Japan’s Ponzi pension system’s premium payment rate drops to record low

The key attribute of any Ponzi scheme is that current outflows are made using current inflows.  Japan’s pension system is about as close as one will get to the describe such a system.

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

Unfortunately for Japan – and much like Bernie Madoff whose $65 billion scheme collapsed with the credit and equity markets in 2008 – its ever-increasing flow of money isn’t…ever-increasing, that is.

The premium payment rate for the national pension dropped to an all-time low of 59.3 percent in fiscal 2010 from the previous year’s 59.98 percent, staying below 60 percent for the second consecutive year, the welfare ministry said Wednesday. The rate dropped for the fifth year in a row due to an increase in nonregular employees and jobless workers who cannot afford to pay premiums amid the worsened employment situation, said the Ministry of Health, Labor and Welfare.

As other reasons for the drop, baby boomers, who have been steady premium payers, have mostly completed premium payments, while the issuance of reminder letters and forcible collection have been halted in areas damaged by the March 11 disaster.

But ministry official said the rate is falling at a slower pace and may be ceasing to drop.

By prefecture, the rate in fiscal 2010 to March 31 climbed from the previous year in Okayama and Kumamoto.

This, of course, will be used as justification for raising the consumption tax to 10 or 15% over the next few years which is the easy way out for the government.

So, what is the “hard” way, you ask.  Well, fix the underlying causes for the increase in non-regular and jobless workers which just so happens to be the massive hand of government in the private economy.  This is the cause of so many of Japan’s problems yet it is the most difficult for the government to rectify mostly because it would strip the bureaucracy and politicians of much of their power.  And that is why it is so much easier for the government to beggar the taxpayers instead of actually solving Japan’s ills.

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