I hare to say it, but most pensions are headed this way due to mismanagement, and lack of revisitation of rates vs payouts over time. Most companies have already eliminated theirs in good faith, or desparation.
> One study found that more than three-fourths of all American teachers hired at age 25 will end up paying more into pension plans than they ever get back.
You're welcome kids - we've been stealing your money for the last few decades by ignoring basic economic facts. As a result of our greed, instead of getting more out of your retirement savings than you put in (you know, from things like compound interest and investments), you're paying for the previous generation's unsustainable pensions. And of course since we've backed ourselves in to this corner, we can't let you opt out of the pension plan so you can behave responsibly on your own..
The trick is to distinguish those situations from the ones where it's a political goal to destroy the pension plan because somebody considers union and pensions to be intrinsically wrong.
This is what worries me about most such pension systems[1] -- because they don't operate on an actuarially sound basis, but depend on there always being enough payers, they are prone to "evaporative cooling"[2], which can strike suddenly and without warning.
That is, as you keep goring a larger chunk out of newcomers, you make their alternatives more attractive e.g. occupations other than teaching, or teaching in other country. This looks disproportionately appealing to the biggest potential contributors. So each person that leaves means a bigger chunk you have to take out of other newcomers, and the process accelerates. So then you may have little warning before you reach the point where enough have left to make it bankrupt.
Unfortunately, it's an uphill battle just to convince people that pensions should required to be funded at all, i.e. they set aside the discounted present value of every future dollar promised, rather than "oh don't worry, we'll totes have enough rev by then!".
[1] i.e. pay-as-you-go or underfunded
[2] To explain the metaphor, "Evaporative cooling" refers to how the exits from the system are lopsided and change its average properties. For liquids, the particles that evaporate away have the highest energy per particle, leaving the average particle energy -- and thus temperature -- lower.
Over here we have compulsory Superannuation Funds where 9-10% of your salary is deposited into your superannuation fund of your choice. Although you cannot access the superannuation fund until you turn 80, and this figure keeps getting pushed back. The business tax rate is 30%, and also employee tax rate for me is 25-27% of my income goes into income tax.
We get shoved down our throat's that we shouldn't be a burden on the tax payer, and will have to provide for our own retirement using our own superannuation funds. Well at the same time being faced with the following situation.
27% of the wages go into tax.
9% of the wages go into superannuation fund for retirement.
2% is the medicare levy that you have to pay per year.
5% or $70 per week for Private Health insurance or you get health insurance loading after 30 years old that accumulates 2% per year.
Then we're faced with a situation where housing is 8-9 times medium income in this country.
So in summary, you're faced with indirect costs to about 43% of your gross income. So take my situation for example 85000+(85000*0.09) gross income the take home at the end of the year is 52,810.5.
Considering a house is now 8-9 medium income, this comes to $680,000 for a average 3 bedroom house. Using a full time income to pay that mortgage @ 4.5% PA ($96 going to fees and associated council rates) weekly repayment of $919 this will take ~ 23 years to pay the mortgage off with the total cost of the loan being $1,086,386, and total interest payable. $406,386.
So fast forward, forward 23 years I'm 58 with $175,950 in the super fund. Assuming a 3% growth of the value of the house, it would be now worth $1,382,299.
The only realistic option for the remainder is to save for the next 20 years until I can access the superannuation (if its around)
$344,250 in super payments
$1,284,081 in savings,
$2,496,588 house value at the time of retirement and medium wage would be ($277,398)
So what does this say about the Australian economy? Well everyone is banking their house will pay for their retirement that they would draw down on in later years. If by any chance house prices go through a major correction here the whole system will be thrown into a massive shit storm.
That will probably be pushed back when the baby boomers start retiring and the super funds come under pressure with more people withdrawing than members contributing.
This is kind of a pet hate I have. Super funds only make sense when you have more people paying into them than withdrawing. Super funds being a business still need to make a profit to pay investors, wages, brokers, and building associated costs and lawyers. That is kind of the reason why I have my own self managed super fund under my wife and my name that that we purchase government bonds.
It's not perfect by any measure, but its a small price to pay to know that we don't need to pulled over the coals when the whole thing falls in on itself.
>Super funds only make sense when you have more people paying into them than withdrawing.
It feels a bit like you might be confusing the difference between a pension fund and a super fund. A super fund only pays out to you what you put in (plus hopefully profits from having your money invested). Provided the fees they charge cover the fund's running costs it doesn't matter if there are more people withdrawing than paying in. You only get your own money back, they aren't a ponzi scheme where old investors are paid out with money from new investors.
>Super funds being a business still need to make a profit to pay investors, wages, brokers, and building associated costs and lawyers
You might want to research some low cost funds. There are lots but as a starting point https://www.ingdirect.com.au/rates-and-fees/superannuation-f... This sort of thing will likely cost you much less than whatever you accountant is charging you to oversee your self managed fund.
You also use to be able to access it all when your renounced your citizenship. But not anymore, which means I have paid all that out over 12 years and can't do anything with it until I'm 65. It won't grow for me, as I don't pay taxes or superannuation in Australia anymore.
When the company I was working for transitioned to the Czech Republic, they wanted to convert our pay over to the Czech koruna 1-1 conversion (laughter). At the time all the CEO/CIO where all getting paid in Euro's. They made it out so easy that we could easily get our super/retirement money from the Czech government when we retired. Granted nothing against the Czech people (love ya) but trying to keep track of a super fund in another country when you don't speak the native language (HA) would be more time than its worth.
Bumped into the CEO/CIO after I departed a couple of years and they offered the position again but agreed that they would never see their retirement fund from the Czech system.
It will depend on your specific fund but the funds already in there should be invested in some way. If they aren't doing a terrible job the money will grow even without you putting more in.
Wait until the May 2017 budget. The government may announce co-payment or tax incentive to keep the system going. For my situation I will jump and purchase a new house if I can deduct interest repayment from my taxable income. It would level the playing field where as a investor you can deduct interest repayments from their taxable income but as a owner occupier you cant.
I get a bit emotional about this because I went got a CS degree in 2000 and my colleagues quit high school at year 10, and purchase a house in 1998 for $80,000 and in 10 years time that same house was now worth $450,000. In that time they've leverage themselves with 2-3 investment properties. They pay less tax than I do and simply because they got in before the massive housing boom.
Turns out the May 2017 budget has been announced and the headlines are:
`The federal government has given the go-ahead for a scheme in which the private sector would be given access to cheap capital in return for building more community housing.`
So no alteration to stamp duty, negative gearing, or capital gains tax discount.
You don't know Australian psyche that housing double's in price every 7 years and the safest investment you can ever make and you will never lose money.
Idiotic, illogical, but that's the country I live in.
I'm living in a bubble too where people's memory of the mid 1990s when things went to shit, and the mid 1980s when things when to shit, and the 1970s when things went to shit are gone.
The US had a wake-up call in 2008 that a lot of countries missed. Canada snoozed right through that and went on trucking like we'll never have to deal with a downturn.
Tech securities and real-estate prices have been pretty bonkers lately. If those two things implode something else will bubble up instead.
It's like there's too much money in the world or something. This is like trying to get rid of a big bubble in a waterbed. Once you think you've jiggled it out of existence it just comes up somewhere else.
btw the prior comment was a bit of sarcasm. I sometimes wonder about the bubble prices and just conclude there is something else going on in the macro level that I'm un-aware off. A lot of the fundermental concepts such as supply and demand for housing has been de-coupled so you have low demand but still prices remain high in some parts of the country.
I do think that at a fundermental level it just shows a complete lack of governance of politicians why is it is this bubble so super focused on a critical part of our life style and that is housing. Why isn't it focused at other area's of the market place such as health, medical, entertainment?
We have growing families in single bedroom apartments unable to afford a house for their growing families, well at the same time retires who live in a empty house or investors who have a empty unit's sitting vacant all year round.
Pay as you go pensions are automatically adjusted for inflation and provide larger benefit the longer you live. While mathematically the seem like a poor deal, money has diminishing marginal utility, so knowing you will get X can be worth more than having a 90% chance of getting 10x.
My wife is a teacher in PR. She is paying her pension but knkws wont be able to use it. This is the cherry on top of an education system that has me paying for the costs of running her classroom and even the cost of her students' materials costs. I do it for the kids, so that they have a betyer chance in life. But damn how it hurts to see politicians and department officials walk around with millions in their pockets while I spend my heard earned money (that has been taxed) on things they should be making sure are provided. How thry expect schools to work without paper, pencils, toilet paper, light bulbs, or books is beyond me.
And now, well, they are looking for ways to cut costs and benefits to teachers. Fucking assholes.
>How thry expect schools to work without paper, pencils, toilet paper, light bulbs, or books is beyond me.
They don't. Somewhere along the line, they noticed that if they don't provide these things, teachers and parents would do it out of their own pockets because they care about the children.
They realized that they could consume the latent altruism of the moral stakeholders for their own enrichment.
Most teachers in my wife's school do not buy any materials and do without. They go all year with the initial batch of materials the department sends them (which is a small quantity).
I used to work in EdTech and the situation in many other states is similar. In fact, I know certain big companies who will not even give some districts the time of day because they know any time spent there is wasted. That's how the next generation is being educated.
In Sweden most of the national pension system [1] is a Ponzi scheme, in the sense that there are no invested funds: money flows straight from working people's taxes to retirees pensions.
So far it has worked fairly well, but I guess that's what they say about all Ponzi schemes. :P
If that's a Ponzi scheme, then every insurance policy is a Ponzi scheme. These programs are insurance against getting too old or sick to work; they are not a retirement fund.
> In Puerto Rico, for instance, the pension funds are so short of cash that money contributed by working teachers basically flows straight out to retirees. ... That is, essentially, a Ponzi scheme.
Is that different by anything but degree than the US federal Social Security system?
> Puerto Rico... ran off the rails by using debt to spend beyond its means. Year after year, the government could not balance the budget and borrowed instead
Is that different by anything but degree than the US federal government?
SS has a couple of trillion dollars saved. The US federal government controls the currency it uses to borrow, so its debt is qualitatively different from an entity like Puerto Rico.
Which would be equivalent to just seizing the private retirement accounts of the middle class, which is how I foresee the SS shortfall being address (in the form of extra taxes on withdrawl from retirement accounts).
All of SS savings are in special non-marketable bonds. When SS needs to sell those bonds the only potential customer is the federal govt. So ultimately if SS pays out more than it collects in a year the difference will come from the general federal budget.
That's my understanding, right?
The federal govt selling bonds to itself is a really strange form of savings.
Yep, you're entirely correct. But there's a reason those bonds are non-marketable; they're redeemable at face value at any time. They are the safest assets in the world, backed by the full faith and credit of the US government.
"By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.
In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash." [1]
> The federal govt selling bonds to itself is a really strange form of savings.
Not at all. If you need something extremely reliable for decades, you essentially self-insure. There are no markets or assets the federal government could invest the Social Security trust fund in without creating market distortions, so it lends the funds to itself (which has the side effect of hopefully growing the economy, reducing the financial burden in the future).
If the trust fund runs dry, the federal government will top it up with general revenues. This would not be the end of the world.
I think the Great Recession has proven this wrong. Globalization is too far progressed at this point to pretend that all the major world players aren't economically interconnected.
SS would be a ponzi scheme if they paid current retirees with money taken from current workers via "SS taxes".
But in reality it's not a ponzi scheme because they'll instead pay out current retirees with money taken from current workers via "Income taxes", and routed through strange bond-like structures.
What next, auto insurance is a ponzi scheme because only some people get money back? Life insurance a ponzi scheme because not everyone dies during their policy term?
You don't have to like the system, and you're free to opt out and move to a country with a government more to you're liking.
1. Moving, especially to a different country, takes a huge amount of money and effort. It's reasonable for someone to want to fix a problem with where they are rather than go through that.
2. It's not actually an argument at all. It does nothing to demonstrate any merits of the thing being discussed. It's really just a more polite way to say "shut up."
Consider, hypothetically, that every evening, an agent of the state would come into each person's house and punch them in the nose repeatedly. Would you object to this? Would you find "if you don't like it, you can move" to be a good argument in favor of this system?
> Consider, hypothetically, that every evening, an agent of the state would come into each person's house and punch them in the nose repeatedly. Would you object to this? Would you find "if you don't like it, you can move" to be a good argument in favor of this system?
Are you prepared to spend years, possibly decades, of your life to fix the problem? If not, yes, moving is a good argument.
Although, I don't find social safety nets to be something that you'd find against, regardless of the amount of time involved, but that's just me.
I may be incorrect, but it seems to me that the US currency will ultimately back that. If the government does not have the ability to pay, then it will have to print money to cover the difference, devaluing the currency. It's probably a reasonable position, but it seems to me to be vulnerable to poor timing. For example, if there is a debt crisis, you may have to raise interest rates at exactly the time when you don't want to. When I see very high prices for houses (in relation to salaries), an aging population, and a pension system that can demand money from the government at will... it makes me a bit nervous.
Currently, social security takes in $801.6B in revenue and pays out $750.5B a year, and social security has a $2.8 trillion trust fund. After 2022, outflows will exceed inflows, and social security will have to draw down on that trust fund, which will be exhausted by 2035.[1]
From the charts in the NYT article, Puerto Rico's fund is taking in <$400M a year and paying out >$600M, and their trust fund is less than $1B, and will be exhausted by 2020.
Social security is still running a surplus, and still has a massive trust fund. It definitely seems plausible to make changes that will make it solvent well into the future.
That trust fund is in form of IOUs from the general fund of the Federal government - where do you think the money to pay back those IOUs will come from?
Imagine 2 scenarios where social security needs $1B more than it has in revenue.
Situation A, Social security trust fund as exists today-The trust fund redeems a bond from the US treasury. To get the $1B, the Treasury either raises taxes or takes out $1B in its own debt.
Situation B, no trust fund- To get $1B, social security either raises taxes or takes out $1B in its own debt.
The point is that you can call the trust fund an asset (something you have), but you then also need to call the money the federal government owes a liability. But the federal government hasn't accounted for it in this way.
This is equivalent to John Doe writing a check for 2.8T to himself and saying he has a 2.8T asset (he does), but not mentioning he also has a 2.8T liability.
It may or may not have income to cover its obligations, but it's still a "ponzi scheme"[1] in the sense that I will not get out the money I put in. Rather, it counts on new "investors" to meet it's obligations to me. The big threat to such a scheme is fluctuations in the investment stream - for example, people not supplying enough money (as in a recession) or fluctuations in the pool size (as in baby booms). It's a very dangerous scheme and shouldn't be counted on for what is essentially investment.
To say that it has a "massive trust fund" is like me saying I am rich because I have a cookie jar full of IOUs that I wrote to myself on top of my fridge.
The thing about math is that you can't reason with it, hide it, debate it, or pass laws that make it untrue. Eventually, pension systems with poor structures collapse, and a lot of people get hurt.
I see you got downvotes, but any semblance of a distinction has been lost. Whatever legal standard federal agencies have used to shut down private versions of these has been totally muddied revealing the moral relativity of all institutions that slowly pay your money back to you.
So yes, today, in 2017, "Ponzi" is used as a pejorative, and comparing accepted good things to a pejorative will garner you downvotes, but there is no distinction.
If this general issue interests you, pensiontsunami.com is a great aggregation of stories about it.
Long story short: defined benefit pensions are the biggest financial catastrophe in history, with the worst cases exacerbated by self-dealing between government employees and elected officials.
I don't see anything in the article mentioning a huge factor in Puerto Rico's poverty, the Jones Act.
It requires all goods that Puerto Rico buys be transported on an American made ship(as in built in an American shipyard), staffed with an American crew, jacking up prices.
It causes a crazy situtation where Puerto Rican company will ship their goods to the mainland, and THEN ship them back to the island, so that Puerto Ricans can buy them.
Puerto Ricans don't have decent representation in the national government, so they have no hope of getting it repealed.
Shipping companies LOVE the Jones act, Puerto Ricans hate it
http://www.businessinsider.com/r-us-shippers-push-back-in-ba...
"The report found that the price of imports from U.S. states was at least double that in neighboring islands like the U.S. Virgin Island, which is not covered by the act."
If Puerto Rico acquired statehood, then the Jones Act (in this case, the "Merchant Marine Act of 1920") would still apply to them and still jack up prices.
That's the case in Hawaii.
(This comment thread is complicated a bit because the "Jones Act of Puerto Rico" -- the Jones–Shafroth Act -- is different from the Merchant Marine Act, also called the Jones Act.)
Wait? This is true in all cases? I thought the US government required you to pay income taxes after a certain income point even if you were in foreign countries.
Why would Puerto Rico, which is part of the US itself, be an exception?
Because foreign countries are not explicitly exempted, while PR is due to past agreements. Note that you have to live there for a good amount of the tax year to qualify, which is fairly typical.
This is why the estimates of total US government debt are in the ballpark of 50 trillion USD, instead of the official almost 20 trillion.
They're on the hook for all the unfunded liabilities like federal pensions, and are expected to take on bad state and municipality debt, much of which is also pensions.
Puerto Rico is the most recent example of this, and it is why - funny as it may be for other reasons - California will not secede.
Holding a USD makes you a creditor. A Dollar is 1.5 grams of gold, but it used to be a quantity of silver. So it's all a big ponzi. USD, EUR, JPY, BTC, et al. - sell them as quickly as you get em. There are ways now to hold insured gold that can be withdrawn at ATMs in a jiffy. Or be a sucker.
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[ 4.8 ms ] story [ 233 ms ] threadYou're welcome kids - we've been stealing your money for the last few decades by ignoring basic economic facts. As a result of our greed, instead of getting more out of your retirement savings than you put in (you know, from things like compound interest and investments), you're paying for the previous generation's unsustainable pensions. And of course since we've backed ourselves in to this corner, we can't let you opt out of the pension plan so you can behave responsibly on your own..
That is, as you keep goring a larger chunk out of newcomers, you make their alternatives more attractive e.g. occupations other than teaching, or teaching in other country. This looks disproportionately appealing to the biggest potential contributors. So each person that leaves means a bigger chunk you have to take out of other newcomers, and the process accelerates. So then you may have little warning before you reach the point where enough have left to make it bankrupt.
Unfortunately, it's an uphill battle just to convince people that pensions should required to be funded at all, i.e. they set aside the discounted present value of every future dollar promised, rather than "oh don't worry, we'll totes have enough rev by then!".
[1] i.e. pay-as-you-go or underfunded
[2] To explain the metaphor, "Evaporative cooling" refers to how the exits from the system are lopsided and change its average properties. For liquids, the particles that evaporate away have the highest energy per particle, leaving the average particle energy -- and thus temperature -- lower.
Over here we have compulsory Superannuation Funds where 9-10% of your salary is deposited into your superannuation fund of your choice. Although you cannot access the superannuation fund until you turn 80, and this figure keeps getting pushed back. The business tax rate is 30%, and also employee tax rate for me is 25-27% of my income goes into income tax.
We get shoved down our throat's that we shouldn't be a burden on the tax payer, and will have to provide for our own retirement using our own superannuation funds. Well at the same time being faced with the following situation.
27% of the wages go into tax. 9% of the wages go into superannuation fund for retirement. 2% is the medicare levy that you have to pay per year. 5% or $70 per week for Private Health insurance or you get health insurance loading after 30 years old that accumulates 2% per year.
Then we're faced with a situation where housing is 8-9 times medium income in this country.
So in summary, you're faced with indirect costs to about 43% of your gross income. So take my situation for example 85000+(85000*0.09) gross income the take home at the end of the year is 52,810.5.
Considering a house is now 8-9 medium income, this comes to $680,000 for a average 3 bedroom house. Using a full time income to pay that mortgage @ 4.5% PA ($96 going to fees and associated council rates) weekly repayment of $919 this will take ~ 23 years to pay the mortgage off with the total cost of the loan being $1,086,386, and total interest payable. $406,386.
So fast forward, forward 23 years I'm 58 with $175,950 in the super fund. Assuming a 3% growth of the value of the house, it would be now worth $1,382,299.
The only realistic option for the remainder is to save for the next 20 years until I can access the superannuation (if its around)
$344,250 in super payments $1,284,081 in savings, $2,496,588 house value at the time of retirement and medium wage would be ($277,398)
So what does this say about the Australian economy? Well everyone is banking their house will pay for their retirement that they would draw down on in later years. If by any chance house prices go through a major correction here the whole system will be thrown into a massive shit storm.
This is incorrect. You can access your super from 65 no matter what. You can also access it earlier under some specific circumstances.
https://www.ato.gov.au/individuals/super/accessing-your-supe...
This is kind of a pet hate I have. Super funds only make sense when you have more people paying into them than withdrawing. Super funds being a business still need to make a profit to pay investors, wages, brokers, and building associated costs and lawyers. That is kind of the reason why I have my own self managed super fund under my wife and my name that that we purchase government bonds.
It's not perfect by any measure, but its a small price to pay to know that we don't need to pulled over the coals when the whole thing falls in on itself.
It feels a bit like you might be confusing the difference between a pension fund and a super fund. A super fund only pays out to you what you put in (plus hopefully profits from having your money invested). Provided the fees they charge cover the fund's running costs it doesn't matter if there are more people withdrawing than paying in. You only get your own money back, they aren't a ponzi scheme where old investors are paid out with money from new investors.
>Super funds being a business still need to make a profit to pay investors, wages, brokers, and building associated costs and lawyers
You might want to research some low cost funds. There are lots but as a starting point https://www.ingdirect.com.au/rates-and-fees/superannuation-f... This sort of thing will likely cost you much less than whatever you accountant is charging you to oversee your self managed fund.
Bumped into the CEO/CIO after I departed a couple of years and they offered the position again but agreed that they would never see their retirement fund from the Czech system.
It will depend on your specific fund but the funds already in there should be invested in some way. If they aren't doing a terrible job the money will grow even without you putting more in.
The entire economy seems to be driven by housing in Australia.
Its a massive ponzi scheme with developers making the big bucks and the tax system geared to assist investors at the expense of first home buyers.
If housing crashes there will be a lot of very angry people in this country. Developers and governments need to wake up.
I get a bit emotional about this because I went got a CS degree in 2000 and my colleagues quit high school at year 10, and purchase a house in 1998 for $80,000 and in 10 years time that same house was now worth $450,000. In that time they've leverage themselves with 2-3 investment properties. They pay less tax than I do and simply because they got in before the massive housing boom.
Yes I'm pissed about the whole situation.
`The federal government has given the go-ahead for a scheme in which the private sector would be given access to cheap capital in return for building more community housing.`
So no alteration to stamp duty, negative gearing, or capital gains tax discount.
Oh well....
Idiotic, illogical, but that's the country I live in.
The US had a wake-up call in 2008 that a lot of countries missed. Canada snoozed right through that and went on trucking like we'll never have to deal with a downturn.
That's why creaky, practically condemned houses are selling for over $1M: http://www.theglobeandmail.com/real-estate/toronto/a-million... It's "detached" so it's obviously worth a million bucks since that's the average price of these things now.
What if that house goes for $2M? $5M? $20M? The bubble must give out at some point. Those prices will not keep going up forever.
https://mhanson.com/2-1-hanson-house-prices-main-street-bubb...
It's like the world collectively said `Yeah this is bad, lets do exactly the same thing but BIGGER!`
It's like there's too much money in the world or something. This is like trying to get rid of a big bubble in a waterbed. Once you think you've jiggled it out of existence it just comes up somewhere else.
I do think that at a fundermental level it just shows a complete lack of governance of politicians why is it is this bubble so super focused on a critical part of our life style and that is housing. Why isn't it focused at other area's of the market place such as health, medical, entertainment?
We have growing families in single bedroom apartments unable to afford a house for their growing families, well at the same time retires who live in a empty house or investors who have a empty unit's sitting vacant all year round.
And now, well, they are looking for ways to cut costs and benefits to teachers. Fucking assholes.
They don't. Somewhere along the line, they noticed that if they don't provide these things, teachers and parents would do it out of their own pockets because they care about the children.
They realized that they could consume the latent altruism of the moral stakeholders for their own enrichment.
Most teachers in my wife's school do not buy any materials and do without. They go all year with the initial batch of materials the department sends them (which is a small quantity).
I used to work in EdTech and the situation in many other states is similar. In fact, I know certain big companies who will not even give some districts the time of day because they know any time spent there is wasted. That's how the next generation is being educated.
So far it has worked fairly well, but I guess that's what they say about all Ponzi schemes. :P
1. All except the so-called "Premiepension". See e.g. https://www.pensionsmyndigheten.se/forsta-din-pension/om-pen....
> In Puerto Rico, for instance, the pension funds are so short of cash that money contributed by working teachers basically flows straight out to retirees. ... That is, essentially, a Ponzi scheme.
Is that different by anything but degree than the US federal Social Security system?
> Puerto Rico... ran off the rails by using debt to spend beyond its means. Year after year, the government could not balance the budget and borrowed instead
Is that different by anything but degree than the US federal government?
That's my understanding, right?
The federal govt selling bonds to itself is a really strange form of savings.
"By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.
In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash." [1]
> The federal govt selling bonds to itself is a really strange form of savings.
Not at all. If you need something extremely reliable for decades, you essentially self-insure. There are no markets or assets the federal government could invest the Social Security trust fund in without creating market distortions, so it lends the funds to itself (which has the side effect of hopefully growing the economy, reducing the financial burden in the future).
If the trust fund runs dry, the federal government will top it up with general revenues. This would not be the end of the world.
[1] https://www.ssa.gov/oact/progdata/fundFAQ.html
EDIT: @ Retric (HN throttling has kicked in on my account, can't reply directly to your reply)
Too risky for a retirement trust fund that guarantees payments at nation-state scale.
SS would be a ponzi scheme if they paid current retirees with money taken from current workers via "SS taxes".
But in reality it's not a ponzi scheme because they'll instead pay out current retirees with money taken from current workers via "Income taxes", and routed through strange bond-like structures.
Is that about right?
You don't have to like the system, and you're free to opt out and move to a country with a government more to you're liking.
why?
1. Moving, especially to a different country, takes a huge amount of money and effort. It's reasonable for someone to want to fix a problem with where they are rather than go through that.
2. It's not actually an argument at all. It does nothing to demonstrate any merits of the thing being discussed. It's really just a more polite way to say "shut up."
Consider, hypothetically, that every evening, an agent of the state would come into each person's house and punch them in the nose repeatedly. Would you object to this? Would you find "if you don't like it, you can move" to be a good argument in favor of this system?
Are you prepared to spend years, possibly decades, of your life to fix the problem? If not, yes, moving is a good argument.
Although, I don't find social safety nets to be something that you'd find against, regardless of the amount of time involved, but that's just me.
Don't like the risk of being murdered by cops for being black? Move! Don't like laws against homosexuality? Move!
From the charts in the NYT article, Puerto Rico's fund is taking in <$400M a year and paying out >$600M, and their trust fund is less than $1B, and will be exhausted by 2020.
Social security is still running a surplus, and still has a massive trust fund. It definitely seems plausible to make changes that will make it solvent well into the future.
https://www.ssa.gov/OACT/TRSUM/index.html
That trust fund is in form of IOUs from the general fund of the Federal government - where do you think the money to pay back those IOUs will come from?
Situation A, Social security trust fund as exists today-The trust fund redeems a bond from the US treasury. To get the $1B, the Treasury either raises taxes or takes out $1B in its own debt.
Situation B, no trust fund- To get $1B, social security either raises taxes or takes out $1B in its own debt.
The point is that you can call the trust fund an asset (something you have), but you then also need to call the money the federal government owes a liability. But the federal government hasn't accounted for it in this way.
This is equivalent to John Doe writing a check for 2.8T to himself and saying he has a 2.8T asset (he does), but not mentioning he also has a 2.8T liability.
https://www.forbes.com/sites/merrillmatthews/2011/07/13/what...
To say that it has a "massive trust fund" is like me saying I am rich because I have a cookie jar full of IOUs that I wrote to myself on top of my fridge.
1. https://en.wikipedia.org/wiki/Ponzi_scheme
So yes, today, in 2017, "Ponzi" is used as a pejorative, and comparing accepted good things to a pejorative will garner you downvotes, but there is no distinction.
Long story short: defined benefit pensions are the biggest financial catastrophe in history, with the worst cases exacerbated by self-dealing between government employees and elected officials.
It requires all goods that Puerto Rico buys be transported on an American made ship(as in built in an American shipyard), staffed with an American crew, jacking up prices.
It causes a crazy situtation where Puerto Rican company will ship their goods to the mainland, and THEN ship them back to the island, so that Puerto Ricans can buy them.
Puerto Ricans don't have decent representation in the national government, so they have no hope of getting it repealed.
Shipping companies LOVE the Jones act, Puerto Ricans hate it http://www.businessinsider.com/r-us-shippers-push-back-in-ba... "The report found that the price of imports from U.S. states was at least double that in neighboring islands like the U.S. Virgin Island, which is not covered by the act."
http://www.fundacionlibertadpr.org/single-post/2016/09/14/Th...
Richard Wolff interviews Professor Ian Seda of John Jay College on the legacy of colonialism and the Jones Act in Puerto Rico: http://www.democracyatwork.info/eu_puerto_rico_s_crisis_is_s...
https://en.wikipedia.org/wiki/Puerto_Rican_status_referendum...
Puerto Rico actually has a pretty good deal - no federal income taxes. I'd happily give up my right to vote for the same benefit.
That's the case in Hawaii.
(This comment thread is complicated a bit because the "Jones Act of Puerto Rico" -- the Jones–Shafroth Act -- is different from the Merchant Marine Act, also called the Jones Act.)
Why would Puerto Rico, which is part of the US itself, be an exception?
They're on the hook for all the unfunded liabilities like federal pensions, and are expected to take on bad state and municipality debt, much of which is also pensions.
Puerto Rico is the most recent example of this, and it is why - funny as it may be for other reasons - California will not secede.
https://news.ycombinator.com/newsguidelines.html
https://news.ycombinator.com/newswelcome.html
We detached this subthread from https://news.ycombinator.com/item?id=13826770 and marked it off-topic.