FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you Linda, (Wachner) for that kind introduction. It is also my pleasure to present you with a certificate appointing you as Chair of the Greater New York Savings Bond Campaign. Thank you for agreeing to serve as our top volunteer here in New York. I know that Russ Turner our National Chair is glad to have you on the team as well.

As the chairman of the 2000 Federal government campaign to promote savings bonds, it is also my privilege to recognize two companies for their outstanding achievements in encouraging employees to save. They are two of only five organizations that qualified for our Golden Eagle award: Johnson & Johnson and Metropolitan Life.

J&J is the number one company in participation in the bond program with 84 percent of their employees buying bonds so I am happy to present Russ Deyo from J&J with the award. I would like to present MetLife's award to David Levene. More than half of MetLife's employees buy bonds. Thank you both for your support of the Savings Bond program.

Encouraging employees to invest in savings bonds is an important part of our efforts to meet America's demographic challenge as the baby-boom generation starts to retire. I would like to talk briefly today about how we are preparing to meet this challenge. Let me divide my remarks into three parts:

• First, the outlook for the U.S. economy and the central role of increasing national savings.
• Second, the importance of boosting personal savings, both through pensions and through direct household savings.
• And third, the growth in popularity of Savings Bonds as a positive example of how saving can be encouraged and increased.

If I had stood before you seven years ago and told you that by the year 2000 we would be on the way to our third consecutive budget surplus, you would have been skeptical. If I had told you that by the end of the 1990s we would have replaced the sluggish productivity growth of the 1970s and 1980s with the impressive growth rates last seen in the 1950s and 1960s, you would have been surprised at my audacity. And if I had told you that by the turn of the century, the combined total of unemployment and inflation rates in America would be close to seven, you would have questioned my sanity.

This is the reality of the American economy in 2000. The credit for these achievements is numerous and diverse; the hard work and entrepreneurial qualities of American people; the rise of e-commerce; and the intensified liberalization of world trade that helped open up economies around the world to American imports. But if I had to single out one factor of particular importance, it would be the dramatic shift from the era of rising budget deficits to one of rising budget surpluses.

There are many virtues to balancing the books. Budget surpluses act as an effective tax cut for individuals by lowering long-term interest rates. For example, we estimate that a 1-percentage point reduction in interest rates results in roughly a $250 billion reduction in mortgage interest expense over a decade. Balancing the books also re-loads the fiscal cannon so that it can be better prepared to meet unforeseen events, such as economic shocks.

One particularly important benefit of budget surpluses is that they increase the level of national savings. That is why the hard choices we made in 1993 and 1997 were so important. Their impact on national savings has been clear:

• The net national savings rate in the U.S. rose from 3.9 percent to 7.4 percent between 1992 and 1999 as a result of the move from budget deficits to surpluses.
• The growth of budget surpluses has created more resources that the Administration proposes to transfer to the Social Security Trust Funds to extend their solvency for the benefit of future generations.
• And surpluses have enabled this Administration to pay off Federal debt that reduces long-term interest rates and raises the level of private sector investment. This, in turn, has boosted productivity and lifted earnings in a virtuous circle that leads to higher surpluses. Greater income gives individuals the ability to save more on their own account.

But we must not become complacent. In spite of making genuine progress, America is still behind most of its developed country partners in terms of domestic savings. America's savings rate is also well below the level it was in the early 1960s. Yet in 1960, there were more than five workers for every retiree. This ratio has steadily declined ever since and now stands at little more than three workers per retiree. And it is projected to drop still further, to 2:1, by the time all of the baby boom generation has retired.

The aging of America is one of the great challenges of our time. That is why this Administration has pledged to continue to raise national savings by paying off the public debt by 2013. And that is why have pledged to extend the solvency of Social Security until about 2050 and the solvency of Medicare until at least 2025.

We cannot know what our economy will look like a decade hence. What we do know is that we are now enjoying a very prosperous time. The reality for all of us, for companies, for households and for government is that we cannot be complacent or take these good times for granted. Indeed, complacency can itself be a threat to good times if it leads to excessive borrowing or lending, unsustainable spending plans, or a failure to recognize the uncertainties that are inevitable in economic life.

Life expectancy is growing all the time. For an American couple retiring at the age of 65, one now has an even chance of reaching the age of 90. As recently as the late 1940s, life expectancy in America was just 62. This reflects the success of America's economic performance. But financial behaviour must adapt to take account of increased longevity. Social Security was designed when Americans lived just a few years after retirement. It did not anticipate post-retirement lifespans of up to 20 or 30 years.

In that sense, individuals have not adjusted their savings profiles to the degree that we believe is necessary to prepare for future uncertainties. The personal saving rate has been on a sharp downtrend in the past several years, averaging only 2.3 percent of after-tax income in 1999.

If one examines household wealth and income carefully, it becomes clear that many Americans are not saving enough to maintain their current standard of living in retirement. This shortfall is especially acute for lower-income Americans. As people live longer and consume other sources of support, an increasing number of seniors could find themselves relying completely on Social Security income unless saving is boosted substantially.

We have a two-pronged approach to this problem.

First, we are promoting initiatives to better educate Americans about the benefits of saving. It is clear that savings, like insurance, is sold not bought. Recent surveys suggest that more than half of all Americans have little or no idea how much they need to save and accumulate for retirement. And more than a third of those with savings have no savings plan.

Much of this can be rectified by promoting financial literacy among those who do not have savings, and among those who do save but lack a savings plan. It is clear that well-targeted financial education can work. For example:

• Instructing high school students on topics related to household financial decision-making, such as budgeting, credit management, saving and investment, appears to significantly raise their savings as adults.
• Employees, particularly those with moderate incomes, respond to savings education in the workplace, when offered frequent face-to-face retirement seminars.

During the remainder of this Administration, we intend to focus strongly on how we can best contribute to private sector initiatives to broaden the opportunities for individuals to build wealth through better financial management. As you know, last year the President charged the National Economic Council to launch a high-level interagency Task Force to promote financial literacy. We expect to announce progress towards both these objectives in the near future.

Second, we have launched new savings vehicles that make it easier for individuals to save and provide them with greater incentives to do so. For example we are asking Congress to approve the Retirement Savings Accounts that are part of our FY2001 budget proposal. Under this initiative, voluntary contributions up to $1,000 would be matched by employers or financial institutions.

In addition, we are encouraging payroll deductions - or "direct deposit" - IRAs by allowing employers to offer workers the opportunity to make IRA contributions on a pre-tax basis through payroll deductions. And in the past two years we have also launched SIMPLE, a retirement savings plan that provides a low-cost option for small businesses.

One clear success of our efforts to boost savings is the growing popularity of savings bonds, and in particular, inflation-indexed bonds. We introduced the I bond just 18 months ago to provide Americans with a genuinely safe method of protecting the value of their hard-earned savings from being eroded by inflation. At the same time, I bonds offer investors a real rate of return on their savings.

Sales grew from the $30-$40 million range a month in the first 12 to 15 months. But in the last three months, the popularity of these bonds has soared with sales amounting to more than $100 million a month while the volume of I bonds has more than quadrupled to over $800 million in the last year. This is a clear example of how the combination of clear education and the cooperation of employers such as MetLife and J&J can spread the culture of savings among employees.

In addition, last November we launched Savings Bond Connection, an on-line site for purchasing U.S. Savings Bonds, 24 hours a day. This has proved an instant success both for the I Bond and non-indexed Savings Bonds, such as the Series EE bonds. We have sold an average of $1 million worth of bonds each week online, two-thirds of which are I bonds.

In addition to the growth in volumes, the sales patterns of this unique security clearly point up their appeal. The average over-the-counter sale totals just over $1,000 compared with about $125 for EE bonds. And, 85 percent of I bond sales are in the one, five and ten thousand dollar denominations. These data indicate that more sophisticated investors clearly recognize the attractiveness and value of these bonds. We are also seeing steady growth in the smaller denominations that demonstrates our education efforts are beginning reach those who will benefit most.

Many federal agencies and a number of companies have also started to offer I bonds to their employees through payroll savings last year. J&J was one that took the lead in offering their employees this option.

Now that Y2K has passed, many more companies and organizations can focus on improving their systems technology so that they can offer Savings Bonds to their employees through payroll savings as well. Considering the success of the I bond program so far, there can be little doubt that many more employees would welcome a convenient way to add these and other types of securities to their portfolios.

One such increasingly popular instrument is the regular inflation-indexed Treasury security. After decades of offering plain vanilla securities to the market, the Treasury began selling inflation-indexed securities in 1997. We were attracted to them by their ability to stabilize both debt receipts of investors and debt payments of the government, thus offering benefits to participants on both sides of the transaction. The volume of such bonds has more than doubled to $76 billion in the last two years.

It is clear that we have succeeded in establishing a viable indexed instrument offering a yield curve that provides investors with an opportunity to diversify their portfolios. As the baby boomers begin to retire, I expect the ability to guarantee a fixed level of purchasing power at a future date to be even more in demand.

IV. Conclusion.

Let me conclude where I began. The U.S. economy is enjoying a rare time of prosperity and stability. There is a time to reap and a time to sow. This is a time to sow. We have an opportunity to make preparations for a time when benign economic conditions may not prevail as strongly as they do now. You have shown what can be achieved by working together to promote savings among the employees of America. We, in government, will do all we can to encourage others to follow your example. Thank you