Background image located in: R:\Adm\f000024\2005 Social Security Speech\_cover\_cover\Cover-blue.jpg Peter G. Peterson, Senior Chairman and Co-Founder, The Blackstone Group February 6&8, 2007 Economic Speech Washington Speeches

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 1 The QUAD-DEFICITS 1.Long Term Budget Deficits  10 years and beyond 2.Current Account Deficits 3.Savings Deficits 4.Political or Leadership Deficit  These four deficits are inter-related and should be resolved together

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 2

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 3 The Concord Coalition: Using reasonable projections, entitlement and interest alone are expected to consume all federal revenues in under 20 years

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 4

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 5  Indeed, if the federal government had to observe Sarbanes-Oxley and ERISA and amortize its unfunded pension benefit liabilities over a maximum of 30 years the same way public corporations are required to do, it would add a minimum of $1.5 trillion annually to the federal budget deficit!

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 6 % of GDP

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 7 Alternative 1: Social Security Reform: Borrow the Money How much would we have to borrow? Between 2018 and 2042, how big are cumulative cash flow deficits?  $5.4 trillion in inflation adjusted dollars!

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 8 [Section Title]

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 9  What about increased payroll taxes?  The cost of Social Security alone is due to rise from 11.2% of workers’ pay in 2006 to 17.5% in Hiking payroll taxes to cover the growing cost would put a heavy burden on the middle class – and that doesn’t include a much larger tax increase to cover projected costs of Medicare Alternative 2: Social Security Reform: Increase Taxes

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 10 The Concord Coalition: Using reasonable projections, entitlements and interest are expected to consume all federal revenues in under 20 years

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover Beyond benefit reductions, we should also seize this opportunity to increase personal savings, which are at historic low levels I have come to conclude that America is so consumption and borrowing obsessed that one must seriously consider a program of mandatory savings much as Singapore, Chile, and recently Australia has instituted

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 12

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 13 Healthcare Costs: Pre- and Post-Medicare (U.S. vs. Other G-7 Countries)  Health Care Costs as a % of GDP

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 14 Healthcare Costs: Pre- and Post-Medicare (U.S. vs. Other G-7 Countries)  In per capita dollars, the U.S. spends more than twice the developed country average – $5,711 vs. $2,681 in 2003  And there is very little evidence that our health outcomes are anywhere close to being twice as good as other developed countries

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 15  We Also Spend Much More on Last Months of Life

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 16  We Also Spend Much More on High- tech, High-cost Medicine  High cost surgical procedures  High cost equipment

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 17 Deficit #2: Current Account Deficits:  Previous Record in the 1980’s: 3.45% of GDP  Today: Nearly 7% of GDP (and widening by every account)  Import over $6 billion of foreign capital every work day  $2.9 billion to finance current account deficits  $3.2 billion to finance investments. These foreign borrowings finance about ¾ of our critically needed investments

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 18

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 19  The “hard landing”, “soft landing” debate, given that virtually no one believes that the present level of current account deficits is sustainable

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 20

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 21  Net National Saving: The Ultimate Bottom Line % of GNP

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 22  Personal Savings as a % of Disposable Income

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 23  Household Debt Service is 14.5% of Disposable Income as of Q3:06, a higher level than at any time in the last twenty-five years.

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 24  By some accounts, more than 60% of the country is considered in a housing “bubble” versus 40% a year ago (1) 1. Home price/income ratio more than 3 standard deviations above average. Source: Merrill Lynch

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 25 Ask All of Us A Rude Question:  Given that households are highly leveraged, that energy costs remain at high levels, that there are long term inflation fears and the potential for a decline in the dollar and a related increase in interest rates, what might be the effect of a significant rise in interest rates and a significant decline in housing values on consumer spending and the US economy?

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 26

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 27

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 28

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 29

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 30

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 31

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 32

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 33 What about in terms of increased spending for entitlements and why I say “It’s entitlements, stupid! Projected increase in Entitlement Spending between 2000 and 2040  9% of GDP

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 34  With or without “Trust Funds,” we still confront the same three tough choices: 1) borrow the money, 2) increase taxes, or 3) cut benefits

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 35 [Section Title]

PSERS all text elements (except subtitles) start at 2.00”(vertical) mark aligned with the level two text (and the top of this box) Here are additional, non- swapping colors: Footnotes align to the bottom of this box, or 3.62” guideline Backgrounds are located in: I:\Graph\CEO_Conference_2005\_cover POTs are located in: I:\Graph\CEO_Conference_2005\pgp_presentation\_POT Final JPGs are located in: I:\Graph\CEO_Conference_2005\_cover 36 In our Medicare world, we spend over twice as much on the elderly as compared to nonelderly than the rest of the developed world