Bush explains his SS plan in his own words

WHouse Balks at Submitting Social Security Plan
Tue Feb 8, 2005 08:31 PM ET

WASHINGTON (Reuters) - The White House has told lawmakers it has no immediate plans to submit its own detailed proposal to Congress for overhauling Social Security, sources briefed by the administration said on Tuesday.
President Bush has made adding private retirement accounts to the Social Security system his top domestic priority. The proposal has run into opposition from Democrats and some of Bush's fellow Republicans.

Bush bases his call for a broad overhaul of the 70-year-old Social Security program on his contention it is headed into a financial crisis, a characterization Democrats, and many in his own Republican Party, say exaggerates the problem.

Republican and Democratic congressional aides said the White House made clear in briefings this week it would not submit a legislative proposal, at least not for the time being. Instead, the White House will try to coordinate efforts with lawmakers crafting their own proposals.

A senior Bush administration official said no final decision had been made. "If there comes a point when the president needs to spell out specific legislation, he won't hesitate," the official said.

A Democratic congressional aide said the White House was "backsliding" in the face of stiffer-than-expected opposition.

If you purport to use his words, then don't just take a long speech or interview and select the worst sentence. I could do that to you or anyone else. Classic tools of character assassination. The public sees through this and re-elected him.

Cycloptichorn, in his post, quoted two sentences. I never mentioned context. I said that by selecting a single sentence from someones speeches or interviews, you can make anyone look stupid, and it proves exactly nothing.

This man has been elected b/c idiots way outnumber intellectuals in the country, and when you can mobilize the idiots using fear of terrorism and fags, it's hard to lose.

Cycloptichorn

Bush's Social Security Plan Assumes Much From Stocks

By Jonathan Weisman and Ben White
Washington Post Staff Writers
Wednesday, February 9, 2005; Page E01


To conclude that Social Security is careening toward a crisis in 2042, President Bush is relying on projections that an aging society will drag down economic growth. Yet his proposal to establish personal accounts is counting on strong investment gains in financial markets that would be coping with the same demographic head wind.

That seeming contradiction has become fodder for a heated debate among economists, who divide sharply between those who believe the stock market cannot meet the president's expectations and those who say investor demand from a faster-growing developing world will keep stock prices rising.

"If economic growth is slow enough that we've got a problem with Social Security, then we are also going to have problems with the stock market. It's as simple as that," said Douglas Fore, director of investment analytics for TIAA-CREF Investment Management Group. A spokeswoman said the company has not taken a position on the Social Security debate.

In the next two decades, as elderly populations swell throughout the developed world, retirees will begin withdrawing their savings, selling their financial holdings to raise cash and potentially glutting the world with stocks and bonds. Richard Jackson, director of the Center for Strategic and International Studies' global aging initiative, called it "the great depreciation scenario." Germany's Mannheim Research Institute for the Economics of Aging dubs it the "asset meltdown hypothesis."

That would not be an auspicious environment for young investors opening personal accounts to replace a portion of their traditional Social Security benefits.

"If there isn't an alternative source of demand for those assets, you're going to have a tremendous slowing of growth," said Jeremy J. Siegel, a University of Pennsylvania finance professor who just completed a book on the subject. "The only way to save the financial markets is very rapid growth in the developing world."

Compounding the problem of oversupply, economic growth -- predicted by the Social Security Administration to slow from a historical annual rate of 3.5 percent to a sluggish 1.9 percent -- would hit corporate profits and lower stock prices further, the theory goes. That would cause stock prices to drop, because they are priced as a multiple of a company's earnings.

The debate over future stock values has become so fierce that Bush's Council of Economic Advisers issued a statement to rebut its critics. It predicted that gains from the stock market, over the long term, will continue to be healthy.

"Although short-run movements in growth can affect stock market returns, there is no necessary connection between stock returns and economic growth in the long run," the White House said.

For workers choosing between private accounts and a traditional, defined Social Security benefit, the question would be important. Under Bush's proposal, for every dollar deposited in a personal account, a worker's traditional benefit -- delivered in a monthly Social Security check -- would be diminished by a dollar, plus the interest rate the money would have earned in Treasury bonds. To come out ahead of the traditional system, an account would have to realize returns on investment of at least 3 percent above the rate of inflation.

White House officials think the decision is easy. Social Security's chief actuary assumes that an account invested half in stocks and half in corporate and Treasury bonds would yield a 4.6 percent return above inflation, enough for a comfortable profit over the traditional benefit. An index of stocks alone would return 6.5 percent over inflation, based on historical performances.

But some economists are not so sure. Richard Berner, senior U.S. economist at Morgan Stanley and an opponent of diverting Social Security taxes into private accounts, said strong stock market returns of the past 20 years were an anomaly driven by a confluence of low inflation and low interest rates that is not likely to repeat. "The administration's assumptions, especially for a balanced portfolio, sound pretty high," he said.

In a recent paper, Prudential Equity Group strategist Edward Keon wrote that long-term economic growth of around 2 percent would probably produce equity returns of, at most, 3.5 percent after inflation.

Growth in China, India and other parts Asia will help, Siegel said, because the growing middle class in those countries will want to invest in the West, creating demand for the stocks and bonds that retirees will sell. But if the economic laggards in Africa, the Middle East and Latin America don't speed up fast, the pool of capital from the developing world will not be large enough to make up for the West's decline. He gives future workers an 84 percent chance of beating the White House's 3 percent threshold. That might seem like good odds, he said, but, "if you're going to miss it, that's going to hurt a lot more than if you exceed it."

Others say the hurdle will be impossible to clear. Given the assumed slowdown in the economy, stocks could only get to a 6.5 percent return if they are rising from a post-crash, depressed level or if their prices were inflated to Internet bubble valuations, according to calculations of University of California at Berkeley economist J. Bradford DeLong and Dean Baker of the liberal Center for Economic and Policy Research.

White House economists say such calculations are absurd because they ignore global economic growth and investment in countries unaffected by the demographic slowdown. The Mannheim Research Institute recently concluded that "the asset meltdown" is a bit overstated. Demographic trends, it said, will hit asset prices, but not disastrously.

But counting on the developing world to save Western financial markets is a risk, economists say. And it paints a bleak picture for the U.S. economy. If corporate profits grow two-tenths of 1 percent more rapidly due to investments in developing countries, in 75 years, 30 percent of U.S. profits would come from the Third World, Baker said.

Besides, he said, when the president talks of limiting personal account investment options to safe stock and bond funds, he is probably not thinking about an emerging-market mutual fund, the returns on which have been extremely volatile.

"I don't think that's where [workers] think their Social Security saving is going to go," Baker said.

-- Josh Marshall
(February 09, 2005 -- 04:52 PM EST // link // print)
President Bush lays the groundwork for defaulting on almost two trillion dollars worth of US Treasury bonds, from today at the Commerce Department ...

http://www.whitehouse.gov/news/releases/2005/02/20050209-15.html

Bush:
Some in our country think that Social Security is a trust fund -- in other words, there's a pile of money being accumulated. That's just simply not true. The money -- payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust. We're on the ultimate pay-as-you-go system -- what goes in comes out. And so, starting in 2018, what's going in -- what's coming out is greater than what's going in. It says we've got a problem. And we'd better start dealing with it now. The longer we wait, the harder it is to fix the problem.

It's what they're after. Just watch.

-- Josh Marshall
(February 09, 2005 -- 04:49 PM EST // link // print)

-- Josh Marshall
(February 09, 2005 -- 05:46 PM EST // link // print)
Let's ask Alan.

We and many others had predicted that the president's angle here was to default on the Treasury bonds sitting in the Social Security Trust Fund. And now we can be pretty confident that he plans to do just that since today he said
Advertisement

that the Trust Fund doesn't even exist.

Now, here's the thing.

Alan Greenspan headed up the 'Greenspan Commission' (aka the National Commission on Social Security Reform). The Greenspan Commission didn't create the Trust Fund -- it dates back to 1939. But it was the reform package devised by the Greenspan Commission and issued in their January 1983 report that led to the intentional building up of a large surplus in the Trust Fund which would provide excess revenue to help pay for the retirement of the babyboomers in the early decades of the 21st century.

Setting aside all the actuarial and financial gobbledegook, the basic idea was that the boomers and others would start paying not only their own taxes but also advance paying to cover the costs of their own retirement. The Social Security Adminsitration used the monies in the Trust Fund to purchase bonds -- debt that otherwise would have had to have been purchased by private individuals, pensions, foreigners, all the parties that buy US Treasury bonds. (The majority of the US government's debt is in the hands of those folks; and you can be sure they're going to get paid back.)

So if you've paid Social Security taxes in any of the years from 1983 until today, you've been advance paying. And now President Bush just said that that money is gone. So, you thought you were advance paying to cover part of the future expenses of your generation's retirement. But it seems you were just a sucker since President Bush is now saying the money ain't gonna be paid back. You're just fresh outta luck, you could say.

So here's our question: Does Alan Greenspan think there's a Trust Fund? Does he believe those bonds are backed up by the full faith and credit of the United States government? Does he think they will and should be paid back? If he doesn't, he's got a hell of a lot of explaining to do since it was under his guidance that we came up with this whole idea.

Or how about Sen. Bob Dole? He was on the Commission too. What does he think? Does he agree? Or the recently-retired House Ways and Means Chairman Bill Archer (R). He was on it too.

Let's ask all of them ...


A Follow up on our earlier posts about the president's apparent desire to default on the US Treasury notes held by the Social Security Administration, two points ...

First, most of President Bush's personal wealth appears to be tied up in bonds. Do his get honored? Or is he out of luck too?

Second, what the president said today almost certainly violates his oath of office in which he swears to "preserve, protect, and defend the Constitution of the United States."

That would be the Constitution which reads (Am.XIV, Section 4): "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."