Another Government Ponzi Scheme Starts to Crack - Do You Depend on It?

By Nick Giambruno

Government employees get to do a lot of things that would land an ordinary citizen in prison. For example, it’s legal for them to threaten and commit offensive, rather than defensive, violence. They can take property from others without their consent. They spy on anyone’s email and bank accounts whenever they please. They go into trillions of dollars in debt and then stick the unborn with the bill. They counterfeit the currency. They lie with misleading statistics and use accounting wizardry no business could get away.

And this just scratches the surface…...

The U.S. government also gets to run a special type of Ponzi scheme. According to the Merriam-Webster dictionary a Ponzi scheme is.....An investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.

In the private sector, people who run Ponzi schemes are rightly punished for their fraud. But when the government runs a Ponzi scheme, something very different happens. It’s no secret that the Social Security system is effectively one giant Ponzi scheme.

Actually, I think it’s worse. That’s because the government uses force and the threat of force to coerce people into it. People don’t have the option to opt out. They either pay the tax for Social Security or someone with a gun will show up sooner or later. I imagine Bernie Madoff’s firm would have lasted a lot longer had he been able to operate this way.

This whole practice is particularly egregious for young people. They have no chance at collecting the future benefits the government has promised to them. But they’re hardly the only people that are going to be disappointed in the system, which will eventually break down.

There are simply too many people cashing out at the top and not enough people paying in… even with the government’s coercion. That’s a function of demographics, but also the economic reality in which there are fewer people with quality jobs for the government to sink its fangs into. I expect both of those trends to increase and strain the system.

Actually, it’s already starting to happen.

Recently, the government announced that there would be no Social Security benefit increase next year. That’s only happened twice before in the past 40 years. You see, the government links Social Security benefit increases to their own measure of inflation. If the government says “no inflation” then there are no benefit increases. It’s like letting a student grade his own paper.

So it’s no surprise that the official definition of inflation is not reflective of the real increases in the costs of living most people feel. Medical care costs are skyrocketing. Rent and food prices are reaching record highs in many areas. Electricity and utility costs are soaring. Taxes, of course, are going nowhere but up.

But the government says there’s no shred of inflation. In actuality, it amounts to a stealth decrease in benefits.
One reason for this is that they constantly change the way they calculate inflation so as to understate it. Free market analysts have long documented this sham. If you take a global view, it’s easy to see that fudging official inflation statistics is standard operating procedure for most governments.

Incidentally, governments and the financial media don’t even understand what inflation is in the first place.
To them, inflation means an increase in prices. But that is not at all how the word was originally used. Inflation initially meant an increase in the supply of money and nothing else. Rising prices were a consequent of inflation, not inflation itself.

It’s not being overly fussy to insist on the word’s proper usage. It’s actually an important distinction. The perversion of its usage has only helped proponents of big government. To use “inflation” to mean a rise in prices confuses cause and effect. More importantly, it also deflects attention away from the real source of the problem…central bank money printing. And that problem shows no signs of abating. In fact, I think the opposite is the case. The money printing is just getting started.

At least this is what we should prudently expect as long as the U.S. government needs to finance its astronomical spending, fueled by welfare and warfare policies. As long as the government spends money, it will find some way to make you pay for it - either through direct taxation, money printing, or debt (which represents deferred taxation/money printing).

It’s as simple as that.

Like most other governments that get into financial trouble, I think they’ll opt for the easy option…money printing. This has tremendous implications for your financial security. Central banks are playing with fire and are risking a currency catastrophe.

Most people have no idea what really happens when a currency collapses, let alone how to prepare. How will you protect your savings in the event of a currency crisis? This video we just released will show you exactly how. Click here to watch it now.

The article was originally published at internationalman.com.

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The Biggest Trade Ever....No Exaggeration

By Jared Dillian

I won’t keep you in suspense. The biggest trade ever is in demographics. In particular, our rapidly increasing life expectancy.

Quick story. My Coast Guard friends are retiring now. You get to retire after 20 years of service, but some of them have been taking advantage of early retirement and are leaving the service as young as age 40.
Oh my God, what a deal: At age 40, you can bring home about $50K a year and then start a whole new career on the side!

In the old days, you could offer that deal because military folks would die at 47. Now they will live to 100.
Paying out benefits for 60 years to retired military personnel doesn’t sound like a great deal for the taxpayer.
Of course, the military pensions are just the tip of the iceberg. To receive Social Security, you can retire at age 62 (or 67 for full benefits). Again, that’s fine when most people die before 62. The blended life expectancy (for both men and women) is almost 79 years and trending higher.

Or my favorite chart on life expectancy ever, also a rebuttal to those who don’t like capitalism.

If you pay attention to Silicon Valley stuff, you know that Google and Ray Kurzweil and some other folks are working on projects that will allow us to live to 150 or even beyond. That would involve doing a couple of things, first

1. Curing cancer
2. Curing heart disease
3. Curing Alzheimer’s disease

You do these three things, it increases life expectancy by another 10 years or more. And we are actually doing those things!

Once you have a cure for all known diseases (attainable in my lifetime), then you have a different problem. Cells get old and die. The Silicon Valley folks are working on that too. Funny, if you don’t smoke, eat right, and get a little exercise, you will pretty much live to 80, no matter what. What happens beyond that is up to genetics, which we will solve one day. So what will the world look like if people live to 100, 150, or more?

It Looks Like Greece

Greece’s retirement age (to receive benefits) used to be 55 years. Again: retiring at 55, what a deal! I would only have 14 more years to go. People are pretty healthy at 55 (though maybe not the Greeks—they have the highest rate of tobacco use in the developed world).

So if people live way longer than the retirement age, the Social Security system goes kablooey. It just does. And yet people resist all attempts to reform it. We know Social Security is in trouble. George W. Bush tried to tackle it. For all his faults, it was the right thing to do. But he got laughed at.

The first thing we will do is to means-test the benefits, which will just make it more progressive but won’t solve the actual problem. You need to push back the retirement age, like, to 80.

But wait a minute. There aren’t even enough jobs for people to work until age 80.

I know…..

The World Was a Lot Simpler When People Just Died When They Were Supposed To

We’re going to look back at the 1940s-2000s as an exceptional period in economic history—with high, virtually straight line, uninterrupted economic growth. We had debt problems before, but biology has made them intractable.

In fact, the whole profession of economics is based on the very idea that there is population growth and inflation. What happens if birth rates decline? They are. Population growth rates will peak very soon. (By the way, the old Malthusian idea of overpopulation is being discredited.) What does the profession of economics look like with declining populations, people living longer, a dearth of unskilled jobs?

Is it nonstop deflation?

Many economists predict years of global deflation based on this premise. They say that you should buy bonds at any price. It’s a compelling argument. I think we’re going to learn a lot of really interesting things about money velocity in the coming years.

The Trade

Like tech in the ‘90s and energy in the 2000s, health care has been and will be the trade of the 2010s. You have the happy accident of huge technological advances and a government that seems willing, for the time being, to pay for it all. You hear some squawking about the cost of some treatments, but seriously, if you can cure cancer for $250,000, who is going to say no? Especially when that person’s chemotherapy, radiation, and hospital bills could easily exceed $2,000,000.

Lots of folks thought that Obamacare would tomahawk the health care sector. In classic market fashion, it has done the exact opposite. The insurers in particular have been the biggest beneficiary. You probably saw the recent Aetna/Humana merger.

People have tried for years to short biotech. Hasn’t been fun for them.

People have funny attitudes about death, you know. You ask someone if they’d like to live to 100, 120. “Noooooo,” they say. “I wouldn’t want to just sit in a chair.” Me, personally, I’d be okay with sitting in a chair. But the point of these treatments is that you can be active into your 100s. What then?

“I don’t know…” they say.

Are you kidding me? Forever young, my man. I’m 41, and I look a lot younger than my parents at the same age (sorry, Mom and Dad). I’m still DJing parties, for crying out loud.
Still don’t get the point of Snapchat, though.

Jared Dillian

The article The 10th Man: The Biggest Trade Ever (No Exaggeration) was originally published at mauldineconomics.com.

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Six Traits of Successful Retirees

By Dennis Miller

When I coached baseball many years ago, a young ballplayer came to me asking for advice. I offered my opinion: he needed to get his act together. Then, like many young men might do, he griped about me to one of the other coaches. Our paths crossed again when he was 28 years old, at which point he said, "Now that I have a family of my own, I've thought back on your 'lectures' and realized you were just answering my questions honestly. Thank you."


Not surprisingly, my lectures as a coach weren't so different from those I'd received from a WWII colonel turned coach and teacher at my high school. The only difference: I never asked for his opinion, it was offered as he held my shirt collar. Still, when I came home on leave from the Marine Corps a few years later, I showed up at my old high school, walked onto the practice field, and thanked him. He was a solid mentor when I needed one but was too young to know it.

Years later, as a retirement mentor, I've spent countless hours analyzing the habits shared by successful retirees. Six stand out, and I urge all of our readers to take these steps sooner rather than later. I'm not going to grab you by the shirt collar like my coach did, but I'm confident you'll find this "lecture" worth reading.

1. Cut the financial cord with your children. All parents have one basic responsibility: to equip their children to survive on their own, both emotionally and financially.
   
   Retirees are often the wealthier members of an extended family, or they are perceived as such. But having money does not make you a bank. If a family member needs money, let him or her borrow it elsewhere. The wealth you've accumulated has to last you the rest of your life. The best way to remind your family and yourself of this simple fact is to simply say "no."
   
   Of course, some accidents and disabilities cannot be prevented, and there are times to rally behind family members truly unable to put a roof over their heads or food in their bellies. But for every truly unavoidable catastrophe, there are dozens more instances of parents enabling a freeloader.
   
   You've worked too hard to sacrifice your financial independence and give up your golden years. Even if you have enough to support two generations indefinitely, being the "Bank of Parents" won't help anyone in the long run.
2. Be your own "pension fund" manager. Independence is the real goal of retirement. That means listening to experts, but also learning to make savvy financial decisions for yourself.
   
   Today, pensions are virtually nonexistent in the private sector. Soon they won't exist in the public sector either. So all of your retirement, including saving, investing, debt reduction, tax planning, estate planning, is up to you.
   
   There's a lot to learn, but the information is there for the taking. I've known too many people who retired with a large chunk of change only to panic because they had no clue how to manage it. These folks were afraid, rightly so, because their lack of financial know how made them vulnerable.
   
   Give yourself a financial education while you're accumulating wealth so you can enjoy that wealth once you retire. Otherwise, you might leave a high stress job for a high stress retirement.
3. Maximize your tax-preferred retirement savings. Only 10% of those eligible for employer-sponsored 401(k) programs maximize their contributions. There are real financial benefits to contributing to your 401(k), and it's a mistake to turn down that free money, especially if your employer will match all or part of your contributions.
   
   In that same vein, tapping into retirement accounts to pay off bills is almost always a mistake. Unless you absolutely need the money for basic survival, you're much better off leaving your retirement money alone. Like many things in life, once you tap those funds, it gets easier and easier to do it again.
   
   Before Congress passed the first Social Security Act in 1935, retirement was for a wealthy few. Since then, Social Security has fostered the illusion that we need not worry about money and that retirement doesn't require a large personal nest egg. Reality is far harsher.
   
   I know people who've tried to live on their Social Security alone; now they are all back at work. A happy retirement rarely comes for people who choose to worry about retirement later.
4.  Get out of debt. Many retirees are drowning in debt. It's a topic we touched on in The Reverse Mortgage Guide when discussing why seniors are turning to reverse mortgages at an increasingly younger age.
   
   Independence is pretty hard when you don't have any money. And don't fool yourself: if you have a million dollars in your brokerage account and a million dollar mortgage, you're broke. Forget all the fancy formulas. When you stop paying people to rent their money, that's when real wealth building can start.
5. Get some professional help. Even if you have a small nest egg, I strongly recommend going to a professional certified financial planner (CFP) for a regular checkup. I don't mean pay someone to manage your money, although that is an option. Much like an annual physical, however, we can all benefit from an independent, qualified professional assessing where we are and how to stay (or get) on course.
   
   The checkup might cost a few hundred dollars, but it's money well spent. Retirees cannot afford to be penny wise and pound foolish.
6. Get in synch with your spouse sooner rather than later. During your working years, you trade time and expertise for money. For most folks, the goal is to save enough so that they don't have to work full time to survive. Then, during retirement you trade money for time to pursue other interests. Sad to say, many people struggle to pinpoint what those interests are once they get there. One spouse might want to travel while the other is a homebody, etc.
   
   Retirement is no fun if only one spouse is living their dream. Happier couples talk and plan how they want to spend their time long before retirement day.

As someone in or approaching retirement age, you've lived long enough to be a mentor in some area of life. So you already know that mentoring is about telling people what they need to hear, whether it's on the baseball field, in the boardroom, or at the kitchen table (where most life lessons are learned).
I urge you to pass your own "secrets to success" on to the next generation; they will thank you for it… eventually.

In addition to our regular weekly and premium monthly issues, we've been hard at work producing a series of special reports on need to know retirement topics: financial advisors, reverse mortgages, income-producing stocks and low-fee ETFs, to name a few.

You can download each of these timely special reports individually; or, if you really want to kick start your financial education, you can begin your Money Forever premium subscription now and receive access to all of our special reports, our current issue, and the Money Forever archives.


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