Economy in Good Shape

[strandinthewind]

(commentary supplied)

Greenspan: Economy in Good Shape, Still Watching Inflation

Wednesday, February 16, 2005

WASHINGTON — Federal Reserve (search) Chairman Alan Greenspan (search) told Congress on Wednesday that the economic expansion rolled into the new year at a respectable pace and that inflation — while not an immediate threat — is something policy-makers must continue to guard against.

Greenspan, delivering the Fed's twice-a-year economic outlook to lawmakers, struck a fairly positive tone about the economy, which had been mired in a mid-year lull last year and has since improved.

"All told, the economy seems to have entered 2005 expanding at a reasonably good pace, with inflation and inflation expectations well-anchored," Greenspan said in prepared testimony before the Senate Banking Committee (search).

How inflation fares in the coming months, however, will shape whether Fed policy-makers — now on a gradual path of raising short-term interest — will need to adjust the speed of the campaign by either speeding up or slowing down, Greenspan indicated.

One factor to keep an eye on is whether companies — amid slowing productivity growth — boost workers' salaries and then pass along those higher costs onto customers, the Fed chief said.

"Going forward, the implications for inflation will be influenced by the extent and persistence of any slowdown in productivity," Greenspan said.

The inflation outlook also will be shaped by the direction of oil prices and the value of the dollar, which has been falling over the last few years.

Federal Reserve policy-makers embarked on a rate-raising campaign in June and have pushed up short-term interest rates six times, each in modest, quarter-point moves. The last rate increase on Feb. 2 left a key rate at 2.50 percent. Another rate boost is expected at the Fed's next meeting on March 22.

Greenspan repeated his call to Congress to take action to shore up the massive entitlement program of Social Security (search) and Medicare, which face huge financial strains with the looming retirement of 78 million baby boomers in 2008.

"Benefits promised to a burgeoning retirement-age population under mandatory entitlement programs, most notably Social Security and Medicare, threaten to strain the resources of the working-age population in the years ahead," Greenspan said.

"Real progress on these issues will unavoidably entail many difficult choices. But the demographics are inexorable and call for action," he added.

In his prepared remarks, Greenspan didn't prescribe any fixes or weigh in on President Bush's proposal to allow workers under age 55 to divert a chunk of their Social Security taxes into voluntary, private investment accounts.

However, Greenspan in previous appearances before Congress has said benefit cuts and possibly tax increases would be need to close the massive funding gap faced by Social Security. [taken with the other bolded quote, this means he recognizes that Greenspan tows no party lines and tells it like it is and that is why I like him]

He also repeated his call for Congress to be more fiscally disciplined. [falls on deaf ears to these so called fiscal conservative spend money in the the name of Christ idiots.]

Before the Fed started to push up rates in June, its key rate, the funds rate, was at a 46-year low of 1 percent. The funds rate is the interest banks charge each other on overnight loans and is the Fed's main tool to influence economic activity.

That extraordinarily low rate was used to shore up the economy, which struggled to recover from the recession of 2001 and the Sept. 11 attacks. With the economic expansion more deeply rooted, the Fed needs to move the funds rate to a more normal level so all the cheap money does not lay the groundwork for inflation.

Despite the Fed's increases to short-term rates, long-term rates such as mortgage rates, have actually moved lower in recent months in the United States and some other countries, Greenspan said.

Private economists have been puzzled by the decline in long-term interest rates and Greenspan admitted that he was stumped as well.

"For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum," Greenspan said.

But the Fed chief cautioned that investors should be careful in taking the continued existence of low long-term rates for granted.

"History cautions that people experiencing long periods of relative stability are prone to excess," he said. "We must thus remain vigilant against complacency."

http://www.foxnews.com/story/0,2933,147780,00.html

[strandinthewind]

(emohasis supplied:


Greenspan: Private accounts OK
Fed chief tells senators that Social Security's finances require 'alternative,' but advises caution.

February 16, 2005: 11:27 AM EST

NEW YORK (CNN/Money) - Federal Reserve Chairman Alan Greenspan told a Senate panel Wednesday that he is in favor of introducing private accounts into Social Security, but with some caveats.

Action is needed on Social Security reform before the first wave of baby boom retirements -- starting in 2008 -- threaten the resources of the system, Greenspan told the Senate Banking Committee in response to a question from panel chairman Richard Shelby of Alabama.

Greenspan expressed his support of introducing private accounts into the system, noting the demographic challenges facing Social Security. "Because the pay-as-you-go system will be very difficult to manage, we need an alternative," he said.

But, he warned, if accounts are introduced into the system, "We have to do it in a cautious, gradual way. ... (We) should go slowly and test the waters."

And he acknowledged private accounts have no effect on providing long-term solvency to the system. [thus my point - interestingly Fox left this quote out ]

In his prepared testimony, the Fed chairman said, "Beyond the near term, benefits promised to a burgeoning retirement-age population under mandatory entitlement programs, most notably Social Security and Medicare, threaten to strain the resources of the working-age population in the years ahead.

"Real progress on these issues will unavoidably entail many difficult choices," he added. "But the demographics are inexorable, and call for action before the leading edge of baby boomer retirement becomes evident in 2008.

"This is especially the case because longer-term problems, if not addressed, could begin to affect longer-dated debt issues, the value of which is based partly on expectations of developments many years in the future," Greenspan added.

Greenspan is expected to be pressed by senators to elaborate on the economic effects of President Bush's proposed addition of individual investment accounts to Social Security. The accounts are expected to increase the system's long-term shortfalls and the nation's growing deficit, both of which Greenspan has expressed concern about.

Greenspan headed up the 1983 commission that enacted a hike in the Social Security payroll tax and an increase in the retirement age, with the intention of creating a surplus to fund the retirement of Baby Boomers.

Find this article at:
http://money.cnn.com/2005/02/16/reti...ex.htm?cnn=yes

[gldstwmn]

His speeches are sometimes as obtuse as Stevie's lyrics.

[strandinthewind]

Originally Posted by gldstwmn

His speeches are sometimes as obtuse as Stevie's lyrics.

I know - his cerebellum must be dense with knowledge. I mean he should have just said "things are VERY SLOWLY getting better, the only way to fix SS is to raise the tax now, and QUIT spending so much money"

[strandinthewind]

Bush Hasn't Ruled Out Raising Payroll Tax Ceiling

Wednesday, February 16, 2005



WASHINGTON — President Bush says he has not ruled out raising taxes on those who earn more than $90,000 a year to help bolster Social Security's (search) finances.

Under the current system, payroll taxes (search) are paid only on the first $90,000 in wages. Bush has repeatedly said that he opposes raising taxes, but his advisers have been intentionally vague about whether he would also rule out subjecting a greater share of pay to the existing tax.

Asked directly, Bush said that he would not rule out raising that cap, though he does not want to see the payroll tax rate go up. The rate is now 12.4 percent of pay, split between workers and employers.

"The one thing I'm not open-minded about is raising the payroll tax rate. And all the other issues go on the table," Bush told a roundtable of regional newspapers, according to an account Wednesday in the New Haven (Conn.) Register.

The story was published as Bush, returning to the road Wednesday to push his campaign for Social Security overhaul, used a populist-style appeal here to sell his idea of personal accounts to independent-minded New Hampshire.

Some have suggested that taxing a greater share of earnings would be a good way to either help bring the system into long-term solvency, or to help pay for the transition to private investment accounts that Bush is pushing.

White House spokesman Trent Duffy said Bush will consider this option along with many others proposed. "Just because he said it was an option doesn't mean he embraced it," he added. Bush made the comments in the interview on Tuesday.

In his speech Wednesday, the president used his "ownership society" pitch as he appealed to the voters of New Hampshire.

"Investors aren't just Wall Street people, as far as I'm concerned," he told a crowd of roughly 2, 000 people packed into an airport hangar. "I think every citizen, every citizen has got the capacity to manage his or her own money — and if they don't, we'll help them understand how to and the rules will be such that they can."

"I believe the so-called the investor class ought to be every American, regardless of his or her background," Bush added, eliciting cheers from an audience assembled by the state's all-Republican congressional delegation.

With his quick visit here, Bush has now hosted Social Security-focused forums in eight states since his Feb. 2 State of the Union address. The campaign-style event took him to the home turf of GOP Rep. Jeb Bradley, who said during his fist run for Congress in 2002 that "privatization is not the answer" to Social Security's problems.

Though Bush heaped praise on scores of local politicians, from the state's two Republican senators on down, he did not mention Bradley.

"You don't have to worry about your senators. They're people who understand we have got to address the problem," he said, conspicuously omitting Bradley.

On the eve of the president's trip, the Democratic National Committee called on Bush to release the details of his Social Security proposal.

But the White House has said the aim now is to sell Americans on the idea that there is an immediate problem, even though the system doesn't run out of money for decades, in hopes that they will put pressure on their representatives in Washington — like Bradley — to get behind the plan.

Bush aides say the time for the legislative nitty-gritty of writing bills and negotiating with lawmakers will come after this intense public relations phase.

Bush promised to pound on the issue until Congress goes along.

"I'm going to talk to the American people over and over and over again until the members of Congress recognize we have a problem," he said.

Bush wants to make certain that workers age 55 and over understand that their Social Security benefits will not change under his proposal for private accounts. Political advisers see that as crucial, especially to protect Republicans who fear that Democrats will use their tangling with the popular retirement benefit against them in the 2006 midterm elections.

The president portrayed his plan as both good for the Social Security system and as a crucial step in building ownership for more Americans. But he did not mention that investing in stocks and bonds means workers with private accounts risk seeing their assets shrink, nor did he talk about lower benefits or the enormous transition costs of the accounts, estimated in the trillions of dollars.

He did acknowledge that the private accounts "don't fix the system."

Under estimates prepared by the Social Security Administration (search), the program's trust funds will begin to pay out more in benefits than they receive in payroll tax revenue beginning in 2018. By 2042, the trust funds will be empty and, under law, benefits will have to start being cut for all beneficiaries as a result.

http://www.foxnews.com/story/0,2933,147750,00.html

PUUUUHHHHLLLLEEEZZZEEEEEE