[Sigh...] My expectations of Bush's press conferences are not very high. And he rarely makes the bar.
The questions from the White House branch of our Potemkin press corps also rarely rise above the mediocre, which is truly, truly pathetic. There were a few moments where a reporter pressed the President a bit on a particular point. Valerie Plame? Torture in the gulag? Lying about Social Security's "bankruptcy"? John Bolton pushing intelligence analysts to falsify intelligence so they could take the blame for his phony claims? No, it would be bad form for our "press corps" to ask about those.
President threatens to default on US debt
A couple of things stood out to me. Text of Bush's Press Conference-Part I and Text of Bush's Press Conference-Part II Washington Post/AP 04/28/05. Maybe it's because I'm a finance geek in my day job. But this just boggles my mind that the President of the United States would say something like this:
Now, it's very important for our fellow citizens to understand there is not a bank account here in Washington, D.C., where we take your payroll taxes and hold it for you and then give it back to you when you retire.
Our system is called pay as you go. You pay into the system through your payroll taxes and the government spends it. It spends the money on the current retirees and with the money left over, it funds other government programs.
And all that's left behind is file cabinets full of IOUs.
If investors in China, Japan and Europe actually take seriously what the President said Thursday night, if they even take it as a serious possibility, then we will all wake up Friday morning to the dollar crashing. Crashing big-time.
Because those IOUs in the "file cabinets" are securities backed by the full faith and credit of the United States government. Here's how it works. It's not that hard in the general concept. Government accounting is based on "fund accounting," which hospitals also use. That mean that instead of having one set of financial statements for the entire government entity, the money is divided up into various funds, each of which is accounted for as a separate entity. Each of them has their own balance sheet and income statement, and each fund is audited as a separate entity.
The Social Security Trust Fund funds the Social Security program. The general-purpose funds of the federal government are called the General Fund.
The Social Security Trust Fund is currently taking in more than it's spending on current obligations. It invests its excess funds in what is considered by every investor in the world except for supporters of Bush's Social Security phase-out plan, as about the most solid investment on the planet: US government securites from the General Fund. Backed by the full faith and credit of the US government.
Governments borrow money by selling bonds. When an individual or other accounting entity buys one of those bonds, they are loaning that money to the government. The government is obligated to pay it back with interest according to the particular terms of the bond. So when a family buys a Savings Bond as part of a program of college savings for their kids, they are loaning money to the US government General Fund. When the Social Security Trust Fund buys a bond in its investments of surplus funds, it is loaning money to the US government General Fund. Both are backed by the full faith and credit of the US government.
It's also the same guarantee that investors have when they invest in securities backed by the full faith and credit of the US government. China, Japan and Europe hold huge amounts of US government paper and are buying more all the time. If they were to even slow down their purcases in a major way, much less start dumping the ones they have on a massive scale, the dollar would collapse. And if the President's implication that the US securities owned by the Social Security Fund are worthless is taken seriously by those investors, they will start investing in something else instead and try to unload their holdings of US bonds.
So, if you hear first thing Friday morning that the dollar is in a nose-dive, it means that major investors in the world took the President seriously. If the dollar doesn't collapse, it means those investors believe his claims in that regard are completely bogus, as fake as the Iraqi WMDs.
In fact, in Bush's opening statement he said:
I know some Americans have reservations about investing in the stock market, so I propose that one investment option consist entirely of treasury bonds, which are backed by the full faith and credit of the United States government.
Only in Oxycontin-Land does the thing work both ways. If the securities held by the Social Security Trust Fund are worthless IOUs, then so are all the rest of the securities issued by the US Treasury. If this is a safe investment, then the Social Security assets consisting of securites on the General Fund are, as well.
The Republicans have gone completely "postmodern" on this thing, it seems, acting as though reality is what you want it to be. But money does have some rules that inevitably catch up with people who ignore them. And this is straightforward. If the Social Security's US government security holdings are worthless, so are all the rest of them.
He really assumes he conning the rubes. And with our press corps, he largely is, in effect. Fortunately, Franklin Roosevelt designed the Social Security system so that people already feel a strong sense of ownership in it. So he "Bamboozlepalooza tour," as Josh Marshall aptly dubbed it, to convince people to phase out Social Security has made people more and more hostile to his phase-out idea, i.e., private accounts.
Oh, and if you believe Bush's claim that I quoted above, I've got more bad news for you. Your bank where your checking and savings acocunts are held also does not have a bank account where they take your deposits and hold it for you and then give it back to you when you write a check or make a withdrawal. That's right. Your bank does not keep that money setting in a safe for you. No, they take it and lend it out to other people, just like the Social Security Fund is currently doing. And the money they don't lend out? Well, they keep a little of it, a small percentage, in cash for projected customer demands. The rest they invest. Including in things like those government securities backed by the full faith and credit of the US government. Just like the Social Security Fund does.
This must come as a shock to good loyal Bush Republicans to know that their bank accounts aren't setting there in the vault at their local branch waiting for them.
And lets take this:
And to compound the problem, there are fewer people paying into the system. In 1950, there were 16 workers for every beneficiary; today there are 3.3 workers for every beneficiary. Soon there will be two workers for every beneficiary.
Now, let me see. In 1950 the ratio of workers to beneficiaries was 16:1. Today it's 3:1. (Assuming for the moment that these numbers aren't bogus in some way, too. After all, I'm using numbers from Mr. WMDs-in-Iraq here.) And Social Security survived and adapted and is paying out benefits and has enough surplus at the moment to loan megabucks to the General Fund.
"Soon" the ration will be 2:1. Andthis should worry us? Gosh, it seems to me that it was far more drastic to go from 16:1 to 3:1, than it will be to go from 3:1 to 2:1. So even if we think of it in this misleading measure, it doesn't sound so scary to anyone who didn't spend most of their time growing up lying by the pool at the country club.
The bipartisan Social Security plan of 1983 which was one of Ronald Reagan's genuinely substantial achievements as President was designed to create the current surplus. So that when the ratio gets to 2:1 the fund will have enough money to pay its obligations. It makes it possible to make that transition to 2:1, just like it previously made the much larger transition from 16:1 to 3:1. That's why there's a surplus right now. That means the system is not pay-as-you-go as Bush claimed; it's just for the moment the fund is accumulating a surplus which will be needed for future benefits. That's why this ratio argument is phony-baloney marketing fluff.
Rewriting basic financial concepts
And only with a "press corps" as enfeebled as our sad American group could the President get away with constantly talking smack like this:
Because this money is saved and invested, younger workers would have the opportunity to receive a higher rate of return on their money than the current Social Security system can provide. (my emphasis)
Social Security is not an investment. It is insurance. Social insurance to make sure that the elderly have a minimum income so that they won't be destitute even if their luck is otherwise bad with their pensions and retirement arrangements. More and more companies either have no pensions or have converted their pensions from "defined-benefit" pensions to the "cash-balance" type, which are not nearly so beneficial to the employee. So this income insurance for the elderly is becoming more important than ever. And 20 years from now when many more people are stuck with those inferior "cash-balance" pensions, it will be even more important.
Bonehead Personal Finance 101: evaluate your insurance needs distinctly from investment plans. Insurance companies offer a lot of products that are hybrids of the two. They aren't necessarily bad, if they meet your particular needs. The following advice from a basic personal finance book, Personal Finance for Busy People (1998), applies also to the confusing package that the President is trying to pawn off on the public like he did with the nonexistent Iraqi WMDs:
Life insurance comes with various bells, whistles, and wrappers. New frills are constantly being developed, so that the range of types of policies and the murky jargon accompanying them can create great bewilderment for those of us who do not work in the industry. There is, I believe, much validity to the charge that this is by design of the insurance marketing people. Confused customers are likely to buy more profitable products. On the other hand, there is some basis for the industry's argument: Everyone's financial needs are different, so the more wrappers there are for life insurance, the more likely it is that an insurance agent can offer a product that fits the client's need. The offset to that is that insurance companies bundle up far more than insurance in many of their wrappers, often at high profits. (my emphasis)
And like the WMDs in Iraq, Bush's Social Security plan is not much more than "bells, whistles, and wrappers" designed to get the public to buy a package that produces a lot more public debt, produces a reduction in benefits and creates financial pressure that the Republicans can then use as their excuse for the next phase of the complete phase-out of Social Security.
How do we separate insurance needs from investment needs in Bush's phase-out plan? It's pretty basic: Bush is proposing to create private investment accounts by reducing the Social Security insurance benefits. They might keep the "Social Security" label on the resulting hybrid. But what Bush is pushing is a reduction in the Social Security program that exists today.
That's why it's goofy to talk about comparative "return on investment" between today's program and what Bush is proposing. The Social Security program today is not investment. It's insurance.
Oh, and that surplus? It's the same principle as private insurance companies use. They hold investments in amounts calculated to cover the likely payouts they will have in the future. They are private and the Social Security Trust Fund is public. But the laws of money work the same way for both.
And one other thing about private insurance companies: The rest they invest. Including in things like those government securities backed by the full faith and credit of the US government. Just like the Social Security Fund does.
So that more bad news, loyal Republicans! That insurance policy you've been paying on for years is also depending on those worthless IOUs in filing cabinets. Bummer.
Bush's version of the Iraq war
Q: Your top military officer, General Richard Myers, says the Iraqi insurgency is as strong now as it was a year ago. Why is that the case? And why haven't you been more successful in limiting the violence?
BUSH: I think he went on to say we're winning, if I recall.
But, nevertheless, there are still some in Iraq who aren't happy with democracy. They want to go back to the old days of tyranny and darkness and torture chambers and mass graves.
[Bruce - I should mention here that in Oxycontinspeak, the rooms in the American-run facilities when they torture people are not "torture chambers." Because if the Americans are doing it, it's not "torture." See how nicely postmodern Republicanism works?]
I believe we're making really good progress in Iraq, because the Iraqi people are beginning to see the benefits of a free society. They saw a government form today.
The Iraqi military is being trained by our military, and they're performing much better than the past.
The more secure Iraq becomes, as a result of the hard work of Iraqi security forces, the more confidence the people will have in the process and the more isolated the terrorists will become.
And so on and so forth. I'm really glad to hear that things are going so well in Iraq. We should be drawing down the troop levels by tens of thousands over the next few months, right? Everything is going well. We've reached a tipping point. We're breaking the back of the resistance. Democracy is on the march.
And how could anyone doubt what he says when it's all delivered with that inspiring presidential smirk?