Elon’s Latest Warning About Social Security

In my lifetime, I’ve never seen an administration in the White House that knew how to snag our attention the way this one does.

Bullion.Directory precious metals analysis 07 March, 2024
By Peter Reagan
Financial Market Strategist at Birch Gold Group

But Donald Trump and Elon Musk? They’ve taken it to a whole new level. Trump with his social media posts and press conferences, Musk with his own social media posts and public appearances.

Once again, Musk made an announcement that set the media world on fire…

“Social Security is the biggest Ponzi scheme of all time”

Now, to frame what he said, remember that Musk is working to make the federal government work more efficiently, to stop wasting taxpayers’ dollars, and to ensure government spending is as efficient as possible.

We all want the government to actually use our tax money wisely, right?

My point isn’t to get political here, though. I just want to give context for what Musk recently said on the subject. Davis Winkie with USA Today writes:

Elon Musk sharply criticized Social Security in a Friday podcast interview with Joe Rogan, labeling the critical elder benefits program a “Ponzi scheme.”

Note: Pretty much everyone knows that a Ponzi scheme is a bad thing (thanks, Bernie Madoff). The way a Ponzi scheme works is to collect money from investors and promise them a return on investment – but to actually pay them using funds collected from new investors. Because there is no return, there is no investment – just shuffling money around (while some of it sticks to the scammer’s fingers).

When I heard the news, I’ll admit, my first thought was He can’t say that! Even though everybody KNOWS it, you don’t say it out loud! ESPECIALLY when you’re working for the government!

Not the single federal program that’s almost universally popular!

Some 87 percent of Americans agree that Social Security should remain a priority for the nation no matter the state of budget deficits. This support is strong across the board regardless of gender, age, employer, income, or party affiliation.

In actual practice, the Social Security taxes working folks like me pay are immediately spent paying benefits to retirees, their survivors and dependents, the disabled and the rest of the 68 million people who receive monthly checks.

In other words, what Musk said is absolutely true.

The structure and operations of the Social Security program sure make it look like the biggest Ponzi scheme in history!

On the one hand, we’ve known this for years – Milton Friedman himself was saying the same thing way back in 1999:

Taxes paid by today’s workers are used to pay today’s retirees. If money is left over, it finances other government spending – though, to maintain the insurance fiction, paper entries are created in a “trust fund”… When the benefits that are due exceed the proceeds from payroll taxes, as they will in the not very distant future, the difference will have to be financed by raising taxes, borrowing, creating money, or reducing other government spending. And that is true no matter how large the “trust fund.” The assurance that workers will receive benefits when they retire does not depend on the particular tax used to finance the benefits or on any “trust fund.” It depends solely on the expectation that future Congresses will honor promises made by earlier Congresses – what supporters call “a compact between the generations” and opponents call a Ponzi scheme.

It’s a Ponzi scheme that American workers (both citizens and non-citizens) are forced to participate in.

And it’s the same program that millions of Americans will be utterly dependent on for their retirement income.

And if that wasn’t enough, Musk described the federal government itself as “one big pyramid scheme.”

(Way to not stir the pot, Elon…)

The thing about Ponzi schemes is that they always run out of money. Always.

That’s how Charles Ponzi (who the concept is named after), Ivar Kreuger, Lou Pearlman (who put together boy bands Backstreet Boys and N’SYNC), and of course the notorious Bernie Madoff were all caught. They ran out of money to pay out to their “investors,” who started raising a ruckus – you know how this ends.

But wait just a moment – why is Elon even talking about Social Security? 

Didn’t Trump specifically say the Department of Government Efficiency wasn’t going take their chainsaw to Social Security?

Social Security may be safe, but it isn’t secure 

Elon’s mandate is to eliminate waste, fraud and abuse – essentially, to purge the federal bureaucracy of corruption and inefficiency. And Elon himself said he wouldn’t touch Social Security payouts.

(Let’s be honest, it would be political suicide for anyone to try – there’s a reason Social Security is called “the third rail” of American politics.)

So, even though Musk is absolutely correct in his claim, it’s doubtful he can do anything to change it.

That means the problem Musk pointed out hasn’t gone away.

According to the managers of the Social Security Trust, their reserves will run out in 2035.

They’ve been using those reserves to make up for the shortfall in revenue collection – for every dollar that comes in, more than a dollar goes out… For now.

Unless something changes, in 2035, benefits will drop by 17%.

Ask anyone who’s currently relying on a fixed income from Social Security to imagine how much harder it will become to make ends meet if they received even less. 

It’s going to be a whole lot harder in 2035. And that would be the case even if there wasn’t more inflation between now and then (let’s not pretend that prices won’t rise over the next 10 years).

So how do we fix it? There are really only three ways:

• Cut benefits to current and future beneficiaries
• Raise payroll taxes on working Americans
• Raise the retirement age even further
• …or some combination of all of the above!

The problem with those solutions is pretty obvious…

• Cutting benefits would have all retirees (and future retirees) up in arms – and virtually guarantees a loss in the next election
• Raising taxes, specifically the Social Security payroll tax, is exactly opposite of the President’s tax-cutting policies (not to mention nobody likes higher taxes)
• Raising the retirement age means everyone not already retired is now looking at postponing their golden years even further

It’s a real challenge. I mean, there’s a reason that this obvious problem wasn’t solved back in 1999, when Friedman was talking about it.

Where does that leave us?

Depending on Social Security may be a mistake

Look, it’s a reality that no one wants to face, but the Social Security train was already headed downhill before anyone reading this was born.

(Unless you’re 90, in which case, good for you! I’m happy to have you here!)

Ponzi schemes can only last as long as there’s enough new money coming in to pay out all the previous “investors.” We’ve known for a long time that Social Security’s stability requires a ratio of at least 3 workers per beneficiary in order to stay solvent.

Well, the ratio declined from 8 workers per recipient in 1955 to 3 in 1975… And today, the ratio is less than 3. 

Not enough workers paying not enough taxes to fund all the beneficiaries. It’s simple math.

Personally, I do not believe today’s workers should depend on any future Social Security benefits. I think it’s much wiser to set aside enough for retirement that you can fund it yourself – completely out of your own savings. (That way, if Social Security is still around, you get a nice little retirement bonus.)

I think that’s much more prudent than hoping and praying that Congress will somehow solve this mathematical problem – and then counting on a Social Security check in retirement. I have no intention of risking my future financial stability on a promise that might be broken.

If you want to ensure you’re able to retire in comfort, I firmly believe you absolutely must start with a firm foundation of inflation-resistant stores of wealth. Physical precious metals are not only inflation-resistant investments, they’re also just about the only financial assets that offer a safe haven during times of economic crisis.

A Gold IRA offers you all the benefits of diversification, plus inflation resistance and safe haven status.

Can you think of a single good reason not to diversify your savings with physical precious metals?

This article was originally published here

 Previous Post

US Gold Inflows Drive Global ETF Holdings Higher 3 Straight Months

Next Post  

Kazakh Central Bank Selling Dollars to Facilitate Gold Purchases