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The Economist: Pensions, Ponzis and Pyramids

September 24, 2011

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The Economist discusses the problems of U.S. social security, when shrinking generations are responsible to produce tax revenues to pay the benefits of future pensioners.

In olden days it was quite common for families to keep a store of spare cash in a cake tin or cookie jar to save for future expenditure, such as Christmas presents. Just occasionally this petty-cash fund had to be tapped for immediate needs, and raiders would ease their consciences by leaving an IOU for the requisite sum.

One way of viewing the American Social Security Trust fund is as a massive cookie jar filled with IOUs. The assets of the fund are Treasury bonds, in other words promises to pay by the federal government. The scheme is thus dependent on the ability of future taxpayers to keep funding it.

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