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Friday, December 18, 2009

A simplified Explanation

OK, so it's not really about bookkeeping, (yes there are bookkeeping components to it) but I thought it was worth writing for someone out there who may not know. After all, I was having a conversation with a family member who didn't know what a Ponzi scheme was so here is my layman's summary.

A Ponzi scheme is where someone takes money from an individual under the assumption that person will receive a return of the money with some sort of gain. As time goes buy the schemer takes money from new individuals to pay out "gains" to individuals who gave him or her money earlier. Each new "investor" does not know that absolutely nothing is being done with their invested money other then to forward a "dividend" to the older investors and probable fund a very high life style for the schemer.

These swindles usually come to light when the investors want to receive the initial payment into the program back, and they find that this is not an easy thing to do. Some of the more recently discovered Ponzi schemes were discovered through investigation when investor began to complain to the SEC and other government organizations, because they were getting the run around on getting their investment dollars returned to them.

Here is the biggy...the best know, and largest Ponzi scheme in the U.S??? Social Security. Yep, that's right. The one and only legal Ponzi scheme is not only perpetrated but openly operated and it is done so by the US Government. You pay into Social Security and those funds are used to pay benefits to those who current qualify to receive those benefits. Supposedly, when you retire, you will receive funds that will be adjusted for inflation so that at retirement age you will be able to live decently.

It is my personal belief that Social Security will no longer be viable by the time I reach the legal age to receive benefits. Who knows what they will change that age to as I get closer to retirement. My plan is to develop a residual source of income in addition to doing some retirement investing that will enable me to live decently with or without the promised return.

So that's a simple explanation.

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