FROM THE OFFICE OF PUBLIC AFFAIRS
April 22, 2004
JS-1453
The Honorable John W. Snow
Prepared Remarks
The Bond Market Association
New York, NY
Thank you so much for having me here today.
I appreciate the work you do to keep the bond markets fair, efficient and open throughout the world.
I’m delighted to be here and to share with you the abundance of good news that our economy is experiencing right now – and I think you should feel pride when you hear this type of news. Your work is clearly part of the economic growth that we are seeing.
We’re on very solid footing, our upward trend is strong, and there can be no doubt that President Bush’s leadership on tax cuts has made the decisive difference. When combined with low interest rates, the Bush tax cuts are having precisely the impact we intended.
Just one year ago, the American economy was in a very different position than it is today. Then there was talk of a double-dip recession, with some commentators holding out the specter of deflation – which Chairman Greenspan dismissed just this week.
And of course, today people wonder if inflation is a threat – but inflation is still modest, so I'm not particularly concerned about it at this point.
I believe there is enough economic slack to keep price increases at bay, and due to intense competition, few companies have the ability to raise prices and keep customers.
So I think there is still a lot of running room for this economy to grow and expand in a non-inflationary way.
In light of all this, it’s amazing to think about what people were saying only one year ago about our economy. Even those who saw the economy in pretty good shape characterized the recovery as at best wobbly, weak or anemic.
Now, as you well know, the economy is in a strong recovery, with a GDP growth rate of 6.2 percent in the last half of 2003 – the fastest six-month growth rate in nearly 20 years. Leading private forecasts are projecting growth of four percent plus for the 2004 year, well above historical growth rates. The latest Blue Chip report forecast GDP would grow 4.6 percent in 2004, the highest in 20 years.
Exports are up. The manufacturing sector is beginning to come back. The housing industry remains strong. Business confidence is up and business spending has rebounded. We are beginning to see some come-back in the labor markets. Unemployment is down and the economy has created 759,000 jobs in the last seven months… 308,000 in March alone. Layoffs are down, unemployment is down, and help wanted ads are up. Initial claims for unemployment insurance have fallen substantially: down 20% over the last year.
I anticipate that this economy will be creating a lot more jobs in the coming months.
I’m often asked to make a prediction about how many jobs will be created going forward. I don’t know exactly, of course, and I don’t make personal predictions or estimates. But what I am confident of, what I do know, is that jobs will follow economic recovery, and jobs will follow economic growth. History tells us that and history will repeat itself today.
This is all part of our economic present and future here in the
The deficit is too large, but it is understandable and it is manageable. While addressing the deficit, we must remember that it is not historically overwhelming. And it is understandable, as I said, given the extraordinary circumstances of recent history.
With continued economic growth – which depends importantly on making the President’s tax cuts permanent – and restrained federal spending, we can cut the short-term deficit in half over the next five years.
If the tax cuts aren't made permanent, the
Economic growth is key to the prosperity of our citizens… and it also it increases Treasury receipts and helps to reduce deficits. But that isn’t enough. We also have to control government spending.
The President’s proposed budget combines both strategies – making tax cuts permanent and tight spending controls. By doing so we’ll be able to cut the deficit in half over the next five years to below 2% of GDP – low by historical standards.
When people refer to the deficit, it troubles me that they don’t always distinguish between short-term and long-term deficits.
As I’ve just explained, the Administration has a sound plan to deal with reducing the short-term deficit. We are also concerned with long-term deficits and are developing policies to address those very different issues. One of our top concerns is the rising cost of health care, and how that is deeply impacting long-term deficits.
When we released the 2004 Social Security and Medicare Trustees’ Reports last month, the Medicare report revealed even greater challenges than those confronting Social Security. While Medicare faces the same shifting demographics as Social Security, it is additionally burdened by sharp increases in underlying health care costs. From 1998 to 2002, health care costs rose 35 percent. Health care spending is growing as a percentage of GDP; its share was nearly 15 percent of our nation’s GDP in 2002 and is surely even larger now. Employer-sponsored health insurance premiums rose 14 percent last year alone. The negative impact of rising costs is evident in terms of the economy, jobs, and federal programs such as Medicare.
Rapidly rising health care costs place a great burden on the Medicare program, which is already under stress from the underlying shift in the age distribution of our nation’s population. Controlling health care costs is the real key to the long run fiscal sustainability of both Medicare and the federal budget.
According to the CBO, federal spending on Medicare and Medicaid will rise to 11.5 percent of GDP in 2050, up from 3.9 percent in 2003. If, instead of increasing at the rate of growth of per capita GDP plus 1 percent as assumed, per beneficiary spending were to grow at the rate of per capita GDP itself over the same time period, federal spending on Medicare and Medicaid will rise to only 6.4 percent of GDP in 2050, thus freeing roughly 5 percent of GDP for other activities.
Achieving a 1 percentage point reduction in the rate of increase in health care costs should be doable, but it will require the very best efforts of all of us concerned with the issue. Most importantly, I believe this slowdown in cost increases could be accomplished without sacrificing the quality and access to health care that our senior citizens deserve and have come to expect.
Clearly steps must be taken to address growing costs while maintaining high quality care for our senior citizens and, indeed, all citizens. The President has shown real leadership in seeking to reduce health care costs without diminishing quality or access to care. This Administration is committed to helping Americans obtain improved and more affordable health care coverage. Medical liability reform is critical to improve health care quality and reduce costs. We need to help stop harmful costly medical errors and provide liability protection for doctors and nurses who report mistakes in good faith. We need to employ more fully the efficiencies of information technology in the health care sector, such as physician order entry and electronic medical records.
Additionally, health savings accounts will help millions of Americans with medical expenses and encourage saving while putting individuals in charge of their own health care choices. The President has proposed refundable tax credits to help low-income workers purchase health insurance coverage, and proposed allowing small businesses to band together through association health plans, helping America’s working families to have greater access to affordable health insurance. And we’ve been urging Congress to act on all these important measures.
I know that you heard from Treasury Under Secretary Brian Roseboro this morning about some issues that are particularly important to your industry, and I’d like to touch on a few of those myself.
First, I want to let you know that Treasury is pleased with the growth and development of the Treasury Investment Program’s (TIP) market remains committed to further expansion. We believe that financing at the lowest cost over time requires a broad and deep investor base, and with this in mind, we continue to examine ways of promoting inflation-indexed securities and expanding the market for this asset class.
There is a natural and growing demand for inflation protected investments, and any expansion of the TIPS market would expand and diversify demand for Treasury securities.
Second, I want to talk about the ensuring lowest-cost borrowing over time.
Treasury’s primary objective in managing its marketable debt is to achieve the lowest cost, over time, for the federal government’s financing needs. To achieve this objective, the Treasury commits to regular and predictable issuance across a range of securities.
That means factoring “variance” into our debt management policies. It means reducing the uncertainty where we can and planning for where we cannot. And it means preparing the market, as much as possible, when we do have to make policy changes.
Treasury issuance will continue to support the broader functioning and growth of the fixed income market.
Finally, many of you are interested in the 30-year bond and whether there is any change in that policy. There is no change.
By working together and making the President’s tax cuts permanent, we can promise a prosperous tomorrow for this country. I appreciate what you do to achieve that goal, and I appreciate your having me here today.
Thank you very much.