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Finance • Investing

What the most famous Ponzi scheme in history looks like

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Dateline: Phnom Penh, Cambodia

Just drive around Phnom Penh and you’ll see something a bit surprising.

I reported the other day that, in less than one year, an entire new round of shiny restaurants, coffee shops, and stores are opening on seemingly every side street, catering to a growing number of middle class Cambodians and a growing influx of capitalist westerners. The place is out of control.

For many of these stores, the price doesn’t matter. My business associate paid just as much for a latte at Brown Cafe here as he would in his native Toronto. The market for these stores is people who want high quality and chic products no matter the cost.

On the other end of the spectrum is a service you’ll see splashed across billboards all over the city.

Mobile phone companies here, eager to sign up the growing number of cell phone and smartphone users, are running insane promotions to drum up new business.

The numbers sounds totally insane.

For instance, I’ve been seeing ads for one company that will turn your $1 prepaid phone credit into $15. Like magic.

Not to be outdone, a competing company is offering a 20:1 bonus on prepaid phone credits purchased. If you’re willing to splash out with $10, they’ll go as high as 25:1.

Of course, a business operating in the free market has to compete for customers, and giving people the perception of an amazing value is how they do it. It’s the same reason people throw in “$27,982” in bonuses on a $47 product.

I personally don’t use these gimmicks because I don’t find them necessary. I don’t price our e-books at “$97” to try and trick people, and I charge a high price for my personal consulting services that I don’t try and apologize for with free goodies.

That said, the strategy works. Heck, I’m even a bit tempted to buy some phone credit to see the miracle of turning $1 into $25.

More importantly than cheap cell phone plans, though, is the fact that your local government has been running a much more sinister version of this sleight of hand for decades.

On January 31, 1940, Ida May Fuller received the first ever check from a new program called Social Security. The check totaled $22.54 and it was the subject of endless government and media propaganda at the time.

To this day, the Social Security website brags of the “success” story of Ms. Fuller. After paying a grand total of $24.75 into Social Security during three years of work as a legal secretary, the Vermont retiree claimed $22,888.92 in Social Security benefits before passing away at age 100.

I guess to any government, three years of work followed by thirty-four years of monthly checks delivered right to your door is a real success story.

But the shocking numbers tell the real story. Those Social Security checks sent to Ms. Fuller amounted to a 92,380 percent return.

No contrarian investment could top that.

Imagine: one day a much-ballyhooed President Roosevelt decrees that the government is going to confiscate more of your paycheck for some new entitlement program. The next day, you get one thousand times your investment back.

It sounds pretty good, right? Surely even better than seeing your dollar multiplied a mere fifteen times by the phone company.

That philosophy is what allowed Social Security, the largest and most famous Ponzi scheme in history, to take root. Now, millions of Americans are indebted to the system.

Western nations around the world have adopted government-run Ponzi schemes based on Social Security. This isn’t just a US problem.

It just so happens that the system in The Land of the Free is the worst of the bunch.

Most Americans are all too happy to hand over 6.2% of their paycheck in exchange for the promise that some benevolent government will take care of them later.

It doesn’t hurt that said government is also sticking their employer for the same 6.2%. For employees who hate their boss, this has the same effect of one criminal ripping off another to gain acceptance in a community. It’s part of the “soak the rich” mindset and it keeps the allure of Social Security going.

But, like anything else, 100,000% returns can not continue forever. Ida May Fuller may have hit the jackpot, but the returns to other Social Security payees diminished immediately.

All that the government needed was for word to get out that this new Social Security thing was a great deal. And positive word of mouth all that a Ponzi Scheme needs.

Today, the Social Security Administration claims funds will run out in nineteen years, in 2033.

Like every other set of numbers the government puts out, we can assume those numbers are a lie, also. With 10,000 people turning 65 every day for some time to come, and the fastest growing demographics being octogenarians and above, there will be plenty of people on the Social Security dole.

That would all be well and good if not for the ongoing economic disaster in a dead economy.

Despite all of their efforts to spin “job growth” and rosy economic numbers, the United States is still mired in malaise. Youth unemployment, while not that of Spain, is still high, and underemployment is epic.

At a time when the number of Social Security-eligible senior citizens will grow by 50% by 2030, the Millenials are earning less and less to pay into the system.

The government and the media are running their typical unholy alliance to say it will all be OK. One UK newspaper even recently said “youth unemployment doesn’t matter”.

Say what?!

The US government has a mega-trillion dollar entitlement bubble that’s all but off the books, and no one wants to talk about it.

Of course, when the bubble pops, the riots going on now will look like a picnic. Just look at what happened in Greece or France when politicians tried to, once again, cover themselves and people started throwing Molotov cocktails around on the street.

The first step to cover this up will be the “tax the rich” section of the playbook. At this point, sucking money out of those perceived to have “more than” is the default position for politicians and the general public.

Considering that only six percent of Americans have $100,000 or more in liquid cash (and that the huge stock, bond, and housing bubbles will wipe out a lot of wealth), it won’t take much for you to be a target.

Chances are if you’re reading this, you’ll be one of the first people they come for.

We have a glimpse of the playbook from places like Poland and Ireland, where retirement accounts were confiscated for the “public good”.

That’s why I always recommend against saving into a government-run retirement account like the plague.

As we discuss frequently, the government can change the rules at any time and force you to move that money into some government bond that is dropping like a stone. Imagine holding government paper in Argentina, for instance.

If you’re currently on the Social Security dole or are about to be, I don’t have to tell you to enjoy the gravy train while it lasts. While I’m no financial advisor, getting money out of an IRA or similar plan FIRST seems like the best way to keep that money safe.

If you can’t, consider a Self Directed IRA to protect the money already locked up under the government’s direction.

Because any money left in a retirement account the government can create laws to control is not safe in the most famous Ponzi scheme in history.

Like any other Ponzi scheme, the United States government has put its “full faith and credit” behind a system that paid one lady a massive windfall, and the rest of us nothing.

The $17 trillion debt the government claims it has, while no sterling record, pales in comparison to the nearly $100 trillion it REALLY owes when you consider all of the debts coming due. The great Ponzi scheme called Social Security is among those.

The reason the government doesn’t list all the money it will have to pay out to future retirees is that it figures it can get the money from you. Earlier this week, I shared how property taxes in Greece went up seven-fold, with the government threatening jail for those who can’t pay.

Now, Greek property owners are literally fearing homelessness. Do you think their government cares?

The government will be perfectly happy to see you living on the street, as well, as long as it can extract its pound of flesh to fulfill the promise it made to those years ahead of you on the Social Security gravy train.

As with any other Ponzi scheme, your government only cares about keeping its party going and keeping its propaganda force – current retirees – happy, so it can stay in power.

That’s why being an starting a business overseas, using offshore companies, and other legal tax strategies that remove you from the system are so important.

Every year you don’t structure your affairs properly, you’re sending as much as $14,742 to a bankrupt Social Security Administration that has no way to pay you when the time comes due.

Bernie Madoff wouldn’t care if his victims were homeless. Neither do the perpetrators of the world’s most famous Ponzi Scheme: Social Security.

Govern your actions and your finances accordingly.


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