where I thought I "knew better" in just about every job. I never quit on the spur of the moment, though, it was always something I carefully planned, and I always had another job lined up first. So maybe there's hope for me. :)

I take it somewhat seriously, actually, because I've always thought of my mother as being an undiagnosed Bipolar. She had weepy periods, and periods where she was very happy. She tended to leap to conclusions with insufficient information, which she saw as an advantage, and which we saw as a drawback because they were frequently the wrong conclusions. She also engaged in inappropriate behavior, like reaching out and tapping a painting in a museum with her finger, and was baffled as to why we thought that was wrong.

It would be funny except for the absolute devastation that happens when the mania goes to far. He was brilliant though.

That complicates things, doesn't it? If you're manic and brilliant, how do you tell the difference between knowing better, and just thinking you know better?

- Gus

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2510 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 9:00 AM
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"After reading the thread up to now I am surprised that someone hasn't suggested that one of MadCaps regulators was off when he was younger and as he aged something changed and it became less of a problem."

To be honest, I un p-boxed the author of the post after seeing the 96 recs, read the thread, saw a number of continuing issues, including but not limited to, the continued need to brag about success and intelligence, the continued perception that everybody else he ever worked for was always wrong, and a few other issues that I no longer recall.

I decided to let it slide because it was an honest, heartfelt post. I suspect other readers did the same. Why pounce on every weakness when the person is actually trying to reach out in an honest way?

We all have issues.


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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2512 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 9:19 AM
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Neo-con rule: Social Security & Medicare must always be mentioned together.

Are you saying that Goody is a neocon?


http://boards.fool.com/Message.asp?mid=25193934

"Yes, that is "sobering." What is sobering is that you have focused entirely on Social Security, when the real problem is Medicare."


c

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Author: tedhimself Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2517 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 9:37 AM
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No insurance plan offers to pay you a fixed annuity, and then increases it repeatedly over the years and adds a comprhensive medical care benefit to that as well.

SP, you are forgetting inflation. SS has to be adjusted to consider that.

Insurance companies change from one plan to another all the time. The only difference is that Social Security has never changed its name. When my dad was young he bought a life insurance poliy that would have paid his son off when his son reached 65. The policy would have paid the son $5,000.00, enough in 1930's dollars to provide a great help in his son's retirement. I don't think anybody could sell a policy like that now.
Ted

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2519 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 9:44 AM
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[I know your solution to the SS problem is "means-testing", but for me that's a complete non-starter. Oh, it's an attractive idea on its face, I'll grant you, but it takes Social Security from a universal participatory program where everyone contributes and everyone receives (not in perfect harmony, given differing life spans, contribution rates, etc.) to a welfare program where everyone contributes but only some receive. I'll make a not-terribly prescient prediction that about 12 minutes after such a change is enacted, the Wall Street Journal, Rush Limbaugh, you and your cohorts on the other board will be screaming about this "DAMN WELFARE PROGRAM" and crying about how people should prepare for themselves, and why should you be taxed to support them." It's politics, which is a real part of the situation, and one which your solution, as admirable as it might sound, completely ignores.]

I don't have a problem with Social Security becoming means tested even if that means I will receive few or no benefits. The words "social security" themselves indicate to me that there is a government program to aid senior citizens that have little or no retirement fund. It gives them some security in knowing they could maintain some minimal standard level of living. They won't be out on the streets eating dog food. I would prefer that we stop thinking of Social Security as a pension fund for everyone.

IF

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2523 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 10:05 AM
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<<No insurance plan offers to pay you a fixed annuity, and then increases it repeatedly over the years and adds a comprehensive medical care benefit to that as well.

SP, you are forgetting inflation. SS has to be adjusted to consider that.

Insurance companies change from one plan to another all the time. The only difference is that Social Security has never changed its name. When my dad was young he bought a life insurance policy that would have paid his son off when his son reached 65. The policy would have paid the son $5,000.00, enough in 1930's dollars to provide a great help in his son's retirement. I don't think anybody could sell a policy like that now.
Ted
>>


On the contrary, most life insurance policies sell stated benefits exactly as you describe. Few annuities sold are inflation indexed.


The WWII generation, many of whom worked for year without paying for Social Security before it was enacted, gave themselves a nice bonus of a Medicare program that the 'boomer generation largely paid for for them. The 'boomer generation is now saddling Gen X, Y and Z with the costs of the new Medicare drug plan which they are being expected to pay for.



Seattle Pioneer

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2524 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 10:09 AM
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In my own case my very rough estimates are that I'll pay out >$2 (in pre-2000 dollars) for every dollar (in 2028 dollars) according to the current payout formula. After accounting for inflation the actual payout is much MUCH worse.


GH has already mentioned this, but I am going to say it again: SS includes things like a disability insurance and a life insurance which pays to widows and orphans.
Especially disability insurance is VERY costly if bought on the private market. It's been a while since I inquired about premiums (in Germany, in this case), but you should expect to pay over 10% in premiums of the insurance you expect to get in case you are rendered disabled. That is, a $1500 disability pension would likely cost in the neighborhood of $150-200 a month - if you can even get it, many people will not be able to get such a policy on the free market. Factor THAT into your calculation and I bet it will start to look a lot different indeed.



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Author: MrCheeryO Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2526 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 10:19 AM
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...Indeed, President Bush's offer of part ownership in one's payment of Social Security taxes can be viewed as a way of offering people ownership of part of what they pay as an incentive to continue supporting the program....

TMF post # 1,877,324 that advocates private retirement accounts without

1. explaining how that would not just hasten the day SS begings to draw on general tax revenues and

2. why they support Bush when, if he had kept his promises, the nation's finances would have been at least 8-9 trillion with a t dollars for the better in the year 2012, five years away.

The promises made here:

...This plan is just right. (Applause.) I didn't throw darts at the board to come up with a number for tax relief. I didn't take a poll or develop an arbitrary formula that might sound good. I looked at problems in the Tax Code and calculated the cost to fix them....
http://www.whitehouse.gov/news/releases/2001/02/20010228.html

Never going to get your private retirement account or even Canadian-style common real assets? Blame SP, and everyone else who supported Bush who said everyone could have their fairy-cake tax cuts, Medicare Part D and everything else. Obviously, nobody is ever going to put even the slightest dent in their faith-based beliefs.

At the time Bush made those promises, SS needed about $4 trillion to be fully funded basically forever. And have no doubt all our "conservative" freinds will belly up to the SS and Medicare "Ponzi scheme" trough shortly. Have no doubt none of them will refuse to cash the checks that come once a month from Mr. Ponzi.







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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2528 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 10:34 AM
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Especially disability insurance is VERY costly if bought on the private market. It's been a while since I inquired about premiums (in Germany, in this case), but you should expect to pay over 10% in premiums of the insurance you expect to get in case you are rendered disabled. That is, a $1500 disability pension would likely cost in the neighborhood of $150-200 a month - if you can even get it, many people will not be able to get such a policy on the free market. Factor THAT into your calculation and I bet it will start to look a lot different indeed.

Disability insurance isn't always expensive on the private market. Most disabilities are short-term. My disability policy is relatively inexpensive because benefits do not start until one year after the disability starts. Therefore it is unlikely any disability would require payments from the insurer.

IF

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2538 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 11:09 AM
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Disability insurance isn't always expensive on the private market. Most disabilities are short-term. My disability policy is relatively inexpensive because benefits do not start until one year after the disability starts. Therefore it is unlikely any disability would require payments from the insurer.


What kind of long-term disabilities are excluded? And what do you pay?

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2541 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 11:21 AM
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GH has already mentioned this, but I am going to say it again: SS includes things like a disability insurance and a life insurance which pays to widows and orphans.
Especially disability insurance is VERY costly if bought on the private market. It's been a while since I inquired about premiums (in Germany, in this case), but you should expect to pay over 10% in premiums of the insurance you expect to get in case you are rendered disabled. That is, a $1500 disability pension would likely cost in the neighborhood of $150-200 a month - if you can even get it, many people will not be able to get such a policy on the free market. Factor THAT into your calculation and I bet it will start to look a lot different indeed.


FYI, I already have private disability (Long & Short Term) as well as Accidental & Life insurance policies. I do not trust SS to provide for my dependents if something happened to me.

One thing GH and nearly everyone else here continues to ignore is that the benefits paid by these programs can be changed by Congress at any time. There are no assets backing the program's promises and as the revenues generated drop and the costs of benefits rise, there will be severe restructuring of these programs: read that as increased taxes and decreased benefits.

A shoestring benefit of $1500 / month for my widowed wife with 4 children will be cut dramatically or just allowed to remain constant while Congress permits inflation to adjust the benefit downwards.

Not a fate I wish to sentence my family to.

Jim

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2546 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 11:41 AM
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What kind of long-term disabilities are excluded? And what do you pay?

I don't know and I can't remember. I'm in the process of dropping the policy.

IF

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2547 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 11:42 AM
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<<Especially disability insurance is VERY costly if bought on the private market. It's been a while since I inquired about premiums (in Germany, in this case), but you should expect to pay over 10% in premiums of the insurance you expect to get in case you are rendered disabled. That is, a $1500 disability pension would likely cost in the neighborhood of $150-200 a month - if you can even get it, many people will not be able to get such a policy on the free market. Factor THAT into your calculation and I bet it will start to look a lot different indeed.
>>


Social Security disability has an admirably tough standard in order to collect disability benefits. You must be unable to do any kind of paid work.


Most private disability insurance plans have much lower standards for benefits, which helps explains their higher costs.

So you are comparing apples and oranges to a significant extent.


Still, Social Security disability is a good program, and one I am willing to give a degree of support, largely because the standard for collecting benefits has remained high, and also because it tends to benefit the working people who are or were recently paying taxes.

I trust I am compassionate enough on this subject for the liberals on this board?


Seattle Pioneer

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Author: synchronicity Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2551 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 11:47 AM
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One thing GH and nearly everyone else here continues to ignore is that the benefits paid by these programs can be changed by Congress at any time. There are no assets backing the program's promises and as the revenues generated drop and the costs of benefits rise, there will be severe restructuring of these programs: read that as increased taxes and decreased benefits.

You do realize that companies that have historically sold annuities have been known to go bankrupt, right? And that insurance companies have been known to increase rates (or, more commonly, that permanent policies that were initially assumed to require only, say, ten annual premiums might require 12 or 14 or more depending on the returns the company gets on their assets), right? Companies can make promises and pull in assets, and these companies are regulated to a considerable extent, but there's a reason that AM Best and Moody's and such rate the financial strength of insurers.

IOW, many of the same issues which people criticize about Social Security also exist in private sector products that address similar concerns.

(heh, as for overpromising benefits and underfunding those promises, just look at the "secondary guarantee" life insurance market for the past several years).

-synchronicity

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Author: synchronicity Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2552 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 11:59 AM
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Social Security disability has an admirably tough standard in order to collect disability benefits. You must be unable to do any kind of paid work

FWIW, this is an incredibly difficult threshhold to meet for claimed physical disabilities. For claimed mental disabilities, notsomuch. So you can imagine where the potential for fraud exists.

-synchronicity, has a BIL who went through the SS Disability process.

PS- private market DI costs depend on the occupation of the insured (officer workers who sit in front of computers are cheaper to insure than welders who walk on unfinished building beams 40 stories up in December), the amount of benefit (of course), the duration of the benefit (2 years/5 years/10 years/to age 65), and the lag time before benefits start (3 months/6 months/1 year are the most common). DI is often overlooked but should be an essential part of someone's insurance planning, over and above any potential SSI benefit

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Subject: Re: Such different conclusions Date: 2/20/2007 1:31 PM
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No insurance plan offers to pay you a fixed annuity, and then increases it repeatedly over the years

Sure they do. The private market has them all over the place.

Here's one from United Heritage Insurance which offers an annuity payout with a cost-of-living escalator.
http://www.unitedheritage.com/portfolio/Ann_Spia.htm
Here's some info from Cornell on COLA's with such products:
http://www.law.cornell.edu/uscode/5/usc_sec_05_00008340----000-.html

ears and adds a comprhensive medical care benefit to that as well

For the 900th time, Medicare is not part of Social Security. It is not administered by the Social Security Administration, it is not enabled by the same legislation, there is no connection, capiche? You might as well try to tie Social Security with tobacco price supports.

You can keep calling it insurance if you like, but you can't show me any similar actual insurance plan. And that's because you are paying out enormously more in benefits than people have paid in.

You have this exactly wrong. We are paying out less than people have paid in. It's just that Congress keeps spending the excess on stupid things like wars and stuff.

If Gen X, Y and Z compel government to free them from paying taxes into that system, it collapses almost immedietely, like any Ponzi scheme.

Here's a news flash for you. If everybody lines up at the bank and wants their money, the bank collapses immediately - or at least did until the government invented the FDIC. Does that make banks "a ponzi scheme"? Here's something else you might not know: insurance companies don't have all the money that might be required to pay off their obligations, either. They keep "reserves" of about 30% of obligations, and pay the rest from investments, future cash flows, and so on. If insurance companies kept all the money in a vault in the basement someplace in case everybody stopped paying, but they still had to pay out, then no insurance company would ever go out of business. Why would they? They would have all their obligations already covered down there in the basement.

So calling it insurance doesn't make it so.

It is if that's what it is. Say, what do you suppose the "I" in SSI stands for?

and for Jim2B:

H and nearly everyone else here continues to ignore is that the benefits paid by these programs can be changed by Congress at any time.

Sure. And an insurance company can go upside down tomorrow. Ask my mother. She bought a "safe" annuity and had the company go bankrupt within a year. Nothing is perfect. Why do you demand perfection from SS when you don't from the alternatives?
 


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Subject: Re: Such different conclusions Date: 2/20/2007 2:59 PM
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<<H and nearly everyone else here continues to ignore is that the benefits paid by these programs can be changed by Congress at any time.

Sure. And an insurance company can go upside down tomorrow. Ask my mother. She bought a "safe" annuity and had the company go bankrupt within a year. Nothing is perfect. Why do you demand perfection from SS when you don't from the alternatives?>>


People should investigate the financial stability of insurance programs before they invest their money in a policy. The prudent person who looked at the liabilities and assets of Social Security and Medicare would not want to invest in such a scheme, I suggest.

Still, it's quite true that if Gen X, Y and Z can be persuaded to pay the much higher tax rates needed to keep those programs funded, they can survive and even prosper.


But yet more increases in taxes is an unfair burden on Gen X, Y and Z in my opinion. And Gen X, Y and Z might start noticing that it is unfair and demand that Congress permit them to redirect their taxes into retirement programs they own and control.

I think that's pretty likely, myself, and it would be the fair and equitable thing to do, in my opinion.



Seattle Pioneer



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Author: sykesix Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2566 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 3:25 PM
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People should investigate the financial stability of insurance programs before they invest their money in a policy. The prudent person who looked at the liabilities and assets of Social Security and Medicare would not want to invest in such a scheme, I suggest.

Why? They are backed by the full faith and credit of the U.S Government, which has been one the safest, if not the safest, investment in the last 224 years.

You seem to want symmetry when that was never the goal of the program, and perfection as defined by you and no one else. Those two goals will never be met by any system ever.

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Author: straitarrow Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2567 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 3:54 PM
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"....That's quite different from Social Security and Medicare, which have only the sketchiest of assets to back up enormous promises ...... And even the trivial reserves accumulated in recent decades are used by politicians to fund their spending...."
SP

What would be the effect to the program if there had been a "Lock Box" as Al Gore urged? Money invested safely and accruing interest, no less.
Or, for that matter, even if we started today with the lock box approach.

Why do the political wizards feel the SS funds are available for the taking...just because it's there in the General Fund?

What am I missing here?
sa

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2568 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 4:25 PM
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"
Why? They are backed by the full faith and credit of the U.S Government, which has been one the safest, if not the safest, investment in the last 224 years."

Some folks who bought bonds and had a lot in cash because they believed in the government while living in some of the states had a different outcome.

Those who found themselves in the 'south' during the civil war, now belonging to the Confederacy...not only saw their bonds be worthless but also saw their currency be worthless.

That amounted to quite a few millions of people....

If Medicare goes bust in 40 years, three is no guarantee of any 'return of paid in money'....

t.








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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2569 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 4:31 PM
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If Medicare goes bust in 40 years, three is no guarantee of any 'return of paid in money'....

What do you think the effect would be on the system if Medicare were separated from Social Security?

6

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Subject: Re: Such different conclusions Date: 2/20/2007 5:10 PM
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<< Why? They are backed by the full faith and credit of the U.S Government, which has been one the safest, if not the safest, investment in the last 224 years." >>

Some folks who bought bonds and had a lot in cash because they believed in the government while living in some of the states had a different outcome.

Those who found themselves in the 'south' during the civil war, now belonging to the Confederacy...not only saw their bonds be worthless but also saw their currency be worthless.


I thnk it is safe to say that the "full faith and credit" of the existing US Government is slightly different than the "full faith and credit" of the government of a "country" that existed for less than 4 years, was not recognized by the governments of any other country, and was involved in a war from its inception to establish itself as a separate country. IOW, apples and oranges. You can not equate buying "confederate bonds" with buying US Treasuries.

In a similar vein, I would not equate buying US Treasuries with buying similar obligations from many Latin American countries that have long histories of defaulting on their debts.

Of course, that could change in the future...

-synchronicity

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Author: synchronicity Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2573 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 5:15 PM
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People should investigate the financial stability of insurance programs before they invest their money in a policy. The prudent person who looked at the liabilities and assets of Social Security and Medicare would not want to invest in such a scheme, I suggest.

Rrrigghht. Because they're only backed by the full faith and credit of the US Government, as mentioned elsewhere in this thread. The bond market has enough confidence in said "full faith and credit" to price US debt instruments very high (with corresponding low yields).

-synchronicity

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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2574 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 5:19 PM
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{{Rrrigghht. Because they're only backed by the full faith and credit of the US Government, as mentioned elsewhere in this thread. The bond market has enough confidence in said "full faith and credit" to price US debt instruments very high (with corresponding low yields).}}

It is not so much the full faith and credit of the US government that I do not trust, it is the full faith and credit of the policiticians which I do not trust.


c

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Author: PKnudsen Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2586 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 8:29 PM
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Well said, Sir.

But SS should start investing back into America.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2587 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 9:01 PM
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<<People should investigate the financial stability of insurance programs before they invest their money in a policy. The prudent person who looked at the liabilities and assets of Social Security and Medicare would not want to invest in such a scheme, I suggest.

Why? They are backed by the full faith and credit of the U.S Government, which has been one the safest, if not the safest, investment in the last 224 years.

>>


You are a good illustration of why people need to investigate their assumptions more carefully. The promises of Social Security and Medicare are not backed by the full faith and credit of the United States. The promises made can be changed at will by the Congress and that has been done many times ----such as increasing the normal retirement age from 65 to 67.

Seattle Pioneer

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2588 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 9:07 PM
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<<People should investigate the financial stability of insurance programs before they invest their money in a policy. The prudent person who looked at the liabilities and assets of Social Security and Medicare would not want to invest in such a scheme, I suggest.

Rrrigghht. Because they're only backed by the full faith and credit of the US Government, as mentioned elsewhere in this thread. The bond market has enough confidence in said "full faith and credit" to price US debt instruments very high (with corresponding low yields).

-synchronicity

>>


It's a mistake to accept the assertions of annonymous posters who don't know what they are talking about.


The ideas that the promises of Social Security and Medicare are backed by the full faith and credit of the United States is bogus. People have no right to benefits whatsoever. The Congress can alter or abolisg the program or benefits as it wishes.


The Supreme Court made that very clear a half century ago ----sorry you never got the word.



Seattle Pioneer

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Author: synchronicity Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2589 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 9:14 PM
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People have no right to benefits whatsoever. The Congress can alter or abolisg the program or benefits as it wishes.

And the US government could choose to default on its debt at any time if they wanted to, or inflate the currency, or...do a host of other things.

Funny thing is, they haven't. At least not yet.

-synchronicity

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2592 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 9:50 PM
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<<People have no right to benefits whatsoever. The Congress can alter or abolisg the program or benefits as it wishes.

And the US government could choose to default on its debt at any time if they wanted to, or inflate the currency, or...do a host of other things.

Funny thing is, they haven't. At least not yet.

-synchronicity
>>


On the contrary, benefits have been reduced in a variety of ways over the decades, perhaps most notably by increasing the normal retirement age from 65 to 67.

And the program would have failed many times as well if taxes had not been raised repeatedly.

But you are quite correct, the program hasn't been permitted to fail, not yet. And I will freely concede that it needn't fail as long as Gen X, Y and Z are willing to pay yet higher taxes to pay benefits to the 'boomer generation. If you guys want to pay higher taxes to support me in my old age, knock yourselves out.



Seattle Pioneer

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Author: sykesix Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2594 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 10:12 PM
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I wrote:

Why? They are backed by the full faith and credit of the U.S Government, which has been one the safest, if not the safest, investment in the last 224 years."

Tele wrote:


Some folks who bought bonds and had a lot in cash because they believed in the government while living in some of the states had a different outcome.

Those who found themselves in the 'south' during the civil war, now belonging to the Confederacy...not only saw their bonds be worthless but also saw their currency be worthless.


I hate to be the one to break this to you, but the Confederate government was only in existence for four years--not 224--and is not the same as the United States government. That's why I didn't say "Confederate Government." See the difference? Of course you don't.

However, you have a point. We could be invaded by Canada or a meteor could strike. In that case government bonds could be worthless. But your insurance policy would also be worthless. You might think America sucks, but I still think it is a good place to invest.

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2595 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 10:20 PM
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SP: "You are a good illustration of why people need to investigate their assumptions more carefully. The promises of Social Security and Medicare are not backed by the full faith and credit of the United States. The promises made can be changed at will by the Congress and that has been done many times ----such as increasing the normal retirement age from 65 to 67"

And there was no tax on SS to start with..now up to 85% could be taxed....I guess they figure that the 15% is what you might have actually contributed so they aren't going to tax your twice???

And soon you'll be taxed on 100% of it....

t.

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2596 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 10:27 PM
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" hate to be the one to break this to you, but the Confederate government was only in existence for four years--not 224--and is not the same as the United States government. That's why I didn't say "Confederate Government." See the difference? Of course you don't."

Not really...

the roughly half the population of the 'United States' which became disunited, had no choice but to use the currency of the land - the Confederate dollar. You had no choice. ANd you were urged to buy 'war bonds'.

The same was true for Germany and other places.

Now if Germany had won the WW2, your dollars would have been worthless along with your WW2 war bonds. Fortunately it happened to the Germans, not use.

FOrtunately the south did not win the war, but the inept miltary commanders in Wash DC almost lost the war primping and preening, and not being too anxious to go out and actually fight the enemy. Only after the first two years did the north actually start winning, and tht was more through attrition and starting with a heavy industry base that could churn out the needed weapons, machinery, ammunition, trains, train tracks and supplies.

Those tens of millions in the 'southern states' lost everything.

The south called it the War of NOrthern Aggression.

One nuke exploded 50 miles above Pittsburgh PA will make your dollsr worthless in 10 microseconds as the EMP (electromagnetic pulse) will take out every computer system and power grid east of the Rocky Mountains - for two or three years - burned out....

Of course, then all 'insurance policies' public and private vaporize at the same time.

t.




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Author: sykesix Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2598 of 63091
Subject: Re: Such different conclusions Date: 2/20/2007 10:35 PM
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You are a good illustration of why people need to investigate their assumptions more carefully. The promises of Social Security and Medicare are not backed by the full faith and credit of the United States. The promises made can be changed at will by the Congress and that has been done many times ----such as increasing the normal retirement age from 65 to 67.

Hold on there Mr. Moving Target. This is your statement I was responding to:

People should investigate the financial stability of insurance programs before they invest their money in a policy.

The program is stable financially, and the pilings are based on one of the safest, maybe the safest, financial instrument in the history of the world. Insurance can change their promises too. Including canceling them. Again, you looking for a perfect system that exists no where else.

And even a slight mid-course correction could allow the system to pay promised benefits with no new taxes. For example instead of expanding the government with new spending to be paid for by borrowing, those monies could be used to retire debt which would permanently reduce future financial responsibilities.

The chance for a long term reduction in taxes was blown once. Maybe we'll get it again.


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Author: totolapse Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2601 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 12:07 AM
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It would be funny except for the absolute devastation that happens when the mania goes to far. He was brilliant though.

That complicates things, doesn't it? If you're manic and brilliant, how do you tell the difference between knowing better, and just thinking you know better?


I took his word for it. As a brilliant progammer he was in demand and paid well. Yet, he would quit and apply to run a computer manaufacturing outfit where he had not experience at all, absolutely certain that he could do it at the time. Two months later he woul dbe shaking his head, wondering what made him think he could do that.

My other bipolar friend drank to self medicate. He had a depressive episode where he was institutionalized for two months, partially suicidal. In his mania he was hands down the greatest pick up artis I ahve ever seen in my life. Never could save any money,l it was always gone in a flurry of good times and women.

Spent the last years of his life on social security disability.


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Author: totolapse Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2602 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 12:09 AM
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Urg, that's kind of worrisome, because the main thing that prompted me to think "maybe we're somewhat alike" was my work experience, where I thought I "knew better" in just about every job. I never quit on the spur of the moment, though, it was always something I carefully planned, and I always had another job lined up first. So maybe there's hope for me. :)

Don't all of us know better? But how many of us QUIT MULTIPLE TIMES without a job lined up in advance because we know better, eh?



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Author: totolapse Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2603 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 12:29 AM
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To be honest, I un p-boxed the author of the post after seeing the 96 recs, read the thread, saw a number of continuing issues, including but not limited to, the continued need to brag about success and intelligence, the continued perception that everybody else he ever worked for was always wrong, and a few other issues that I no longer recall.

I decided to let it slide because it was an honest, heartfelt post. I suspect other readers did the same. Why pounce on every weakness when the person is actually trying to reach out in an honest way?


I understand how you feel, but if he IS an undiagnosed bipolar, whatever, that is the biggest, most major thing in his life and it SHOULD be talked about.

I had a friend who told me she had been an undiagnosed bipolar all of her life and never knew. But it showed in her life. It is a difficult thing to deal with and it is VERY common. Everybody should know at least two, maybe more. Absolutely none of the bipolars I have known have been able to lead normal lives. I think that the mania is so pleasant, that most bipolars don't understand normal happiness, they want the mania back and go off meds to get it.

When a Bipolar 1 is in mania, you will think they should be insitutionalized because of their behavior. When a Bipolar II is in their mania, you will think, man ,I want some of whatever that person is on. So who would want treatment?

Cue the SP demon.




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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2605 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 3:20 AM
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<<People should investigate the financial stability of insurance programs before they invest their money in a policy.

The program is stable financially, and the pilings are based on one of the safest, maybe the safest, financial instrument in the history of the world. Insurance can change their promises too. Including canceling them. Again, you looking for a perfect system that exists no where else.

>>


You apparently haven't noticed, but there is a huge demographic bulge that is going to mightily try Social Security, and is promising to overwhelm Medicare in a very few years unless it is bailed out with huge tax increases. And that presumes that Gen X, Y and Z don't insist on abandoning a system that is likely to take their money and provide them with little in benefits.


And no, insurance companies have to keep the contracts they make, and are regulated to give a degree of assurance that they do. It is true that insurance companies can fail and that investigating before investing is the prudent thing to do. That's true for Social Security and especially Medicare as well, and especially in the case of Medicare it's plain that the plan will fail before long if large new tax increases are not approved.

That doesn't strike me a a system that is financially stable. The "pilings" word must be a typo, I can't understand what you are referring to there.




Seattle Pioneer

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2607 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 8:44 AM
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Jim, one thing to realize about a pension system which is fully based on capital investments is that it will eventually break down. The history of humanity shows that every country undergoes occasional economic meltdowns which wipe out savings.
Ever so often there is a really massive economic crisis that wipes out most pensioner's equity. There can be a currency meltdown, systemic bank-failures or simply a stock market bear market that is harsher than historic ones.
The German pay-as-you-go system has lasted since Bismarck, for over 120 years, and during that time people who relied on private pension planning got wiped out three times. (WWI, Great Depression, WWII)
In the US I'd guess it was only the Great Depression, at least in this century, but in the 19th and 18th century there were bank panics and depressions galore. Argentina, a country which collapsed a few years ago, had a privatized pension system.
The bet you make if you decide to avoid the pay-as-you-go system is that there will not be such an economic calamity in the US during your lifetime. If you're 20, that will probably span another 70 years.
I consider this bet even-odds at best, particularly if you consider the extreme deterioation in fiscal discipline in the US, the massive debt run up as well as the huge spread of the financial instruments of derivatives, which Buffet calls "financial weapons of mass destruction" for their potential to amplify the havoc any future financial crisis causes.
The human mind has a tendency to believe that we develop towards stability. Sometimes this is true, sometimes not. The possibility of a US currency meltdown and hyperflation is real. It is especially real when you look at the very long time you rely on it not happening - almost three quarters of a century.
The advantage of an SS type pay-as-you-go system is that it will, as long as a federal government exists, and is able to tax economic activity, be able to pay SOMETHING. Maybe not much, maybe (in the worst case) far less than you paid in, but you don't need that much to keep from starving. On the other hand, if someone nukes a big US city or something similarly calamitous happens your entire savings could evaporate within days.
And then what?
The bottom line is that a privatized SS will likely have to be re-socialized within the next century because the pensioners will demand to be able to eat when the next big economic crisis hits.
In my view, having a pension system with at least SOME state-guaranteed pay-as-you-go component is unavoidable in the long term.

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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2608 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 8:55 AM
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{{Cue the SP demon.}}


?

c

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2610 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 9:37 AM
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<<The bottom line is that a privatized SS will likely have to be re-socialized within the next century because the pensioners will demand to be able to eat when the next big economic crisis hits.
In my view, having a pension system with at least SOME state-guaranteed pay-as-you-go component is unavoidable in the long term.
>>


In a desperate period of economic collapse, nothing would prevent government from aiding the indigent if it has a desire to do so. Why throttle the economy with the disadvantages of such a system the other 98% of the time?




Seattle Pioneer

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2611 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 10:11 AM
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In a desperate period of economic collapse, nothing would prevent government from aiding the indigent if it has a desire to do so. Why throttle the economy with the disadvantages of such a system the other 98% of the time?


It is not merely a transitory period - about half to one-third of the population would lose the ability to support themselves in old age PERMANENTLY. Not only would the government have to support the vast majority of current pensioners, it would also have to support those who are still working but have now lost the ability to save up for retirement.
If you are 45-50, and your nest egg gets wiped out AND you have a period of 10 years of serious economic problems in front of you you will not be able to save enough for retirement.
In that situation, you will then have to raise taxes on the rest of the population to pay for this group (the vast majority of pensioners for the next 30 years will be "indigents") without giving them any kind of pension claim in return. This will not be popular.

The return to some form of pay-as-you-go system will be extremely popular in such a situation - the pensioners, which make up a huge portion of voters, will not like to spend the rest of their days as "indigents", and the taxpayers will not want to pay taxes to support the elderly while they are at the same time forced to put money aside for their own pension (the reliability of which the recent meltdown has put into serious doubt).

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2617 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 11:40 AM
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In my own case, after child #2, I told my DW that I would never just "up and quit a job" that when thing got bad enough I'd begin looking for another and I wouldn't quit the current job until a replacement had be found.

I agree that one should be aware of, and accept, consequences for one's actions. But that doesn't always mean playing it safe. In my case I moved from NYC to CA without a job, and with only a vague idea of what I wanted to do here. I was prepared for it not to work out. I was prepared to move back east in a year.

In actaulity I stumbled into the perfect job (I got cold-called for it - when does THAT ever happen?) and ended up staying here 17 years and counting.

Staring my own business - also not planned and out of necessity, not caution. But so far it's been great.

Caution is good. Awareness of possible consequences even better. But sometimes stepping into the unknown can have BETTER results than planned steps.

careful consideration of the consequences leads to much better solutions than just taking immediate action based upon your emotions.

Not always...

Again - I agree that these leaps of faith can fall flat and tank, and one should be prepared for that as much as for success. But leaps of faith CAN be better than careful planning.

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2619 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 12:03 PM
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Advo,

Actually I think the examples you used for your argument makes a good case for investing some of the money from the "pay as you go" system into equity assets.

Modern portfolio theory, as Intercst has so vociferously pointed out, would be designed to survive a Great Depression type economic melt down. The other examples you gave (being on the losing end of a WW) would kill a "pay as you go" system like SS FASTER than privately invested equity.

The reason is a modern portfolio should include exposure to international assets (stocks/bonds). If the US lost a WW but you still could tap into your international holdings, you'd at least still own something.

Let me also point out that in the event of a worldwide economic meltdown you would be MUCH better off holding equities for companies in captilistic type countries and not socialistic or communistic type countries (e.g. Venezuala) as those countries would be likely to sieze assets (especially foriegn owned!) in a misguided attempt to blunt the effects of the world wide meltdown.

Let me finally point out that if things got really bad, you wouldn't worry about either privately held assets or a "pay as you go" style pension as money (& probably electronics, gold, etc.) would likely be worthless. You'd be much better owning some arable land to farm and produce your own food.

Jim

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2620 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 12:09 PM
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Caution is good. Awareness of possible consequences even better. But sometimes stepping into the unknown can have BETTER results than planned steps.

Ginko,

I don't disagree but as your responsibilities extend to supporting a family (then 2 kids but we eventually made it to 4 kids), I think the wisdom of just taking a leap of faith can easily be dismissed.

If I was single, you bet I would do stuff like this.

In fact, after the last kid moves out, I might try it anyway. I'm to the point now that without adding another $0.01 to my retirement portfolio, I will eventually be able to retire.

So really I would only need to find something that can cover current living expenses for two people and that isn't nearly as hard as supporting 6, saving for retirement, AND saving for kid's college.

I've actually fantasized about doing something like that for a while. In 10 years I'll be to the point that I can try it!

Jim

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2621 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 12:12 PM
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You'd be much better owning some arable land to farm and produce your own food.

Plus a few guns and a good supply of ammo, along with a large supply of antibiotics and pain pills, which could be traded for anything else you might need. Personally, I don't go for the survivalist approach to retirement planning, but different strokes for different folks.


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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2624 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 12:23 PM
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Jim: I don't really disagree with you (especially your comment about needing to be more cautious with a family). I'm a complete debt-phobe and very cautious about savings/investments.

My only quibble was you saying that careful planning always results in better results. 90% of the time yes. 10% of the time, no.

I guess I've been lucky with that 10%.

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2630 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 1:42 PM
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Plus a few guns and a good supply of ammo, along with a large supply of antibiotics and pain pills, which could be traded for anything else you might need. Personally, I don't go for the survivalist approach to retirement planning, but different strokes for different folks.

RN,

I wouldn't make it as a survivalist more than 5-10 years since I have a chronic medical condition. Some aspect of my condition would eventually get me.

However, a severe disruption in our society doesn't equate to a severe and PERMANENT disruption in society.

But your point is well taken. If planning for extreme disruption forget SS, it won't help. Get some arable land, develop some farming skills, stock up on weapons and ammo, and store some widely desired trade goods (booze anyone??).

Jim

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2633 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 1:53 PM
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Modern portfolio theory, as Intercst has so vociferously pointed out, would be designed to survive a Great Depression type economic melt down.


This is the age of the global economy - and the global asset market. A meltdown of the US economy would drag every other country into the abyss as well. There is a limit of what diversification can achieve.

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2636 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 2:11 PM
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"This is the age of the global economy - and the global asset market. A meltdown of the US economy would drag every other country into the abyss as well. There is a limit of what diversification can achieve."

If you assume the future is no worse 'than the worst times in the past 170 years" of investing history, the intercst study still holds.

If you assume that things will be worse than anytime in the past 170 years, including the times before bank failure protection, SS, more transparency in the stock market, etc.....then all bets are off.....

Short of failure of the USA banking system (which would require you to be on your survival farm with a selected crew of able body peeople able to provide for all your needs for decades), you can only protect against so much.

History has shown us that diversification helps whether financial marekts up and down.

If WW3 with nuclear weapons, or a Super Volcano erupting in Yellowston, or the Atlantic Conveyor stops, all bets are off....

t.



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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2640 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 2:27 PM
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What the US has not seen is currency destruction. Many other industrialized countries have seen that in the last 100 years. There does not need to be WW3 to have a dollar meltdown.

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2647 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 3:28 PM
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All of the currency destruction that I've read about had to do with hyperinflation.

I think the US has a potential for this sort of scenario with the most likely catalyst (in my mind anyway) being high oil prices. I think that an "oil shock" could bring on this sort of problem. However, if the price rise takes a more moderate climb, then I feel the US has a substantial chance of weathering the problem.

Advo,

I think this boils down to either:

1) US Society & its corporations will continue to produce and society will continue - in which case investing in high quality companies will still provide dividends, service on bonds, etc.

2) US Society collapses in which case ALL bets are off and you'd better know someone who has land and knows how to farm.

I can't assign odds to these scenarios but short of #2, you should be OK with private assets in #1. Now a severe downturn might delay a retirement or force you back into the work force for a while but your base assets should be OK.

Jim

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2651 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 4:04 PM
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I think this boils down to either:

1) US Society & its corporations will continue to produce and society will continue - in which case investing in high quality companies will still provide dividends, service on bonds, etc.

2) US Society collapses in which case ALL bets are off and you'd better know someone who has land and knows how to farm.



Many countries have suffered currency destruction without societal collapse. Germany, for example, in the early twenties of the 20th century. The economy worked throughout, in a fashion - but at the end of the inflation your fortune wouldn't buy you a stamp.



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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2652 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 4:26 PM
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Many countries have suffered currency destruction without societal collapse. Germany, for example, in the early twenties of the 20th century. The economy worked throughout, in a fashion - but at the end of the inflation your fortune wouldn't buy you a stamp.

But that's looking at the currency value of assets.

I agree that given a bout of hyperinflation, corporate (or government for that matter) bonds would be worth very very little (but not entirely worthless).

However, if you had that money instead invested in corporate stocks, the intrinsic value of that corporation stock should keep pace. Granted you would NOT want to convert that capital investment until the situation improved. However, if that stock paid a dividend, I imagine that the dividend would keep pace.

IOW, during the currency meltdown, your investments might not be able to keep you going. You might have to postpone retirement OR return to the work force. However, after the economy stabilized, stock based assets should still maintain their value.

An example of this would be going into the Great Depression. The real value (investment wise) of various stocks was actually higher than the stock prices indicated (because no one was able to buy them from you). By the end of the depression, if you had managed to not sell these stocks, your NAV would have completely recovered with a small additional ROI.

You could have done much better if you had the ability to purchase stocks after the end of the stock market crash. If you did, then you could have been quite wealthy by the end of the Great Depression.

Jim

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2654 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 5:09 PM
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However, if you had that money instead invested in corporate stocks, the intrinsic value of that corporation stock should keep pace.



I researched the German hyperinflation a few years ago. I don't quite remember what exactly happened to stocks, but many companies went under, dividend payments during the years of the crisis were a rarety, and many shares apparently got inflated as well seriously diluting ownership even if the company did not go under. Since you needed to pay living expenses during that time, most people would have had little of their portfolio left after the hyperinflation was over.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2675 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 8:34 PM
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<<In a desperate period of economic collapse, nothing would prevent government from aiding the indigent if it has a desire to do so. Why throttle the economy with the disadvantages of such a system the other 98% of the time?

It is not merely a transitory period - about half to one-third of the population would lose the ability to support themselves in old age PERMANENTLY. Not only would the government have to support the vast majority of current pensioners, it would also have to support those who are still working but have now lost the ability to save up for retirement.
If you are 45-50, and your nest egg gets wiped out AND you have a period of 10 years of serious economic problems in front of you you will not be able to save enough for retirement.
>>


If the goal of Social Security had been to relieve those who had been impoverished by bank failures and the economic failures of the Depression, I'd consider that reasonable. And indeed that's pretty much what Social Security did in it's early years.

Unfortunately, people who wanted ever more benefits made political demands and the programs have grown into monsters, in my opinion.

So as I've said many times before, I think there is an argument for government to relieve the plight of the indigent. If we have another Great Depression, there will again be an argument for a program to relieve the distress that some people will experience.

But this is 2007, not 1937. We don't need to relieve the distress of those injured by the Great Depression any more.


Also, your post didn't address the issue I have raised, which is means testing these programs so that we don't pay benefits to people that don't need them.




Seattle Pioneer





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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2676 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 8:40 PM
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So as I've said many times before, I think there is an argument for government to relieve the plight of the indigent. If we have another Great Depression, there will again be an argument for a program to relieve the distress that some people will experience.

But this is 2007, not 1937. We don't need to relieve the distress of those injured by the Great Depression any more.


That's not the argument I was making.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2677 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 8:42 PM
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<<What the US has not seen is currency destruction. Many other industrialized countries have seen that in the last 100 years. There does not need to be WW3 to have a dollar meltdown.

>>


I think the United States has seen it's currency destroyed over the past hundred years, due to inflation.

The price of gold a hundred years ago was about $15/ounce while today it's what --- $400 or so. And if the United States really had to back our currency with gold, the dollar value might be $4000/ounce.



Seattle Pioneer

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2679 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 8:53 PM
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"In a desperate period of economic collapse, nothing would prevent government from aiding the indigent if it has a desire to do so."

In a time of 'desperate period of economic collapse' the gov't may be powerless to do much other than soup kitches and tent cities. If things are like 1929 (and that wasn't the worst in US history by far), there might be no ability to borrow more money to fund more programs. You might have hyperinflation of, say 20% per year for 10 years, and the gov't be unable to pay its debts on more borrowed money.

At some point in the present scheme, if nothing changes, more than half of every dollar will go into social programs. The other half will go to pay debt. That doesn't leave much for other programs - ZERO....incuding defennse, runnning the gov't, etc.


"It is not merely a transitory period - about half to one-third of the population would lose the ability to support themselves in old age PERMANENTLY. "

Even in the depression of the 30s. 3 out of 4 people had jobs.

Older folks lived with kids if they had no assets or worked part time.... if you assume the 'safety net' would still be there for those who had started receiving benefits, no one would starve...maybe have to live in group homes, share cost of food, but heck, why not if things are 'that bad'...

"If you are 45-50, and your nest egg gets wiped out AND you have a period of 10 years of serious economic problems in front of you you will not be able to save enough for retirement. "

Good..then you work to 70.....or 75...why should the rest of us have to make up for your 'nest egg' getting wiped out? likely through bad decisions you made? Why is 'personal responsibility' never a factor?
If people 'risk it all' why should they get rewarded for failure? THey made a bet..they lost it....so?

t.


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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2681 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 9:21 PM
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However, if you had that money instead invested in corporate stocks, the intrinsic value of that corporation stock should keep pace.

Why would you think that? The "value" of a stock is in 1) the demand for it which is a function of 2) expected future cash flows. And, of course, the ability to buy them because of excess capital somewhere. Ignoring that a very high percentage of businesses went under during the Depression, thereby rendering their stocks worthless, the capital markets - even the ones still breathing collapsed, companies were unable to pay their bills, future prospects were grim - a self-fulfilling prophesy which unfortunately came true.

Here's what happened in Germany:

September 1928 650,000 unemployed
September 1929 1,320,000 unemployed
September 1930 3,000,000 unemployed
September 1931 4,350,000 unemployed
September 1932 5,102,000 unemployed
January 1933 6,100,000 unemployed

Companies throughout Germany - though primarily in the industrial zones such as the Ruhr - went bankrupt and workers were laid off in their millions. Unemployment affected nearly every German family just 6 years after the last major economic disaster - hyperinflation - had hit Weimar.
http://www.historylearningsite.co.uk/weimar_depression_1929.htm

IOW, during the currency meltdown, your investments might not be able to keep you going. You might have to postpone retirement OR return to the work force.

Most people were not given the choice to "postpone" retirement, they were shoved out of the workforce. Unemployment hit 30% within a couple years, and that number would have been far higher if many companies hadn't forced workers to work part-time, rather than full-time to preserve jobs. These people couldn't "return" to the work force, there was NO WORK.

example of this would be going into the Great Depression. The real value (investment wise) of various stocks was actually higher than the stock prices indicated (because no one was able to buy them from you).

That's pretty much the definition of "worthless." If you have pockets full of $1,000 bills, but you are on the Titanic as it is going down, the "value" of your value is nil. Nobody will buy it from you. That's "worthless."

You could have done much better if you had the ability to purchase stocks after the end of the stock market crash.

Who didn't know that? Trouble was, nobody had any money.

The history of the early century is an interesting one. Hitler turned Germany into a command economy. In Russia the revolution had deposed the power structure in favor of a system which promised "equality." In America (and Britain, France, etc.) the economies collapsed, and a concordant rise in socialist and communist (small "c") theories took root. (You might remember the McCarthy hearings 20 years later railing about all those poor young dupes who went to a Communist (capital "C") Party meeting.

People were desperate; they care little about precious economic theories when they can't feed their kids. The old social structures were gone; few people lived on the farm anymore, the industrial revolution saw to that. There weren't multigenerational homes - and there wasn't work, and without work there wasn't food. Out of all of that came the various governmental social safety nets - out of a need for stability, not because people thought it would be fun to take money from some people and give it to others.

As it turns out, those safety nets have worked fairly well over time, not perfectly mind you, and sometimes with excess, but overall most advanced countries have followed (or in some cases led) with similar programs which are designed to meet the same goals. And most of those countries have had stability - and prosperity - for the better part of the last century. I think there's something to be said for that.
 


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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2686 of 63091
Subject: Re: Such different conclusions Date: 2/21/2007 9:52 PM
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That's pretty much the definition of "worthless." If you have pockets full of $1,000 bills, but you are on the Titanic as it is going down, the "value" of your value is nil.

My choice of words was perhaps not very appropriate but your choice of analogy was even worse.

Nobody will buy it from you. That's "worthless."

How much is a stock worth Goofy? In my mind there's at least two methods of valuation.

1) How much is someone willing to pay for that stock. e.g. how valuable is a goose?

2) How much return could that stock be reasonably expected to deliver? e.g. how valuable is a goose that lays eggs?

In a liquid market those two valuations should be very similar (or even identical). In an illiquid market (e.g. after the stock market crash) those two valuations could differ by a great deal. If you're starving now, you may not be able to realize the long-term value of a goose that lays eggs, since you'll be forced to kill and eat it now.

So you are in an illiquid market after a market melt down. If you have the means of not liquidating your stocks in this market, then you can significantly improve your long term economic health. If you're forced to liquidate your assets, you'll lose a great deal of potential long term assets.

These people couldn't "return" to the work force, there was NO WORK.

Now I've spoken at great length with my grandparents generation - who lived through the great depression. You know what, neither side of the family thought the Great Depression was that significant to their lives.

My paternal grandparent's family owned and apartment building and a butcher shop. They had to scrimp a bit but didn't suffer too much from it.

My maternal grandparent's family were so poor, that they had no recollection of the "Great Depression" until they learned about it in school. Life during the "Depression" was identical to their lives before and after the "Depression". Despite the hardships, all of the 7 children of my grandfather's family made it through college. My great grandfather (the patriarch at that time) work many odd jobs and the family was forced to raise much of their own food - including the meat. Since they didn't live on very much land, this produced a series of interesting stories.

Both families were able to find work during this time period. Maybe life wasn't as stable and regular during the depression but they were able to scrabble together a decent living.

Who didn't know that? Trouble was, nobody had any money.

This is completely false and you know it. Of course people had money. Not as many people had money to invest in stocks after the stock market crash, but people were still buying and selling stocks.

Unemployment hit 30% within a couple years, and that number would have been far higher if many companies hadn't forced workers to work part-time, rather than full-time to preserve jobs.

Consider that this was only ~2x as bad as the worst un-employment that I've lived through.

Don't get me wrong, I'm not trying to make light of the Great Depression. For some sections of our country the effects were truly horrific. However, it was not equally bad everywhere and not everyone was destitute with no work or hope.

Jim

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Subject: Re: Such different conclusions Date: 2/21/2007 11:15 PM
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<<However, if you had that money instead invested in corporate stocks, the intrinsic value of that corporation stock should keep pace.

Why would you think that? The "value" of a stock is in 1) the demand for it which is a function of 2) expected future cash flows. And, of course, the ability to buy them because of excess capital somewhere. Ignoring that a very high percentage of businesses went under during the Depression, thereby rendering their stocks worthless, the capital markets - even the ones still breathing collapsed, companies were unable to pay their bills, future prospects were grim - a self-fulfilling prophesy which unfortunately came true.

>>


As I understand it, the intercst model of investment management for early retirees involves having a revolving five year fund of maturing bonds to supply living expenses for five years in advance.

Should there be an economic melt down on the scale of 1929, intercst's research indicates that this cushion of liquidity would allow a retiree to weather that kind of economic storm, since you wouldn't have to sell your stock assets out at the bottom to raise money for living expenses.

As far as government safety nets:


As I've said before, there is an argument for government program to relieve the suffering of the indigent, but that the current Social Security and Medicare edifice is an enormously bloated program to do that.

Unfortunately, those programs are going to create social instability since they will be transferring huge amounts of money from working people who are going to need their money to a lot of retirees who do not. Why we want to do that remains a mystery to me.

If we want to pay a small benefit to the indigent who can't help themselves, fine. But there is no reason to pay large benefits to people who don't need them.



Seattle Pioneer

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2695 of 63091
Subject: Re: Such different conclusions Date: 2/22/2007 8:14 AM
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How much is a stock worth Goofy?

It's worth what someone will pay for it. Following the stock market crash, that was very little. Stock prices declined by 90% during the Depression. That sounds fairly "illiquid" to me - and prices didn't recover until 1954 - not including inflation. That's a pretty long time to expect people to sit on their paper.

My paternal grandparent's family owned and apartment building and a butcher shop. They had to scrimp a bit but didn't suffer too much from it.
My maternal grandparent's family were so poor,


I love these anecdotal stories. That you can find a couple of outlier examples demonstrates exactly nothing. Here are some other stories for your collection:

February 1931 -- "Food riots" begin to break out in parts of the U.S. In Minneapolis, several hundred men and women smashed the windows of a grocery market and made off with fruit, canned goods, bacon, and ham. One of the store's owners pulled out a gun to stop the looters, but was leapt upon and had his arm broken. The "riot" was brought under control by 100 policemen. Seven people were arrested.
http://www.pbs.org/wgbh/amex/rails/timeline/

March 1931 -- Three thousand unemployed workers march on the Ford Motor Company's plant in River Rouge, Michigan. Dearborn police and Ford's company guards attack, killing four workers and injuring many more.
http://www.pbs.org/wgbh/amex/rails/timeline/

[The Great Depression] began in the United States and quickly spread to Europe and every part of the world, with devastating effects in both industrialized countries and producers of raw materials. International trade declined sharply, as did personal incomes, tax revenues, prices and profits. Cities in the Great Depression|Cities all around the world were hit hard, especially those based on heavy industry. Unemployment and homelessness soared. Construction was virtually halted in many countries. Farming and rural areas suffered as prices for crops fell by 40–60%.[1] Mining and logging areas had perhaps the most striking blow because the demand fell sharply and there were few employment alternatives.
http://en.wikipedia.org/wiki/Great_Depression

his is completely false and you know it. Of course people had money. Not as many people had money to invest in stocks after the stock market crash, but people were still buying and selling stocks.

Hogwash. "People" were not buying and selling stocks. A very few of the remaining wealthy were buying and selling stocks.

Unemployment hit 30% within a couple years, and that number would have been far higher if many companies hadn't forced workers to work part-time, rather than full-time to preserve jobs.

Consider that this was only ~2x as bad as the worst un-employment that I've lived through.


Curious. The worst unemployment in the past 50 years has been 9.7%. By my count that's about 3 times worse. And that doesn't include the underemployment of vast swaths of America as companies moved workers to part-time status (to preserve at least some jobs.)

Don't get me wrong, I'm not trying to make light of the Great Depression. For some sections of our country the effects were truly horrific.

For nearly everyone. That's why it's in the history books, not because of a couple people who owned a butcher shop and who say they weren't affected.

Oh, by the way - here's what else went on:

he Great Depression ended at different times in different countries; for subsequent history see Home front during World War II. Most countries set up relief programs, and most underwent some sort of political upheaval, pushing them to the left or right. Democracy was weakened and on the defensive, as dictators such as Hitler, Stalin and Mussolini made major gains,
http://en.wikipedia.org/wiki/Great_Depression

In Australia events of civil unrest became common. Canada is often regarded as the country worst hit by the Great Depression. What happened in Germany in the precursor Weimar hyperinflation is well documented. It was a very big deal. It carried with it the seeds of revolution - and from such sparks do raging fires grow.

Isn't it curious that the business cycle was so volatile and abrupt all through the 19th century and into the 20th, and since the advent of safety net programs like Social Security and unemployment compensation - which keep liquidity in the economy even during economic downturns - we've seen nothing like it since?
 


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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2716 of 63091
Subject: Re: Such different conclusions Date: 2/22/2007 12:30 PM
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<<
What would be the effect to the program if there had been a "Lock Box" as Al Gore urged? Money invested safely and accruing interest, no less.
Or, for that matter, even if we started today with the lock box approach.
>>



Just a guess, but I'd suppose Al would have that lockbox stuffed with carbon trading credits as an "investment" in the future of the earth.


The history of Social Security "trust funds" doesn't lend much support to the idea that politicians can be trusted with large pools of wealth.



Seattle Pioneer

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2759 of 63091
Subject: Re: Such different conclusions Date: 2/23/2007 8:29 AM
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http://www.csis.org/media/csis/pubs/pension_profile.pdf

Global Aging and the
Sustainability of
Public Pension Systems

Germany, Japan, and Sweden have all indexed their public pension systems, at least partially, to their changing demographics. Instead of building in automatic cost-escalation, indexing formulas now build in automatic cost-restraint. Many countries are also moving aggressively to boost funded retirement savings. Australia, the world reform leader, now has a large and near universal system of mandatory funded employer pensions. Sweden, Europe's quintessential welfare state, has introduced a mandatory system of personal retirement accounts. Canada, taking a different course, is investing the public pension system's reserve fund in private markets. Other countries, including Germany, Italy, and Spain, are trying to jump start voluntary private pension systems. Meanwhile, almost everywhere, countries are cutting back on expensive early retirement options.

Despite recent reforms, public benefit systems in most developed countries remain fiscally unsustainable—and even where long-term costs have been controlled, serious concerns remain. The United Kingdom, having stabilized future pension spending as a share of GDP, is now worried that it has done so at the risk of impoverishing the future elderly. As for the United States, reform appears to be on indefinite hold.


We're only advocating following the lead of other progressive socialist European countries. Are our ideas really to far out to consider?

Jim

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2763 of 63091
Subject: Re: Such different conclusions Date: 2/23/2007 9:15 AM
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<<Despite recent reforms, public benefit systems in most developed countries remain fiscally unsustainable—and even where long-term costs have been controlled, serious concerns remain. The United Kingdom, having stabilized future pension spending as a share of GDP, is now worried that it has done so at the risk of impoverishing the future elderly. As for the United States, reform appears to be on indefinite hold.

We're only advocating following the lead of other progressive socialist European countries. Are our ideas really to far out to consider?

Jim
>>


Heh, heh! Butter doesn't melt in your mouth there, Jim!




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Author: FlyingDiver Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2784 of 63091
Subject: Re: Such different conclusions Date: 2/23/2007 1:26 PM
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You keep stating SS is not a Ponzi scheme. Yet if looked in its totality it has a key characteristic of Ponzi schemes:

That is it takes money from a large group of individuals (current workers) and distributes it to a smaller group of people (current beneficiaries).


Funny, that's exactly the same process as an insurance "scheme". Collect from many to pay a few. So that's not sufficient to characterize SS as a Ponzi scheme.

joe


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Subject: Re: Such different conclusions Date: 2/23/2007 1:38 PM
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<<You keep stating SS is not a Ponzi scheme. Yet if looked in its totality it has a key characteristic of Ponzi schemes:

That is it takes money from a large group of individuals (current workers) and distributes it to a smaller group of people (current beneficiaries).

Funny, that's exactly the same process as an insurance "scheme". Collect from many to pay a few. So that's not sufficient to characterize SS as a Ponzi scheme.

joe
>>



The key element of a Ponzi scheme is that it makes long term promises but uses money people "invest" to pay out bloated returns to people short term.


The original Ponzi scheme issued investors long term bonds with very high interest payments on the debt. The problem was that money invested in the bonds was used to pay the unsustainable interest payments, which meant that there was no money to pay back the principle amount of the bonds.

When that fact became known, people quit buying the bonds and the scheme collapsed.



That's pretty much what Social Security has done, paying out hugely more in current benefits than most people ever have paid in taxes, and making vast promises of benefits in the future which cannot be paid unless future generations of taxpayers are willing to pay every higher amounts of taxes.


That's a Ponzi scheme to me, since the plan is inherently unstable. If the new tax money ever quits coming in, the scheme collapses because there is precious little in the way of actual assets to pay off the promises people think they have been made.


An insurance plan makes promises too. But such plans are usually backed by substantial assets of the insurance company to back up the promises that have been made, and premiums are used as investments to be sure that there are assets available to back up promises made in the contract.


Unfortunately, liberals here seem intent on trying to confuse Social Security with a real insurance plan. I suppose people who are doing that don't understand how real insurance works, or perhaps they just wishfully prefer to deny the problems their social "insurance" plans keep having that require perpetual large tax increases to keep from failing.



Seattle Pioneer

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2787 of 63091
Subject: Re: Such different conclusions Date: 2/23/2007 1:50 PM
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Funny, that's exactly the same process as an insurance "scheme". Collect from many to pay a few. So that's not sufficient to characterize SS as a Ponzi scheme.

That's funny, this definition from Wikipedia sure does sound like SS...

From wikpedia: http://en.wikipedia.org/wiki/Ponzi_scheme

A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business, named after Charles Ponzi.

Current investors: current SS beneficiaries
Subsequent investors: current SS payees

Unlike insurance which generates revenues from it's financial assets, SS generates no "net revenues" other than what's currently paid in. The excess is siphoned off into congresscritter pet spending items.

A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish pyramid schemes from Ponzi schemes:
o In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).
o A Ponzi scheme relies on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
o A pyramid scheme is bound to collapse a lot faster, simply because of the demand for exponential increases in participants to sustain it (Ponzi schemes can survive simply by getting most participants to "reinvest" their money, with a relatively small number of new participants).


So really SS has some characteristics of a Ponzi Scheme and some aspects of a Pyramind Scheme (from Wikipedia again: http://en.wikipedia.org/wiki/Pyramid_scheme ):

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered. Pyramid schemes have existed for at least a century. Matrix schemes use the same fraudulent non-sustainable system as a pyramid; here, the victims pay to join a waiting list for a desirable product which only a fraction of them can ever receive.

Wow, this sounds very much like SS, especially this part:

the victims pay to join a waiting list for a desirable product which only a fraction of them can ever receive.

I don't ever expect to get a payback from SS (I suspect that's a good assumption for anybody anticipating early retirement).

Jim

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Author: AngelMay Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2788 of 63091
Subject: Re: Such different conclusions Date: 2/23/2007 2:05 PM
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Unfortunately, liberals here seem intent on trying to confuse Social Security with a real insurance plan. I suppose people who are doing that don't understand how real insurance works, or perhaps they just wishfully prefer to deny the problems their social "insurance" plans keep having that require perpetual large tax increases to keep from failing.



Seattle Pioneer




We are positive that you are absolutely right, dear.
Don't you want to run out and play with the rest of the children now?

AM

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2796 of 63091
Subject: Re: Such different conclusions Date: 2/23/2007 8:42 PM
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How fundamentally dishonest of you.

There are many other aspects to a ponzi scheme which you "forgot" to include in your analysis. Why is that? Why it's because they demonstrate that Social Security does NOT fulfill the basic tenets of a Ponzi scheme, that's why. And that's dishonest.

I don't ever expect to get a payback from SS (I suspect that's a good assumption for anybody anticipating early retirement).

What you expect or don't expect is exceptionally irrelevant, given that you have demonstrated not the slightest knowledge about what you are talking about.

The Social Security program has been in existence for 70 years, and in the WORST CASE will continue paying full benefits for another decade, and a minimum of 90% benefits thereafter. That is if NOTHING is done.

Your ranting is juvenile, verging on deranged. You change the facts to suit your argument, ignore history, and pretend that your prediction will come true. Take heart, Tinkerbelle, you may confuse a few weak minded anti-government types such as yourself, but the rest of us are able to look at the real world, and it appears reasonably solid to us.
 


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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3226 of 63091
Subject: Re: Such different conclusions Date: 3/12/2007 7:40 PM
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There are many other aspects to a ponzi scheme which you "forgot" to include in your analysis. Why is that? Why it's because they demonstrate that Social Security does NOT fulfill the basic tenets of a Ponzi scheme, that's why. And that's dishonest.

!!

Goofy,

I quoted the entire section "What is and Is Not a Ponzi Scheme" from the wiki pages for both Ponzi & Pyramid scheme AND I explained how those descriptions related to SS. In your post, you omit the fact that I copied the *whole description* of these terms while you just leveled unsubstantiated insults without any supporting information or even explained why you think the comparison is invalid. This makes YOU the dishonest one!

That you got 37 recs from lemmings who can't be bothered to check the veracity of my arguments & links (included in my post but omitted from yours!!) reflects very poorly on the integrity of the RELE regulars! It's amazing to me that so many would rec your post purely because they agree with the sentiment despite the facts of the issue.

The Social Security program has been in existence for 70 years,

True

and in the WORST CASE will continue paying full benefits for another decade,

True

and a minimum of 90% benefits thereafter. That is if NOTHING is done.

Highly doubtful. You do realize that there are at least TWO major demographic trends that are hurting SS, right? People are dying later in their lives (which increases the cost of covering them for the rest of their life) AND the fact that the ratio of recipients to contributors is getting larger.

Only one of these demographic trends will see any sort of relief (from the "echo boomers") and that relief is still many decades away. Meanwhile the other demographic will continue to get worse.

http://en.wikipedia.org/wiki/Echo_boom_generation

You also included these other perceptive arguments against my position:
And that's dishonest.

How fundamentally dishonest of you.

What you expect or don't expect is exceptionally irrelevant, given that you have demonstrated not the slightest knowledge about what you are talking about.

Your ranting is juvenile

verging on deranged.

You change the facts to suit your argument,

ignore history

pretend that your prediction will come true

Take heart, Tinkerbelle, you may confuse a few weak minded anti-government types such as yourself, but the rest of us are able to look at the real world, and it appears reasonably solid to us.


WOW! If I was typical of the posters to RELE, then I would have FA'ed this post when you made it.

As it is, both you and I know that since you turned to personal insults really means that you don't have a legitimate & logic response to offer, let alone any support for that argument.

Come back to the table after you have read and understood the links to Wikipedia about both Ponzi & Pyramid schemes. Don't worry, I'll let you sit at the adult table again after you've done your homework.

http://en.wikipedia.org/wiki/Ponzi_scheme
http://en.wikipedia.org/wiki/Pyramid_scheme

Jim

PS you get extra credit for reading and understanding this link too:

http://en.wikipedia.org/wiki/Ad_hominem

FWIW, here are some quotes from the Wiki page on Ponzi schemes that explains why SS is NOT a Ponzi scheme:

Retirement systems, like Social Security, are openly declared for what they are. In a genuine Ponzi scheme, the perpetrators falsely claim that there is some business that generates the promised revenues. In Social Security, people know where the money comes from, and actuaries supply written predictions of future cash in-flows and out-flows.

OK, so the government tells you what's happening and that it's very similar to a Ponzi scheme, but because they've revealed this information to you, it isn't one!

When and if the political process is used to raise required contributions via retirement taxes, or to reduce benefits (including raising the retirement age), either across the board or just for the better-off, there would certainly be opposition from those who would pay more or get less, but politicians have only those two choices (plus borrowing) if revenues are inadequate.

IOW, noone's complained so far because they've gotten more out then they've put into the system. Those cursed by being born in between the Boomers & Echo Boomers will just have to suffer.

In the long run, retirement systems pay out an approximately equal amount to what was paid in, per contributor, plus interest [citation needed]. In the short run, pension surpluses can be used to cover a government's current general-revenue shortfall, as has been happening in the United States since Social Security contribution rates were increased in 1983.

But those surpluses have ALREADY BEEN SPENT by the Boomers. IOW, they got got more benefits then they've paid, and then they spent the surplus from the system too. Those debts come due at the same time that the later generations benefits will be cut. How very generous of them (and you).

Unlike a Ponzi scheme, government receipts (taxes) and payouts (entitlements) can be calculated quite accurately in the short term (five to ten years), and predicted (with a range of assumptions) for periods beyond that timeframe. A sudden collapse is therefore unlikely

IOW, it's OK to have SS because it's unlikely to collapse quickly. This means that it won't screw currently recipients even though it'll doubly screw later generations. How very generous of you.

I'd also like to add that SS isn't a Ponzi scheme because Ponzi schemes are optional. No one forces you to participate.

Yup Goofy, you're right. SS is not a Ponzi scheme, it's something much much worse.

Jim

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3230 of 63091
Subject: Re: Such different conclusions Date: 3/12/2007 8:42 PM
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That you got 37 recs from lemmings who can't be bothered to check the veracity of my arguments & links (included in my post but omitted from yours!!) reflects very poorly on the integrity of the RELE regulars!!!


yup.


... good tactic for winning hearts and minds.



-b
......... http://en.wikipedia.org/wiki/Lemming

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3231 of 63091
Subject: Re: Such different conclusions Date: 3/12/2007 9:01 PM
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I don't think the poor guy even realizes that the lemmings are demonstrably smarter than he.

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3232 of 63091
Subject: Re: Such different conclusions Date: 3/12/2007 10:17 PM
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http://en.wikipedia.org/wiki/Ad_hominem

Commonly used by those that incapable of formulating a cogent argument.

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3233 of 63091
Subject: Re: Such different conclusions Date: 3/13/2007 2:37 AM
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I don't think the poor guy even realizes that the lemmings are demonstrably smarter than he.


very few 'humans' give Rodents anything like the respect they deserve.


=

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