Dear John: The Social Security Administration recently said that its annual budget surplus will end five years earlier than previously predicted, due to the ongoing recession/depression. How will that affect federal borrowing and what will happen with interest rates? H.R.
Dear H.R.: As things now stand, Social Security runs a surplus each year because there are more people working and paying into the system than collecting.
That situation was supposed to continue until around 2017 when demographics were to have shifted. By then Baby Boomers would be pulling more money out than workers were paying in.
Because of the recession (nah, we really don’t need to be calling it a depression) Social Security will have a cash flow problem perhaps five years earlier — maybe in 2012.
But the surplus — in what people like to call the “trust fund” — really doesn’t exist, or at least, it doesn’t exist like a cash account. Instead, the federal government each year borrows that extra money and leaves IOUs.
So, in 2012, the government may no longer be able to tap the Social Security surplus. Worse, it may have to borrow money to repay the IOUs so Social Security can continue to pay benefits.
Josh Gordon, policy director of the Concord Coalition, a Social Security watchdog group, says the effect of all this will be greater on the deficit than the retirement system.
And as you know, the more money the federal government borrows the better chance that interest rates will rise. And if interest rates go up not only will you and I be paying more to borrow money but your government will, too.
Dear John: What if banks had been permitted to write off 10 percent of their bad paper per year? Then, if it became valuable, so much the better. The charge to capital would have become bearable and confidence in the system would not have foundered. D.F.
Dear D.F.: Look, please leave this stuff to the experts. We don’t want anyone hurting themselves. OK, seriously.
Wall Street has convinced both the Bush and Obama administrations that the banking situation needs to be “fixed” quickly. The example the “experts” use is Japan, which refused to deal quickly with its bank problems and ended up with a decade-long recession. The “lost decade” is what they call it.
Your idea might work. My idea — about freeing up retirement accounts to stimulate the economy — will work.
But Washington has its own agenda: Bail out some companies, don’t bail out others. Treat some taxpayers better than others. In less-civilized societies this sort of action would result in civil unrest.
The Census Bureau estimates that there are 115 million families in this country. Why don’t we just give every family $100,000 and let the wealth trickle up. What’s that, a little over $11 trillion? A bargain, especially when the government is just printing the money anyway.
Dear John: I live in New York and have an annuity that matures in 2011. Your column said that most states have annuity insurance up to $100,000. My adviser has told me that mine is insured up to $500,000. Can you confirm that this information from my adviser is accurate? Thanks. Don
Dear Don: Confirmed. Most states only insure up to $100,000. New York State’s insurance on annuities goes up to $500,000.
Accountant and lawyer Douglas Schnapp suggests you get the New York State Insurance Department’s Policyholder Protection Brochure, which is also available at http://www.ins.state.ny.us/consumer/life/licgc_brochure.pdf
Send your questions to Dear John, The N.Y. Post, 1211 Ave. of the Americas, N.Y., N.Y., 10036, or john.crudele@nypost.com.