Social Security is banrupt, so why the extra bump in the rate?

[jwoodie]

Social Security has started dipping into its trust fund to cover its obligations. *Furthermore, the percentage of the budget Social Security and Medicare take up is increasing every year.

So yes, they do contribute to the debt.

http://www.nytimes.com/2013/01/06/opinion/sunday/social-security-its-worse-than-you-think.html?_r=0

Federal Spending by the Numbers - 2012

I was trying to give you the benefit of the doubt, that maybe your confusing Supplimental Security Income (SSI) with Social Security Retirement Benefits (OASDI). *But you say clearly, "Social Security has started dipping into its trust fund".

As OASDI, Social Security Benefits is a completely self funded non discressionary program, it can't add to the debt and deficit.

Wrong. The Social Security surplus has been used to reduce the budget deficit calculation for many years. In the near future, it will start adding to the deficit.

 

[itfitzme]

Social Security has started dipping into its trust fund to cover its obligations. *Furthermore, the percentage of the budget Social Security and Medicare take up is increasing every year.

So yes, they do contribute to the debt.

http://www.nytimes.com/2013/01/06/opinion/sunday/social-security-its-worse-than-you-think.html?_r=0

Federal Spending by the Numbers - 2012

I was trying to give you the benefit of the doubt, that maybe your confusing Supplimental Security Income (SSI) with Social Security Retirement Benefits (OASDI). *But you say clearly, "Social Security has started dipping into its trust fund".

As OASDI, Social Security Benefits is a completely self funded non discressionary program, it can't add to the debt and deficit.

Wrong. *The Social Security surplus has been used to reduce the budget deficit calculation for many years. *In the near future, it will start adding to the deficit.

So Taz says it adds to the deficit. *I say it doesn't with reason. *You say it subtracts with no reason.

Hmm... *I'm going to guess here...... You are making a distiction based on how you want to arrange the numbers and how you want to assign causality. That way you can create an arguement based on how you've defined it.

I'm going to go with BS.

 

[itfitzme]

Medicare and Social Security are exclusively funded with Payroll & FICA taxes and withdrawals from the U.S. Social Security Trust fund. The Social Security Trust Fund possesses about $2.5 trillion in Treasury notes. While Social Security & Medicare are solely funded by FICA/Payroll taxes, that revenue should be allocated directly to Social Security and Medicare. It's a misfortune that the U.S. government borrowed money from the Social Security Trust Fund in times past and our government established a responsibility to compensate the assets on hand back per request by the Social Security Administration/Medicare. Our American government created more debt by borrowing from the U.S. Social Security Trust fund and our Congress must enact legislation to increase the FICA/Payroll through taxation to recover the lost revenue in the Treasury notes.

So you feel that the Social Security Trust Fund should be invested in what? The stock market?

 

[OohPooPahDoo]

Nice outdated information, there.

What else do you have?

Well gee, we've got you just asserting that the opposite is true without providing any evidence whatsoever - should we go with that?

I don't know what you would like for me to tell or show you. All I can say is that your information is outdated. Not only is it outdated, but it is quite the anomaly as well as inaccurate.

Your source suggest that 'Mom-&-Pop' investors are buying majority of the the bonds, and not the Fed. This might have been true, but only for the year 2012. The housing sector averaged $370.5 Billion a quarter according to Flow of Funds Accounts in 2012. Before that, the sector averaged -$256.9B a quarter in securities purchases. Today, they average -133.9B just for the first quarter alone.

The Federal Reserve only accounted for $2.7 Billion of US Treasuries for the entire year of 2012. Much lower than the $370.5 Billion from the 'Mom-&-Pop' investors. This doesn't mean that Federal Reserve isn't purchasing all the securities. It just means they haven't purchased that many for that particular year. Regardless, the much of the demand for US Securities is very much from the Fed itself. Especially when you consider the $300 billion in US Securities in 2009 - 2010, the $600 billion from 2010 - 2011, and the $45 billion a month from the end of 2012 to the present. So far, the Fed already has $575.2 billion in security purchases for the first quarter of 2013 alone.

So yes, your source is outdated as well as misleading. If you aren't doing the proper research, you will be easily fooled.

Oh, OK, I get it. You're supposed to make unsupported claims without evidence to support them - and I'm supposed to do all the work to prove or disprove them. I don't seem to remember signing up to work for you, is the thing. Maybe you think YOU can provide the evidence to support your claim "Majority of that demand for public debt which isn't foreign originates from the Federal Reserve" ?

So far, the Fed already has $575.2 billion in security purchases for the first quarter of 2013 alone.

And we know that's a majority of the demand - how?

 

[OohPooPahDoo]

Crash occur when P/E ratios exceed long-term averages and the excessive use of margin debt and leverage.

LOL! P/E rations exceed long-term averages - on average - about half of the time. Can you also define what constitutes "excessive use of margin"? I'd love to be able to time the next market crash, you seem to be suggesting its as simple as knowing a few numbers. Kind naive if you ask me.

Also, I don't know how you think shares work, but shareholders do not necessarily make money when they sell shares. You make money from stock by owning them, not just by selling them. A company's earning potential can go to zero, but this is not done by players moving their money out of the market. Stocks have inherent value. Ponzi Schemes only have value if someone decides to participate. Unlike Ponzi Schemes, even if one decides to participate, and there is no one to sell to, those shares will still have an inherent value. Even if the stock does reach 1 cent, it doesn't make the company any less profitable.

The stock market is thus a Ponzi scheme by your definition. Your definition leaves out an important aspect of a Ponzi scheme, however - it is dishonest. We know how social security works and we know how the stock market works. Neither are Ponzi schemes.

The Stock Market isn't a Ponzi scheme, but Social Security is. You are merely trying to rationalise how they are both similar by simply using a broad characterisation.

As a means for retirement both are still equally Ponzi. Of course neither are actually Ponzi for the reason listed in the last paragraph. But by your definition they are both Ponzi schemes. If there are no new investors with actual money to buy stock in the future, then the stock I save for retirement does me little good! It doesn't matter what its intinsic worth is - a buyer is still required for my ownership of it to be of any use to me because I can't actually eat a share of stock or fix my house with it - it needs to be converted to money first and then I have to rely on the market to provide me those items in exchange for the money.


Ponzi schemes are by definition fraudulent. How social security works is encoded in law for all to see. Its actually even more open than the stock market. Its thus, not a Ponzi scheme. At least not by the definition that the non-wacko-blogger real world uses.

 

[MikeK]

Those of you that earn a check for a living, you may realize that your social security taxes took a hike this last pay period. how convinient Obama. fiscal cliff here we come.

You are one of many youngsters who only recently began earning a paycheck. Because at your age, when it is quite common to believe you never will grow old, it follows that you would prefer to not have the FICA contribution deducted from your check.

That common delusion typically prevails until one's late-40s / early-50s when the signs of aging first appear. From that point on the delusion gradually diminishes and anticipation of the monthly Social Security check becomes increasingly comforting.

The fact is Social Security will be bankrupt only if the Federal Government is bankrupt. That is the reality. And if that happens we'll have a lot more to be concerned with than Social Security.

So relax, young fellow. Old age will catch up with you soon enough. So prepare for it.

 

[OohPooPahDoo]

Those of you that earn a check for a living, you may realize that your social security taxes took a hike this last pay period. how convinient Obama. fiscal cliff here we come.

Obama is the one who signed the law to TEMPORARILY lower FICA taxes in the first place. Would have preferred he not done that?

 

[itfitzme]

Those of you that earn a check for a living, you may realize that your social security taxes took a hike this last pay period. how convinient Obama. fiscal cliff here we come.

Obama is the one who signed the law to TEMPORARILY lower FICA taxes in the first place. Would have preferred he not done that?

Yeah, it's based on what is taken as the baseline. *In this case, th FICA increase is compared to what it is suppose to be, not what it actually has been. That it initially was lowered temporarily doesn't count.

It's similar math with the deficit. *Deficit = Revenues - Outlays. *Outlays =*Discretionary*+ Non-Discretionary. *It doesn't matter that Revenues were not increased to account for an increase in Discretionary spending. *After all,*Discretionary*spending increased for a good reason, Revenues were suppose to be lower, so the problem is the Non-Discretionary*spending that isn't suppose to be there. *

I am thinking it is a cascade of rule based reasoning vs consequential reasoning.

I think that properly, both are wise. *You have to be conservative about the rules and recognize the consequenses. *That's how science works. *A new and progressive procedure isn't adopted without substantial review and testing. But we don't just throw out something like the Special Theory of Relativity because it goes against Newton's Law of Gravity.

And if taxes were previously decreased with the expectation that they would go back up, it's not a rule that all increases are a tax hike. The consequense of them being lowered in the first place was that a) the OASDI trust fund was going to take a temporary hit and b) FICA would go back up.

That or they were not paying attention in the first place. But that is an over used excuse.

 

[OohPooPahDoo]

Those of you that earn a check for a living, you may realize that your social security taxes took a hike this last pay period. how convinient Obama. fiscal cliff here we come.

Obama is the one who signed the law to TEMPORARILY lower FICA taxes in the first place. Would have preferred he not done that?

Yeah, it's based on what is taken as the baseline. *In this case, th FICA increase is compared to what it is suppose to be, not what it actually has been. That it initially was lowered temporarily doesn't count.

It's similar math with the deficit. *Deficit = Revenues - Outlays. *Outlays =*Discretionary*+ Non-Discretionary. *It doesn't matter that Revenues were not increased to account for an increase in Discretionary spending. *After all,*Discretionary*spending increased for a good reason, Revenues were suppose to be lower, so the problem is the Non-Discretionary*spending that isn't suppose to be there. *

I am thinking it is a cascade of rule based reasoning vs consequential reasoning.

I think that properly, both are wise. *You have to be conservative about the rules and recognize the consequenses. *That's how science works. *A new and progressive procedure isn't adopted without substantial review and testing. But we don't just throw out something like the Special Theory of Relativity because it goes against Newton's Law of Gravity.

And if taxes were previously decreased with the expectation that they would go back up, it's not a rule that all increases are a tax hike. The consequense of them being lowered in the first place was that a) the OASDI trust fund was going to take a temporary hit and b) FICA would go back up.

That or they were not paying attention in the first place. But that is an over used excuse.

The FICA tax for people making under 400k is now the same as what it was before the temporary decrease.

 

[itfitzme]

Obama is the one who signed the law to TEMPORARILY lower FICA taxes in the first place. Would have preferred he not done that?

Yeah, it's based on what is taken as the baseline

..

That or they were not paying attention in the first place. *But that is an over used excuse.

The FICA tax for people making under 400k is now the same as what it was before the temporary decrease.

Yep, it's like no change.

 

[jwoodie]

Those of you that earn a check for a living, you may realize that your social security taxes took a hike this last pay period. how convinient Obama. fiscal cliff here we come.

Obama is the one who signed the law to TEMPORARILY lower FICA taxes in the first place. Would have preferred he not done that?

Yeah, it's based on what is taken as the baseline. *In this case, th FICA increase is compared to what it is suppose to be, not what it actually has been. That it initially was lowered temporarily doesn't count.

It's similar math with the deficit. *Deficit = Revenues - Outlays. *Outlays =*Discretionary*+ Non-Discretionary. *It doesn't matter that Revenues were not increased to account for an increase in Discretionary spending. *After all,*Discretionary*spending increased for a good reason, Revenues were suppose to be lower, so the problem is the Non-Discretionary*spending that isn't suppose to be there. *

I am thinking it is a cascade of rule based reasoning vs consequential reasoning.

I loaned myself $100 today, so I must be $100 richer.

 

[OohPooPahDoo]

Obama is the one who signed the law to TEMPORARILY lower FICA taxes in the first place. Would have preferred he not done that?

Yeah, it's based on what is taken as the baseline. *In this case, th FICA increase is compared to what it is suppose to be, not what it actually has been. That it initially was lowered temporarily doesn't count.

It's similar math with the deficit. *Deficit = Revenues - Outlays. *Outlays =*Discretionary*+ Non-Discretionary. *It doesn't matter that Revenues were not increased to account for an increase in Discretionary spending. *After all,*Discretionary*spending increased for a good reason, Revenues were suppose to be lower, so the problem is the Non-Discretionary*spending that isn't suppose to be there. *

I am thinking it is a cascade of rule based reasoning vs consequential reasoning.

I loaned myself $100 today, so I must be $100 richer.

It is just an accounting trick. There's no secret to that. Retiree expenses have to be paid as they come due, there's little we can do to avoid that fact. But the trust fund prevents us from having to adjust the FICA tax every frickin year to account for the changes in need for social security payments. It will need to be adjusted eventually anyways, of course, but only every several decades.

 

[itfitzme]

Obama is the one who signed the law to TEMPORARILY lower FICA taxes in the first place. Would have preferred he not done that?

Yeah, it's based on what is taken as the baseline. *In this case, th FICA increase is compared to what it is suppose to be, not what it actually has been. That it initially was lowered temporarily doesn't count.

It's similar math with the deficit. *Deficit = Revenues - Outlays. *Outlays =*Discretionary*+ Non-Discretionary. *It doesn't matter that Revenues were not increased to account for an increase in Discretionary spending. *After all,*Discretionary*spending increased for a good reason, Revenues were suppose to be lower, so the problem is the Non-Discretionary*spending that isn't suppose to be there. *

I am thinking it is a cascade of rule based reasoning vs consequential reasoning.

I loaned myself $100 today, so I must be $100 richer. *

Only if you've failed to enter both the asset and liability on your balance sheet.

 

[itfitzme]

In your mind, probably. The stock market is generally misunderstood. I am not surprised at all why you would think this way.

*

No one said it didn't, but you are still confused.

Selling a stock is no different from selling any other good or service. In this case, you are selling a portion of a company. You have somehow confused yourself to believe it is a Ponzi Scheme because there is no profit to be made. Which you are still wrong, because the profit is determined by the sellers target and spot price. It's no different from a business selling a good or service. There are profits and losses. It's not the same as an intermediary taking money from client A and using those funds as returns for Client B.

Stop confusing yourself.

"Ponzi" Schemes



I don't remember talking about a share of stock in that passage you quoted me on. Good to know you were paying attention, and avoiding to create strawmen.



Good thing most of my clients followed my advice and invested into foreign/emerging markets. So these supposed '9-year-old' kids I give financial advice to will probably make enough to retire by the age of 17 or 20, while you hustle wondering when your next day off is.

All the best with that one.



You're confusing value and price. Nonetheless, are you aware that the value of the stock is determined by earnings?*



Not being aware and not caring are two different things. It's a Ponzi Scheme all the same, and it will eventually fail, as all Ponzi Schemes do.

A Ponzi scheme is in fact profitable to its investors so long as there is a steady stream of new investors willing to buy into the scheme. If there are no new investors willing to buy shares of company X from its current investors, the current investors of company X wind up losing money. That is a fact. It happened in 1929-33. Do you honestly think the fundamentals of the U.S. economy just changed complete course all of a sudden over a couple days in October 1929? Of course not. The fundamentals had already shifted. The market was just propped up by new investors stepping in willing to pay ever increasing amounts for stock. Then the market ran out of new investor money and crashed.

I see your problem. You are basing you understanding of how stock markets work on your understanding on the cause of the market crash of 1929. That's equally flawed and dubious reasoning, as this particular period in financial history was during a speculative bubble. Crash occur when P/E ratios exceed long-term averages and the excessive use of margin debt and leverage. This was helped with the increase in the flow of liquidity provided by the Federal Reserve. Increase in liquidity increases business cost, the price of stocks increase past their true valuation, until prices go into freefall and the bubble burst. This is exactly what happened during 1929, 2000 and 2007. *

Also, I don't know how you think shares work, but shareholders do not necessarily make money when they sell shares. You make money from stock by owning them, not just by selling them. A company's earning potential can go to zero, but this is not done by players moving their money out of the market. Stocks have inherent value. Ponzi Schemes only have value if someone decides to participate. Unlike Ponzi Schemes, even if one decides to participate, and there is no one to sell to, those shares will still have an inherent value. Even if the stock does reach 1 cent, it doesn't make the company any less profitable.

The stock market is thus a Ponzi scheme by your definition. Your definition leaves out an important aspect of a Ponzi scheme, however - it is dishonest. We know how social security works and we know how the stock market works. Neither are Ponzi schemes.

The Stock Market isn't a Ponzi scheme, but Social Security is. You are merely trying to rationalise how they are both similar by simply using a broad characterisation.

Niether of them are Ponzi schemes unless you are "merely trying to rationalise how they are both similar by simply using a broad characterisation." *Geez...That's the point.

 

[AmazonTania]

Well gee, we've got you just asserting that the opposite is true without providing any evidence whatsoever - should we go with that?

I don't know what you would like for me to tell or show you. All I can say is that your information is outdated. Not only is it outdated, but it is quite the anomaly as well as inaccurate.

Your source suggest that 'Mom-&-Pop' investors are buying majority of the the bonds, and not the Fed. This might have been true, but only for the year 2012. The housing sector averaged $370.5 Billion a quarter according to Flow of Funds Accounts in 2012. Before that, the sector averaged -$256.9B a quarter in securities purchases. Today, they average -133.9B just for the first quarter alone.

The Federal Reserve only accounted for $2.7 Billion of US Treasuries for the entire year of 2012. Much lower than the $370.5 Billion from the 'Mom-&-Pop' investors. This doesn't mean that Federal Reserve isn't purchasing all the securities. It just means they haven't purchased that many for that particular year. Regardless, the much of the demand for US Securities is very much from the Fed itself. Especially when you consider the $300 billion in US Securities in 2009 - 2010, the $600 billion from 2010 - 2011, and the $45 billion a month from the end of 2012 to the present. So far, the Fed already has $575.2 billion in security purchases for the first quarter of 2013 alone.

So yes, your source is outdated as well as misleading. If you aren't doing the proper research, you will be easily fooled.

Oh, OK, I get it. You're supposed to make unsupported claims without evidence to support them - and I'm supposed to do all the work to prove or disprove them. I don't seem to remember signing up to work for you, is the thing

I already told you were you can acquire this information: The Flow of Funds Account provided by the Federal Reserve. Thought you'd take the time to digest all of this information yourself. You're a pretty crafty Google user, no?

http://www.federalreserve.gov/releases/z1/Current/z1r-3.pdf Page 47

2011:

Household Sector: -$256.9 Billion
Foreign Investors: $412.1 Billion
Federal Reserve: $642.0 Billion

2012:

Household Sector: $370.5 Billion
Foreign Investors: $478.4 Billion
Federal Reserve: $2.7 Billion

As you can as, these 'Mom & Pop' investors only picked up majority of the bonds for 2012. Not the years prior or financial quarter after. The four years prior, majority of the debt was purchased by Foreigner Investors. 'Mom & Pop' investors made negative net purchases, which either means they've made redemption through selling their bonds or cashing them in.

Maybe you think YOU can provide the evidence to support your claim "Majority of that demand for public debt which isn't foreign originates from the Federal Reserve" ?

On an accumulative average, majority of ownership of the debt is held by foreigners while Domestic Investors holds the second largest. The Federal Reserve held 16% ownership within the past 10 years. But over the past few years, the Federal Reserve has been the majority domestic purchaser of US debt.

So far, the Fed already has $575.2 billion in security purchases for the first quarter of 2013 alone.

And we know that's a majority of the demand - how?

2013 Flow of Funds

Domestic Investors: $306.5 Billion

• Household Sector: -$133.9 Billion
• Businesses/Corporations: -$6.3 Billion
• Banks: -$83.9 Billion
• Insurance Companies: $5.1 Billion
• Private Pensions: $18.8 Billion
• Money Market Funds: $153.1 Billion
• Mutual Funds: $100.1 Billion
• Government-sponsored enterprises: $23 Billion
• Holding Companies: $6.4 Billion

Foreign Investors: $654.5 Billion

State and Local Governments: $44.8 Billion

Federal Reserve: $575.2 Billion

 

[AmazonTania]

A Ponzi scheme is in fact profitable to its investors so long as there is a steady stream of new investors willing to buy into the scheme. If there are no new investors willing to buy shares of company X from its current investors, the current investors of company X wind up losing money. That is a fact. It happened in 1929-33. Do you honestly think the fundamentals of the U.S. economy just changed complete course all of a sudden over a couple days in October 1929? Of course not. The fundamentals had already shifted. The market was just propped up by new investors stepping in willing to pay ever increasing amounts for stock. Then the market ran out of new investor money and crashed.

I see your problem. You are basing you understanding of how stock markets work on your understanding on the cause of the market crash of 1929. That's equally flawed and dubious reasoning, as this particular period in financial history was during a speculative bubble. Crash occur when P/E ratios exceed long-term averages and the excessive use of margin debt and leverage. This was helped with the increase in the flow of liquidity provided by the Federal Reserve. Increase in liquidity increases business cost, the price of stocks increase past their true valuation, until prices go into freefall and the bubble burst. This is exactly what happened during 1929, 2000 and 2007. *

Also, I don't know how you think shares work, but shareholders do not necessarily make money when they sell shares. You make money from stock by owning them, not just by selling them. A company's earning potential can go to zero, but this is not done by players moving their money out of the market. Stocks have inherent value. Ponzi Schemes only have value if someone decides to participate. Unlike Ponzi Schemes, even if one decides to participate, and there is no one to sell to, those shares will still have an inherent value. Even if the stock does reach 1 cent, it doesn't make the company any less profitable.

The stock market is thus a Ponzi scheme by your definition. Your definition leaves out an important aspect of a Ponzi scheme, however - it is dishonest. We know how social security works and we know how the stock market works. Neither are Ponzi schemes.

The Stock Market isn't a Ponzi scheme, but Social Security is. You are merely trying to rationalise how they are both similar by simply using a broad characterisation.

Niether of them are Ponzi schemes unless you are "merely trying to rationalise how they are both similar by simply using a broad characterisation." *Geez...That's the point.

The only way one can make such a characterisation is with an outsider's (or day trader's) understanding of how the stock market functions.

That is the point.

 

[itfitzme]

I see your problem. You are basing you understanding of how stock markets work on your understanding on the cause of the market crash of 1929. That's equally flawed and dubious reasoning, as this particular period in financial history was during a speculative bubble. Crash occur when P/E ratios exceed long-term averages and the excessive use of margin debt and leverage. This was helped with the increase in the flow of liquidity provided by the Federal Reserve. Increase in liquidity increases business cost, the price of stocks increase past their true valuation, until prices go into freefall and the bubble burst. This is exactly what happened during 1929, 2000 and 2007. *

Also, I don't know how you think shares work, but shareholders do not necessarily make money when they sell shares. You make money from stock by owning them, not just by selling them. A company's earning potential can go to zero, but this is not done by players moving their money out of the market. Stocks have inherent value. Ponzi Schemes only have value if someone decides to participate. Unlike Ponzi Schemes, even if one decides to participate, and there is no one to sell to, those shares will still have an inherent value. Even if the stock does reach 1 cent, it doesn't make the company any less profitable.



The Stock Market isn't a Ponzi scheme, but Social Security is. You are merely trying to rationalise how they are both similar by simply using a broad characterisation.

Niether of them are Ponzi schemes unless you are "merely trying to rationalise how they are both similar by simply using a broad characterisation." *Geez...That's the point.

The only way one can make such a characterisation is with an outsider's (or day trader's) understanding of how the stock market functions.

That is the point.

You should open a window when using that nail polish remover. *The acetone fumes are getting to you. *You are severely overestimating your own intelligence.

 

[AmazonTania]

Crash occur when P/E ratios exceed long-term averages and the excessive use of margin debt and leverage.

LOL! P/E rations exceed long-term averages - on average - about half of the time. Can you also define what constitutes "excessive use of margin"? I'd love to be able to time the next market crash, you seem to be suggesting its as simple as knowing a few numbers. Kind naive if you ask me.

If by half of the time, you mean the last ten years, then you would be correct. Otherwise, no P/E ratios do not normally exceed long term averages. Currently the S&P average is 16x. The long term average around 18x during 2007. The Forward 12-month P/E ratio was moving as high as 27x during the Dot-Com bubble. After the bursting of the bubble, P/E's returned to their range around 15x.

And what I mean by excess use of leverage, I mean Debt-to-Equity ratio. Debt-to-Equity for the S&P 500 was 63% in 2007. It was slightly higher during the Dot Com bubble. Today it's around 34%. These are things to look out for in determining if a stock price (or any stock price) is being inflated. During the Dot Com Bubble, companies weren't making money because they were profitable or had equity. They just found people to buy into their idea.

As a means for retirement both are still equally Ponzi. Of course neither are actually Ponzi for the reason listed in the last paragraph. But by your definition they are both Ponzi schemes. If there are no new investors with actual money to buy stock in the future, then the stock I save for retirement does me little good! It doesn't matter what its intinsic worth is - a buyer is still required for my ownership of it to be of any use to me because I can't actually eat a share of stock or fix my house with it - it needs to be converted to money first and then I have to rely on the market to provide me those items in exchange for the money.

Again, there are plenty differences you choose to ignore. Ponzi Schemes yields 0% return if no one participates or if less and less people choose to participate. Not the case with stocks. There is a difference between stocks which are 'worthless' and stocks which are 'worth less' than their previous market price. Stocks are worthless when their market price reaches zero. This means that the company has no value whatsoever. As long as the company has earning potential, then the stocks have value whether or not people choose to buy.

If the price of Microsoft decides to fall 98% like it did during the 2007 Financial crisis, it would be worth pennies. With it's share price of .66 cents and it's current dividend of 2.67%, you can still make money from this stock, being that Microsoft is a Blue Chip stock. Although you are not going to get the same value for your stock as you did when you bought it, your returns on the stock will be greater as the dividend yield will increase the more this stock decreases.

Just mere sentiment cannot increase prices alone. Stocks which are mostly small cap and medium cap do not pay dividends at all. These stocks generally increase when their valuations and earnings increase. When these companies become large enough they may pay a dividend at a future date, but the only way investors can make money from these stocks is to sell when the company gains value. There are plenty of micro/small cap companies worth pennies where people are investing into the stock, hoping that the stock will go up. This is not a Ponzi Scheme, but rather what is known as a 'Pump and Dump' scheme.

Ponzi schemes are by definition fraudulent. How social security works is encoded in law for all to see. Its actually even more open than the stock market. Its thus, not a Ponzi scheme. At least not by the definition that the non-wacko-blogger real world uses.

The whole point of a con is to gain someone's confidence, hence the word 'con.' How is it any less of a con simply because it's legal or legit? Are schemes only schemes if they operate under false pretenses?

If you decide to run a legitimate business or operation, acquire funds from old investors and pay new investors without any method of making profits, that is a ponzi scheme. If your business model operates like this, you can be charged with running a Ponzi Scheme, whether it's fraudulent or not. Just because the Government can do it doesn't mean it's not illegal. The again, the Government really does hate competition.

 

[AmazonTania]

Niether of them are Ponzi schemes unless you are "merely trying to rationalise how they are both similar by simply using a broad characterisation." *Geez...That's the point.

The only way one can make such a characterisation is with an outsider's (or day trader's) understanding of how the stock market functions.

That is the point.

You should open a window when using that nail polish remover. *The acetone fumes are getting to you. *You are severely overestimating your own intelligence.

Contrary to popular belief, my power lies in my lip gloss... *POW*

 

[OohPooPahDoo]

I don't know what you would like for me to tell or show you. All I can say is that your information is outdated. Not only is it outdated, but it is quite the anomaly as well as inaccurate.

Your source suggest that 'Mom-&-Pop' investors are buying majority of the the bonds, and not the Fed. This might have been true, but only for the year 2012. The housing sector averaged $370.5 Billion a quarter according to Flow of Funds Accounts in 2012. Before that, the sector averaged -$256.9B a quarter in securities purchases. Today, they average -133.9B just for the first quarter alone.

The Federal Reserve only accounted for $2.7 Billion of US Treasuries for the entire year of 2012. Much lower than the $370.5 Billion from the 'Mom-&-Pop' investors. This doesn't mean that Federal Reserve isn't purchasing all the securities. It just means they haven't purchased that many for that particular year. Regardless, the much of the demand for US Securities is very much from the Fed itself. Especially when you consider the $300 billion in US Securities in 2009 - 2010, the $600 billion from 2010 - 2011, and the $45 billion a month from the end of 2012 to the present. So far, the Fed already has $575.2 billion in security purchases for the first quarter of 2013 alone.

So yes, your source is outdated as well as misleading. If you aren't doing the proper research, you will be easily fooled.

Oh, OK, I get it. You're supposed to make unsupported claims without evidence to support them - and I'm supposed to do all the work to prove or disprove them. I don't seem to remember signing up to work for you, is the thing

I already told you were you can acquire this information: The Flow of Funds Account provided by the Federal Reserve. Thought you'd take the time to digest all of this information yourself. You're a pretty crafty Google user, no?

I'm very sorry, again, I wasn't aware I worked for you. It was my impression it was incumbant upon YOU to provide evidence for YOUR claims, not me.

http://www.federalreserve.gov/releases/z1/Current/z1r-3.pdf Page 47

2011:

Household Sector: -$256.9 Billion
Foreign Investors: $412.1 Billion
Federal Reserve: $642.0 Billion

2012:

Household Sector: $370.5 Billion
Foreign Investors: $478.4 Billion
Federal Reserve: $2.7 Billion

As you can as, these 'Mom & Pop' investors only picked up majority of the bonds for 2012. Not the years prior or financial quarter after. The four years prior, majority of the debt was purchased by Foreigner Investors. 'Mom & Pop' investors made negative net purchases, which either means they've made redemption through selling their bonds or cashing them in.



On an accumulative average, majority of ownership of the debt is held by foreigners while Domestic Investors holds the second largest. The Federal Reserve held 16% ownership within the past 10 years. But over the past few years, the Federal Reserve has been the majority domestic purchaser of US debt.

So far, the Fed already has $575.2 billion in security purchases for the first quarter of 2013 alone.

And we know that's a majority of the demand - how?

2013 Flow of Funds

Domestic Investors: $306.5 Billion

• Household Sector: -$133.9 Billion
• Businesses/Corporations: -$6.3 Billion
• Banks: -$83.9 Billion
• Insurance Companies: $5.1 Billion
• Private Pensions: $18.8 Billion
• Money Market Funds: $153.1 Billion
• Mutual Funds: $100.1 Billion
• Government-sponsored enterprises: $23 Billion
• Holding Companies: $6.4 Billion

Foreign Investors: $654.5 Billion

State and Local Governments: $44.8 Billion

Federal Reserve: $575.2 Billion

Was that so hard?