SS is, as previously stated, a Ponzi or pyramid scheme. It simply takes money from person A and gives it to person B. This worked fine when SS was started in the 1930s. There were 35 workers paying in for each recipient collecting. Hence the burden on each worker was quite low and the widows and orphans didn't starve.

Fast forward. People stopped having kids. SS benefits were greatly expanded. There are now three workers paying in for each recipient. SS has morphed from a program to prevent the indigent from starving into a type of government pension program. As a result each of those three workers are paying a heavy burden. The great majority of workers in the U.S. pay more in SS taxes than in income taxes.

At present the SS tax collects more than is required to pay out. The excess monies are handed over to the treasury and spent on general government programs - missiles, pork barrel projects, what have you. The treasury issues the SS system bonds in return. SS can cash in these bonds when its payouts begin to exceed intake - predicted to happen in the next 10-15 years.

The problem is, where does the money to redeem those bonds come from? The treasury already spent it. The government will be forced to raise general revenue to pay off the SS bonds. There are several ways of raising this revenue. Taxes (income, corporate, user fees, AMT, etc.) can be raised. This has the bad effect of stifling economic activity. Government bonds could be sold. This drives up interest rates. Or the government could print money (essentially devaluing the dollar). This generates inflation or hyper-inflation.

So there ain't no easy answers.

Europe is interesting. The economies are stagnant because consumers won't spend. The average European worker saves 10% of their income, vs. 0.8% in the U.S. The reason is Europe has government run and paid pensions. Nobody trusts the governments to actually deliver the pensions, so they have decided to save aggressively for the future. I'm not sure what this means. Maybe Europeans are smarter than Americans because they've learned not to trust the government?

- JimY