SCOTT REED: We need real change to our system

By Scott Reed

I spent a couple of hours last week listening to Ben Bernanke, the Federal Reserve chairman, testify to Congress. Testifying to Congress sounds like a big deal but Bernanke does it all the time. Nevertheless, it does give us a glimpse into the thought process of the most powerful man in the investment world.
He gave his speech and then took que-stions … and questions and questions.
He confirmed the fact that the country has made good money from our investment in the TARP program. You remember the TARP program, where we loaned money to the banks that got us in this mess in the first place.
There was a lot of banter about that investment, but we have received most of the principal back into our coffers plus interest, and those that have not paid us back in full as of yet are still paying on their note.
He said that historically our economy would take a hit of somewhere between 5 percent and 20 percent of our gross domestic product in order to stabilize our system after an event such as we have just survived. We were able to stabilize our system and make money in the process.
I have written about this before, but I think that was a remarkable outcome for the crisis he and others were managing.
It took the foresight to see what we needed and the intelligence to realize that it might have felt better punishing those that deserved it, but it would not have accomplished what we needed as a country.
There was much talk about entitlements and the debt ceiling.
Sometimes I think we act like the guy who fell off the Empire State Building and, as he hurtled passed the 85th floor, he said to himself, “Well, so good so far.”
Bernanke said that he didn’t think we could solve the problems with Social Security, etc., in the next two weeks before we have to come up with a solution for the debt ceiling, but he was encouraged that many in Congress seem to be willing to look at major reform in this area. I am encouraged by that statement as well.
This isn’t rocket science. Social Security was adopted in 1935 to be a supplement to retirement for the American elderly. Originally, Social Security was paid to only the major breadwinner in the family and could be drawn starting at the age of 65.
At the time there were many more young folks than there were old folks and life expectancy for males was two years shy of 65.
Now we have an age chart that looks more like a rectangle than a pyramid and a life expectancy in the mid-eighties. No wonder that the model is unsustainable.
Finally, Bernanke was asked why he was in favor of raising the debt ceiling. He answered by saying he wasn’t in favor of raising the debt ceiling; he was in favor of paying our debts.
Raising the debt ceiling was what we have to do to pay our debts and the ramification of not paying our debts is unthinkable.
We are considered the safest investment in the world. If we give the world markets a reason to question that safety, then we will be sailing into uncharted and unsafe waters.
Bernanke said that we have spent years spending money with no plan for paying it back and then we say we will never raise taxes or decrease benefits. Then we complain about raising the debt ceiling.
Does any of that make sense?
The reason the two party system has done so well over the years is that it forces us to compromise on major issues.
One party can’t have it all, but it tends to fall apart when there is no compromise. That is what we seem to have in Washington these days.
The Republicans refuse to raise taxes and the Democrats refuse to cut services, yet we know that we have too little money and too many services.
One of the best things you can do for your investments is to tell your Congressmen and women that we are past the point of good sound bites and we need real change to the system. That will take willingness to compromise and a desire to do what is right for this country.
Not easy, but necessary.
Scott Reed is CEO of Hardy Reed Capital Advisors in Tupelo. He can be reached at (662) 823-4722 or sreed@hardyreed.com.