Ponzi Schemes Galore

The huge baby boom generation (those born between 1946-1964) fueled the Ponzi schemes of the late 20th Century within the private and public sectors. Around the globe, we are now witnessing the great unraveling. (Though people think of the boomers only with respect to the United States, the baby boom phenomenon had taken place in all the Western nations, ranging from Japan to Germany.)

The first major Ponzi scheme was the enactment of Social Security. Though its birth was during the 1930's, the Ponzi character of it became obvious when the first wave of boomers entered as taxpayers during the 1960's. This increased the coffers of the so-called Social Security Trust Fund.

In 1965, President Lyndon Johnson signed into law Medicare. Because the boomers were already entering as taxpayers, Medicare was unquestionably Ponzi in character at the starting gate.

Beginning in 1977 and continuing into the 1980's, as the rest of the boomers entered their taxpaying years, the FICA taxes were increased to higher rates. This brought more money into the federal coffers (for Social Security). The boomers were being forced to pay these high FICA taxes allegedly for their own retirement. But this wasn't true. Those taxes were being used to finance the current retirees of that time period. (Surplus money accumulated into the Trust Fund which then helped to finance the debt.)

Within the private sector (and also for government workers) was another Ponzi scheme. Throughout the 20th Century, defined benefit pension plans were popular. This worked well, while the baby boomers were young. There was this surplus of young workers paying into the plans, whereas a deficit of old people drawing benefits out of the plans. But this was unsustainable.

Enter the 401(k)'s and the IRA's -- the defined contribution plans. This was a new type of Ponzi scheme. More of the risk was now tied to the account holders, themselves. The corporations wanted to dump their workers into these defined contribution plans, so that the corporation will be off the hook when the Ponzi bubbles burst.

The vagaries of the U.S. Stock Exchange, the insurance cartels, the housing market, the banks, and the pension funds are all tied together. For example, when the real estate market was booming, that too was a Ponzi scheme. Baby boomers were entering into the housing market during their prime years. But what followed them was Generation X and Generation Y. Thus, entering into the housing arena were declining numbers of younger replacements. Pop, the bubble burst. So with the pension plans tied to the stock market; the banks having engaged in credit default swaps; AIG having insured the toxic assets ... we have the great unraveling.

So we now have the Ryan Plan. The GOP wants to dump those toxic assets, the baby boomers, who will be going on Medicare. Otherwise, the United States may face bankruptcy. (Despite the rhetoric, I don't believe most Democrats want bankruptcy, either.)

The problem with the Ryan Plan is that Medicare would remain fully funded for the next ten years, thus prolonging the Ponzi scheme. This would continue the inflationary bubble for health-care. (I doubt that private insurance could last that long.) Then the well will be dry for the younger boomers, born 1957 and later. Theoretically, they will go on government-subsidized private insurance (via premium support payments).

It's not going to work. This will be another Fannie Mae and Freddie Mac fiasco. The insurance industry, expected to pay for the very expensive health-care of the aging boomers will suffer financially. The individual mandate of ObamaCare and the subsidies for insurance via RyanCare are only gimmicks.

The way to bring health-care costs under control:

1) Promote more competition amongst the providers via deregulation (like had been done with the airlines).

2) Promote more "skin in the game" for the health-care consumers by making them less dependent on comprehensive insurance and less dependent on government handouts.

3) Promote more emphasis on private charities and religious organizations to play a bigger role. (For example, the Mormon Church is extremely wealthy. If they engage in charity care for its members, they'd also attract newcomers to join their faith. And then there's Bill Gates and Warren Buffet. Other foundations are sure to help, too.)

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America has a choice. We can remain blind to the Ponzi schemes, or we can return to grassroots capitalism.