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Pension Lies Lead to Riots

Politics / Pensions & Retirement Feb 26, 2011 - 04:26 PM GMT

By: Barry_M_Ferguson


Best Financial Markets Analysis ArticleIn truth, almost all pensions are a lie.

The pension that comes to mind for most of us in the US is Social Security. A tax is deducted from our paychecks to fund the pension. By law, when the program takes in more than it pays out (as it did from 1982 thru 2009), it has to loan the excess to the federal government. The federal government is obligated to pay this amount back with interest when the program faces a shortfall. In 2010, it faced a shortfall. It is expected to face a shortfall in 2011. In addition to all its other debt, the federal Government now owes the Social Security Trust Fund (the account to which surpluses are loaned) some $2.5 trillion dollars. Surpluses are projected to return for the next few years but then from 2015 on, the program is expected to face deficits.

Social Security payouts will then depend upon government injections but by 2037, the Social Security Trust Fund will be zeroed out. I think we all know where a government already deeply in debt will come up with the money. They will either borrow it, print it, or tax it. We can all debate a fix, but the program is a Ponzi scheme and it is built on lies. In true Ponzi fashion, there are 3 people working to support 1 beneficiary. Forty years ago that ratio was three times as wide  and in looking forward, the ration will tighten even further.

Lie #1: Signed into law in 1935, citizens were promised that the most they would ever have to contribute would be three cents on the dollar.

Lie # 2: In 1940, the social security tax rate was 2% on income capped at $3,000. Now it’s 12.6% and an income cap of $106,800.

Lie #3: Had the tax rate not been increased over the years, full benefits would have not survived beyond 1980.

Lie #4: Case studies of Social Security benefits concludes, ‘Benefits that were granted at one time, can be withdrawn’. In other words, you may have paid your taxes but you have no claim to payments based on those taxes.

Lie #5: By the end of 2010, the federal government owed the Social Security Trust Fund $2.6 trillion dollars. With debt, liabilities, and unfunded obligations totaling more than $56 trillion, it would seem unlikely that the government can ‘repay’ anything.

Lie #6: Social Security recipients have not been given cost of living increases in the past few years and won’t receive any going forward. The act requires adjustments for inflation as measured by CPI. That’s why our government claims there is no inflation.

Lie #7: In 2001, the Social Securities Trustees Report projected that in 2009 that the program would have $1.41 for every dollar it spent. The actual number was $1.18. Take all ‘projections’ with a mountain of salt. They are ‘government’ numbers.

*All of the above derived from:

Other Pensions

Governments, corporations, and unions also offer pensions. They are ultimately lies in two different ways.

First, pensioners receive an official looking statement with a figure on it and it represents a balance supposedly belonging to the person whose name appears at the top of the page. It is, in reality, a sheet of paper spit out of a computer with some pretty numbers on it. What many countries, states, and municipalities are grappling with today is the vexing problem of finding the money to match all those pretty numbers. When the money does not support the payouts, the countries, states, and cities borrow the shortfall. They all lie to themselves that they can eventually make up the shortfall. They lie to themselves that they can invest the money on Wall Street or with hedge funds or with Bernie Madoff and score excessive returns. Most of the people responsible for the investing have no investment training and very little understanding of the stock market. While this rarely pans out, they continue to borrow until the expense of borrowing turns the shortfall into an abyss. Then, the promise of the pension is broken. The only hope of fulfilling the pension promise is a bountiful stock market. The stock market no longer behaves as a ‘market’ when the powers of the ruling elite work to push the markets higher only to quite the working oafs. The market then becomes a lie. How did the pension idea become a lie?

Joshua Rauh (Northwestern University) and Robert Novy-Marx (University of Rochester) were quoted in an article published by The Economist ( citing state and municipal pensions as being some $4 trillion dollars unfunded. That figure assumes, as pensions assume, that the money currently invested can enjoy an 8% return over time. We all know how difficult the stock market has been over the past decade so 8% seems a bit ridiculous at the moment. Using US Treasury yields, the shortfall grows to over $5 trillion dollars. Throw in a year or two of negative returns and the shortfall becomes an absolute lie. At some point, some elected official has to stand up and tell the pensioners that the money is simply not there. That’s when the riots start.

The second part of the pension lie is the inference that time and money are static. Since the Federal Reserve’s rise to power in 1913 (under the watch of the most treasonous person ever to walk American soil, Woodrow Wilson), they have worked to destroy the currency. The US dollar has lost some 95% of its purchasing power during the Fed’s control. In other words, a pensioner in 1913 with a $100,000 dollar pension could buy $100,000 dollars worth of stuff but could now only buy $5,000 dollars worth of stuff. This is the lie of inflation spread by the forked tongue of the Federal Reserve. Time is not static and neither is money. A pensioner might be satisfied at the point of retirement in their ability to live within their pension but as time passes, their standards of living as dictated by their pension will diminish as money is withdrawn and inflation erodes purchasing power. Pensioners never really have as much money as they think they have especially considering future purchasing power. As an example, the unions representing state-paid workers in Wisconsin and Ohio and everywhere else are protesting either cuts to their pensions or proposed increased individual funding options. Their pensions will be less generous going forward either way. Their promised pension benefit is a lie. It cannot be funded. It cannot be sustained. It cannot be funded by the non-government populous.

When pension promises are broken, people tend to riot. The current unrest seen throughout the world started in Greece and the citizens only began to riot when their pensions were imperiled. True, Greece as a country had taken on too much debt and the credit default swaps tied to their debt began to imperil banker profits. That ultimately forced the Greek government to impose ‘austerity’ upon its people including a reduction in pension benefits. Of course, the government grew its debt load in part by trying to support pensions that were in the end, a lie.The same thing is happening in the US as governments, local and federal, desperately try to borrow enough money to pay for pensions that have been promised. Nearly every state in the US is broke and at the heart of their fiscal indebtedness is the pension.

Why are pensions a lie? Why do they all seem to ‘run out of money’? The problem is they are all funded with current dollars that are intended for future use. If the dollar loses purchasing power year after year, the process of funding pensions with current dollars is an exercise in futility and disappointment. To demonstrate the lie, let’s say a worker needed to save $100,000 over 30 years for retirement. A simple computation would tell us that the worker would need to save $3,333 per year to meet this goal. However, to maintain the same purchasing power (the same standard of living), we should assume that the next 30 years will look like the previous 30 years in terms of inflation. If that is the case going forward, the worker would really need $296,000 at retirement (to equal the current $100,000) and that would require a savings rate of $9,866 per year or 3 times the estimation in current dollars. (Inflation estimates can be derived from Stated another way and given the corrosive force of inflation, the worker’s $100,000 in retirement will be consumed 3 times faster than anticipated. The only chance a pension has to survive and be true is to be fully invested in something that  appreciates faster than than the rate of inflation. Be it stocks or be it real estate, the accumulating funds have to grow. Even then, a few disastrous bear markets can be ruinous to the expectations. Again, this is an example with true funding.

In the case of government sponsored pensions, the funding never meets the payout promise because the populous would be unwilling to pay the necessary tax. For instance, can anyone imagine a social security tax rate of 25%? Besides, either a high tax rate or a high savings rate would not be in the best interests of the banking elite who run the government. The only reason the US spends its brains out is the citizenry have such a perceived safety net of retirement. If there was no social security or welfare of any kind, people would likely save more for retirement. Spending and borrowing would be far less than current levels and banker profits would be less garish.

So who is behind the inflation thief? The people that control our currency - the Federal Reserve. They are - the ‘Big Lie’. By producing inflation, the Fed guarantees that society cannot live tomorrow on what it produces today. Either tomorrow’s living standards will fall or governments will have to borrow more money to sustain their promises. Inflation steals from the poor and gives to the rich. When the pensioners lose, who gains? Well, the CEO of JP Morgan just got his $20 million in annual compensation. The banking cartel only looks after its own. Don’t get me wrong. I’m not hating on rich folks. Wealth shouldn’t be acquired through confiscation from others and it shouldn’t be determined by the Federal Reserve. When the lie is exposed, rioting is a natural response. Get your rocks ready! Even Americans are awakening to the lie.

Barry M. Ferguson, RFC
President, BMF Investments, Inc.
Primary Tel: 704.563.2960
Other Tel: 866.264.4980
Industry: Investment Advisory

Barry M. Ferguson, RFC is President and founder of BMF Investments, Inc. - a fee-based Investment Advisor in Charlotte, NC. He manages several different portfolios that are designed to be market driven and actively managed. Barry shares his unique perspective through his irreverent and very popular newsletter, Barry’s Bulls, authored the book, Navigating the Mind Fields of Investing Money, lectures on investing, and contributes investment articles to various professional publications. He is a member of the International Association of Registered Financial Consultants, the International Speakers Network, and was presented with the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services in 2009.

© 2011 Copyright BMF Investments, Inc. - All Rights Reserved
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


27 Feb 11, 03:13
Middle Class Sacrifice

As a member of the custodial generation, I check the I'm entitled box. However, the left side of my brain keeps asking who's obligated. That informs me there's more than one party with a stake in the outcome of this conversation. A dialogue between those who get, and those who pay is in order, and we’ll get nowhere if we begin with I’m en-titled or a put forward a false political equation of 2 + 2 equals 5.

Post 1983, something has gone terribly wrong with Social Security. It has everything to do with you and I being enrolled in a retirement savings plan that turned 2.54 trillion dollars of SS retirement dollar assets into a 2.54 trillion dollar debt. That's the magic of one SS trust fund accounting procedure, and that’s a 5 trillion dollar net loss, and that’s where this conversation must begin. Don't talk to me about raising the retirement age, or lowering benefits. Middle class Americans have already sacrificed once, now it's time for those who benefited from our sacrifices to "man up by living up" to their end of the 1983 bargain. Examine our pathology report and you’ll agree, SS has become a cancer: My generation has an obligation to hand off the generational chain of trust intact, and until we set a plan in motion to accomplish that, we’re not entitled to what we’re entitled to. The Treatment Plan: Tune in Monday and hear my comment on the “third rail” The Government Can - Daily Radio Show – 9am Eastern

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