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Politics and the Economy Dallas L. Salisbury President & CEO Employee Benefit Research Institute Agenda The Economic Environment The Political Parties and Retirement The Candidates Conclusions US Double Dip Recession, Not Stagflation

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Politics and the Economy

Dallas L. Salisbury

President & CEO

Employee Benefit Research Institute

  • The Economic Environment
  • The Political Parties and Retirement
  • The Candidates
  • Conclusions
us double dip recession not stagflation
US Double Dip Recession, Not Stagflation
  • Mild, double-dip recession but slow recovery
  • Headwinds: Soaring energy and food prices; tighter financial conditions; housing recession; falling home prices; collateral damage to employment and output; capex weakness
  • Tailwinds: Monetary and fiscal stimulus; global growth still strong; pent-up capex demand
  • Temporarily higher inflation but not stagflation
  • Risks: Deeper downturn; stickier inflation; supply-induced energy shocks; broader-based deterioration in credit quality; earnings shortfalls
us forecast at a glance
US Forecast at a Glance

Source: Morgan Stanley Research, E = Morgan Stanley Research Estimates.

global and local sources of us inflation
Global and Local Sources of US Inflation
  • Higher energy, food, nonoil import prices pushing headline inflation to 5-5½%
  • Domestic disinflationary forces should eventually win the tug of war with global factors pushing up inflation
  • Inflation tug of war
    • Longer-term inflation expectations rising, cyclical price hikes
    • Slipping operating rates will limit cost pass-through
    • Housing downturn to promote deceleration in OER
us financial conditions have tightened
US Financial Conditions Have Tightened
  • Four dimensions to financial conditions: Rates, asset prices, credit, and the dollar
  • Credit spreads widening and standards are tightening
  • Re-intermediation of the banking system
  • Central banks addressed the liquidity crunch; is it over?
  • Sinking credit quality now driving spreads
  • Changes in financial conditions affect the economy with a lag
us housing recession poised to last at least until 2009
US Housing Recession Poised to Last at Least Until 2009
  • Affordability rising sharply from 17-year low, but …
  • Scant pent-up demand
  • Still-high inventories of unsold homes
  • Lending standards will tighten further, down payments will stay high
  • Single-family activity to contract by 25+%
  • Collateral damage: Employment, home prices
a perfect storm for us consumers
A Perfect Storm for US Consumers
  • Employment sliding
  • Softening wage gains and soaring energy and food quotes will undermine “core” income
  • Home prices likely will decline by an additional 10% nationwide
  • Wealth loss and single-digit returns require that consumers eventually rebuild savings
  • Mortgage resets: A smaller threat?

Medicare Parts B and D Costs as a % of Average Social Security Benefit


Premiums 12% 28%

Cost Sharing 1844

TOTAL 30 72

Note: Does not include premium and cost sharing assistance received by certain low-income beneficiaries or the income-related portion of Part B premiums paid by high-income participants.

the political parties and retirement
IRA’s best

401k if employer must be involved

DB undesirable risk

SSA insolvent – IA desired

Equal $ limits for all

Health access

IRA’s last resort

401 k with DB features

DB preferred

SSA essential – IA as supplement

Progressive limits

Health provision

The Political Parties and Retirement



the candidates and retirement
Nothing on website

Historical support for IRA expansion and SSA individual accounts

Website section

Protect Social Security

Strengthen Retirement Savings

Affordable Health Care

Protect and Honor Seniors

Keep SSA with no privatization

Automatic retirement savings and low income matches

The Candidates and Retirement



  • The economy in 2009 will dominate the new Administration.
  • The long term projections on SSA and Medicare will force action within 8 years.
  • Tax incentive levels will be a focus of either President.
  • Retirement will not be a front burner issue.
www ebri org and www choosetosave org and

Dallas L. Salisbury

President and CEO

Employee Benefit Research Institute and