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Here is an essay I wrote in 2004 about Social Security, as part of my application to appear as a “presidential candidate” on Showtime’s “American Candidate” show which aired in the summer of 2004 with Montel Williams as the host. Hope it helps:

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In August 1919, a man named Charles Ponzi hit upon a great idea for making money. He came up with a plausible sounding investment vehicle that he promised would double investors’ money in 45 days. As his scheme attracted more and more participants, he would pay off his obligations to earlier investors with the money provided by later investors. Naturally, the fact that the early investors received all the money they were promised served as a major enticement to later investors.

Of course, this scheme could not go on indefinitely. Eventually, there were not enough new investors to pay off the older ones, and the whole thing collapsed. Within a year, some 40,000 investors had been taken by Ponzi for some $15 million (about $140 million in current US dollars), and by August 1920 he had filed for bankruptcy and was sent to prison. But during the year his scheme was operating, Ponzi enjoyed a very luxurious lifestyle.

In 1934, a man named Franklin Delano Roosevelt hit upon a great idea for getting votes. He came up with a plausible sounding plan that he promised would bring economic security to Americans by “providing social insurance for the citizen and his family.“ As the power of law was used to force almost four generations of Americans into “contributing” to this program, the United States government was able to pay off the obligations to the earlier generation of contributors with the money provided by later generations.

Of course, this scheme could not go on indefinitely. Eventually – as the core of the enormous “baby boomer” generation enters retirement in about 15 years – there will not be enough new contributors to pay off all the outstanding obligations to the older contributors, and the system will collapse. In less than 100 years of operation, Social Security – the largest government program in the world with current obligations accounting for more than one-fifth of the federal budget – will essentially be bankrupt. But during the four generations that the scheme was operating, US presidents, senators and congressional representatives have enjoyed a lot of votes, especially when they expanded the scope and obligations of the system to cover ever wider constituencies.

Well folks, the Social Security party is very nearly over. For those who haven’t been paying attention these last 70 years, here is what is really going on. You pay your “contributions” into the Social Security “Trust Fund.” The US Government “borrows” the money from that fund to pay current government expenses, including obligations to current Social Security recipients. It replaces the money in the “trust fund” with federal IOUs.

You know that “Social Security Lock Box” that Al Gore was always talking about during the 2000 election? Well, guess what? There’s no money in it — just a big pile of IOUs from Uncle Sam.

Now, if you or I were sitting on a large pile of federal promissory notes, we would have a solid asset worth a lot of money, because the whole world assumes that the US government will always make good on its debt. That assumption is the basis of our financial system.

But when the federal government finally has to start cashing in those IOUs in the “Lockbox” to meet its Social Security obligations, what do you think will happen? What would happen to you if you tried to pay your mortgage by writing an IOU to yourself and then endorsing it over to your bank?

Well, that’s exactly the position that the federal government will be in when the current level of social security “contributions” is no longer enough to cover the government’s obligations to a new generation of retiring baby boomers. And that day is coming soon.

Do you know who will pay the shortfall then? You will – either in the form of increased Social Security “contributions” or higher income taxes. Or maybe both. But pay you will, and it will hurt.

The fact is that if Social Security was a private insurance program, everybody connected with it would be in jail by now. Of course, the federal government is different, which is why this scheme has been able to go on for so long. But while the federal government is able to exempt itself from criminal sanction, it does not have the power to exempt itself from financial reality.

I used to work in the commercial finance business, and I am going to share with you a lesson that I had to learn in a very hard and personal way. If financial institutions do not pursue sound policies, they are susceptible to what I call “financial cancer.”

A good example of “financial cancer” is what has happened in Japan. The large Japanese banks loaned money on real estate, and carried the loans on their books as assets. The more assets they had, the more loans they could make. And since loans are what banks use to make profits, the more profitable these institutions became. Unfortunately for the banks, however, the Japanese real estate bubble eventually burst, prices plummeted, the underlying real estate collateral turned out to be worth less than the loans, and the borrowers were no longer able to pay off their obligations to the banks. Thus performing assets became non-performing assets, and profitability went out the window.

The problem for the banks in this situation is that they cannot afford to write off these “assets” as worthless (or worth less, at any rate), which is what they are. If the banks do take this step, they will automatically become insolvent and fail.

But in some cases, the banks are too big to be allowed to fail, because if they do, the entire financial system will collapse with them. So the government has to keep figuring out new accounting gimmicks to keep the banks apparently solvent, and to delay the inevitable outcome. When it finally arrives, the delay in writing off the bad assets will only cause the problem to be that much larger, because the banks will have been operating in the red for that much longer and the losses will be that much bigger. The result is that the toll on real people’s lives and fortunes will be that much more catastrophic.

The progressive deterioration of the banks’ financial position in this tragic scenario is why I use the term “financial cancer.”

Our Social Security system is also riddled with “financial cancer.” The system’s inevitable insolvency can no longer be honestly denied. We can no longer kick the can down the road to be dealt with in future election cycles by future generations. Politicians who glibly and vaguely talk about “saving,” “preserving,” or “fixing ” Social Security are only demonstrating either their ignorance or their cynical capacity for deceit.

The financial laws of nature cannot be repealed or ignored. Eventually, the day of reckoning must come, and the longer we wait to openly acknowledge this reality, the worse it will be for our people and our society. There is no way to “fix” a Ponzi scheme. The only thing you can do is shut it down before the guaranteed losses get bigger and a new tier of sucker investors loses their money.

In its heyday, the Social Security system was sold to the American public as a “contract between the generations.” (Actually, they used the term “compact,” but it amounts to the same thing.) Apparently, nobody stopped to consider that contracts with minors are not valid, to say nothing of contracts with those who have not yet been born.

In 1950, there were 16 workers paying taxes to support one Social Security retiree. By 1996 there were only 3.3 workers supporting each retiree, and by 2030 there will be only 2 workers per retiree. For those in Generation X and younger, the “compact between the generations” turns out to have been a major shafting. Taking candy from babies, you might say.

Given this reality, to continue the Ponzi scheme of Social Security into the future will mean imposing an intolerable tax burden on those who themselves cannot possibly benefit from the system in their own old age.

Even today, the burden is difficult for many to bear. For more than 80% of us, our Social Security taxes are even higher than our income tax liability.

That burden is even heavier for those who lose their jobs and, as so many have done, seek work as independent consultants. For those people to discover, at the time of their greatest financial vulnerability and uncertainty, that their Social Security taxes have doubled because they no longer have an employer to pick up half the tab, is an outrage. Is this right? Is this fair? Does it make sense?

I believe that the American people must stop listening to the glib lies of self-serving politicians and face the facts about Social Security now.