Another Government Ponzi Scheme Starts To Crack - Do You Depend On It?

Submitted by Tyler Durden on 10/24/2015 15:58 -0400

http://www.zerohedge.com/news/2015-10-24/another-government-ponzi-scheme-starts-crack-do-you-depend-it 

Submitted by Nick Giamburino of International Man

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

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:

[A]n 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.