Robert L. Reynolds: Meeting America's Solvency Challenge

8/7/2019 Robert L. Reynolds: Meeting America's Solvency Challenge

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Meeting Americas

Solvency Challenge

Robert L. Reynolds

President and

Chie Executive Ofcer

Putnam Investments

Edited from a speech

given to the Investment

Advisor Association,

Boston, Massachusetts,on April 28, 2011

My topic today is Americas solvency challenge a very timely topic that we see

reected these days in the news media all the time. By defnition, this talk has to touch

on some very serious problems beore it sketches out some positive solutions centered

on reorm o Americas retirement systems. Even there, I need to warn you o a new

threat to retirement savings incentives that we will all ace.

So beore I talk about some o these hazards, let me assure you that I have always been

an optimist about America, and I still am. This is an incredibly creative, dynamic, and

resilient country. I believe we will rise to meet the challenge Im here to talk about. And I

am actually bullish about the next year or so. Our economy is growing. We will prob-

ably see record corporate earnings this year, which is what ultimately drives stock

prices. And yet, I think all o us know that our country is at a critical inection point. We

really do ace a choice between decline and renewal.

Our choice: Decline or renewal

I believe we all know in our bones that Americas uture economy has to be very

dierent rom our recent past. We cant go back to 2007, with an ocial savings rate

near zero, houses turned into ATM machines, and leverage rising everywhere. We

shouldnt want to replay that movie. We know how it ended.

We have to fnd a way orward to renewed national solvency. We have to make a tough,

sometimes painul, transition away rom old patterns o debt, leverage, and debt-ueled

consumption toward a new economic model centered on higher saving, investment,

new business ormation, and job creation. Our goal should be to reboot a solvent

America that can compete, win, and grow in tough global markets. And its about time.

Because these budget debates we read about and see on TV every day are not media

hype. The surge in ederal spending since 2008 has our national debt growing by

about $2 million a minute. So i I talk this morning or hal an hour, were all going to

owe about $60 million more by the time I take questions. By next week, we will add

more than $20 billion to the national debt. Were on a dangerous, unsustainable

course, and no one can say we havent been warned.

We have been warned

Just last week the Wall Street Journalran two ront-page leads, letting us know that the

tectonic plates o the global economy are rumbling. First, we saw the S&P drop its long-

term outlook on U.S. debt prospects rom stable to negative, noting that they may

also lower Americas triple-A credit rating within two years. The next day, China took

I believe we all know in our

bones that Americas utureeconomy has to be very

diferent rom our recent

past. We cant go back to

2007, with an ocial

savings rate near zero,

houses turned into ATM

machines, and leverage

rising everywhere. We

shouldnt want to replay

that movie. We know how

it ended.
http://www.putnam.com/


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new steps to make the yuan more readily available in global markets, one more step

toward being able to compete with, or displace, the dollar as a global reserve currency.

Some here may recall that just a ew weeks earlier, the International Monetary Fund had

questioned Americas credibility on our national debt. This week, the IMF issued a

report suggesting that Chinas economy could surpass Americas as early as 2016, in

purchasing power terms, not per capita. These are the kinds o signals that make it eel

as though history is on ast orward, and its not moving in our avor.

Americans are worried, and rightly so. Recent polls show confdence in our uture at an

all-time low. For the frst time ever, a majority o Americans expect that their childrens

utures wont be as good as theirs. Clearly, the ater-shocks rom the Great Recession,

especially stubbornly high unemployment, play into that. But so does concern about

Uncle Sams historic, post-crisis defcits.

Our defcits are among the worlds largest

2010 budget deficit as a percentage of GDP in some AAA-rated countries

U.S. U.K. France Canada Australia Germany

10.6% 10.4%

7.0%

5.5%4.6%

3.3%

Note: IMF calculations or the U.S. dier rom Congressional Budget Oce fgures, which put the U.S. defcit at

8.9% GDP.

Source: International Monetary Fund.

Federal defcits now claim a ar larger share o our economy than comparably rated

triple-A sovereigns, like the United Kingdom, France, Canada, Australia, and Germany.

When the worlds largest economy also runs the developed worlds largest defcits,

worry is well grounded, not hysterical. That may be one reason why the largest bond

house in America, PIMCO, announced some time back that they were getting out o U.S.

Treasury bonds.

Our political leaders show no sign o being willing to collaborate, or compromise, on

ways to deal with this at least not yet. Instead o serious bargaining and action to curb

long-term debt, this year in Washington promises little more than political positioning,

head butting, and games o chicken. Concern or Americas credibility and solvency

seems to be taking a back seat to the politics o the 2012 presidential election.

Federal decits now claim

a ar larger share o our

economy than comparably

rated triple-A sovereigns,

like the United Kingdom,

France, Canada, Australia,

and Germany. When the

worlds largest economy

also runs the developed

worlds largest decits,

worry is well grounded,

not hysterical.

We have to nd a way orward to

renewed national solvency. We

have to make a tough, sometimes

painul, transition away rom old

patterns o debt, leverage, and

debt-ueled consumption toward

a new economic model centered

on higher saving, investment,

new business ormation, and job

creation. Our goal should be to

reboot a solvent America that can

compete, win, and grow in tough

global markets.


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Americas national debt is skyrocketing

(%) 200

150

100

50

01930 19501940 19701960 1980 1990 2000 2010 2030E2020E

U.S. FEDERAL DEBT AS A PERCENTAGE OF GDP

Crash

of 2008

148%

Vietnam

War era

World War II

The GreatDepression

22%

108.6% Over 90%

Sources: Heritage Foundation compilations o data rom U.S. Department o the Treasury, Institute or the

Measurement o Worth (Alternative Fiscal Scenario), Congressional Budget Oce, and White House Oce o

Management and Budget.

While political kabuki plays occupy Washingtons attention, the national debt is skyrock-

eting. The Congressional Budget Oce advises us that President Obamas recent

budget would raise total national debt held by the public rom roughly 63% o GDP

today to more than 90% by 2020 with no end in sight! That is a debt-to-economy ratio

that America hasnt seen since World War II.

Interest costs on Uncle Sams debt will quadruple by 2020

800

600

400

200

0

INFLATION-ADJUSTED DOLLARS (2009)

2000 2020

$768.2

$280.1$186.9

Actual Projected

2005 2010 2015

($Billions)

Source: White House Oce o Management and Budget, 2010 estimates.

This fscal time bomb is ticking, and uture interest costs on our debt are on track to

explode. Unless we change course, interest on our debt will quadruple by 2020,

reaching nearly $800 billion a year. A sustained rise o just 1% in interest rates would add

$150 billion more a year to this burden! Albert Einstein once described compound

interest as the most powerul orce in the universe. And were gambling against it!

The Congressional Budget

Oce advises us that

President Obamas recent

budget would raise total

national debt held by the

public rom roughly 63% o

GDP today to more than 90%

by 2020 with no end in sight!

That is a debt-to-economy

ratio that America hasnt seen

since World War II.


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We now depend on oreign countries to fnance us

1970

Debt held by public:$283B

5%

1990

Debt held by public:$2.4T

19%

2010

Debt held by public:$8.4T

47%

Foreign holdings

Source: U.S. Department o Treasury.

Whats worse, we now depend on oreign creditors to fnance nearly hal o our debt,

about ten times as large a share as they held in 1970! Having just returned rom China,

I can tell you this: The whole world is watching us. They do expect us to get our act

together. They still believe we will. Thats the main reason why the U.S. Treasury canstill borrow huge sums o money 10 years out at roughly three and a hal percent.

But oreign confdence is defnitely not something we should take or granted. Just

over three years ago, in November 2007, Greece was able to issue 10-year bonds at

just 4.5% slightly less than the U.S. Treasury was paying then or our own 10-year

bonds. The Greeks cant do that anymore, can they?

Americas dependence on oreign buyers at our Treasury debt auctions makes us

dangerously vulnerable. I global investors conclude that our political leaders are unable

or unwilling to deal with our defcits and debt, we could lose a centurys worth o credi-

bility in a Shanghai minute.

So the way I see it, America doesnt really have a choice about coming to grips with our

debts and bringing government spending under control. The real choice we ace is

whether to act, or be acted on, by some very ruthless global markets. Thats why it is a

healthy sign that both parties, including President Obama and Republican leaders o

Congress, are at least talking about how to cut our defcit and control our debt, not

whether to deal with defcits but how. So lets hope that talk turns into action, preerably

in the current Congress, while America still has some maneuvering room.

The key driver is demographics

Heres the key driver o our defcits. America is aging, lie expectancy is rising, and were

seeing baby boomers turn age 65 at the rate o about 7,000 a day. Over the next 20

years, the number o Americans over age 65 will nearly double, rom 40 million to 72

million. Thats more people than all but a handul o member nations in the U.N.

And the central impact o Americas aging is this: Unless we see substantial reorms to

Social Security, Medicare, and Medicaid, these three entitlement programs alone will

grow by 2045 to absorb as much o Americas economy, 18%, as the entire ederal

governments tax revenue has averaged since World War II. So i we want government

Americas dependence on

oreign buyers at our Treasury

debt auctions makes us

dangerously vulnerable. So the

way I see it, America doesnt

really have a choice about

coming to grips with our debtsand bringing government

spending under control. The real

choice we ace is whether to act,

or be acted on, by some very

ruthless global markets.


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to pay or anything else whether that is the Marine Corps, Yellowstone Park, or

interest on the national debt we need to get serious about curbing entitlement costs.

Both parties will have to make some painul concessions, which neither seems quite

ready to do.

Unless there is reorm, entitlement costs will dominate uture ederal budgets

0

5

10

15

20

2005 2015E 2025E 2035E 2045E

Medicare

Medicaid

Social Security

Entitlements as percent of GDP

18%

(%)

Average total

tax revenue as

percent of

GDP

Sources: GAO Sept. 2004 baseline extended analysis; Bruce Bartlett, Tax Reorm Agenda or the 109th Congress

15 (2004).

More recent data not available at the time o this presentation.

In the absence o action, working Americans retirement confdence, as measured by

The Employee Beneft Research Institute (EBRI), hit a new low just last month. For the

frst time ever seen in EBRIs survey data, more people are now unsure o their retire-

ment uture than they are confdent.

No wonder that Americans retirement confdence has plummeted

0

5

10

15

20

25

30

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Confident Not confident

(%)

Source: Employee Beneft Research Institute and Matthew Greenwald & Associates, Inc., 19932011 Retirement

Confdence Surveys.

OK, thats it or the bad news. I know Ive given you a lot o it. So lets turn now to the

positive side o the ledger.

The central impact o

Americas aging is this: Unless

we see substantial reorms to

Social Security, Medicare, and

Medicaid, these three entitle-

ment programs alone will grow

by 2045 to absorb as much o

Americas economy, 18%, as

the entire ederal government

budget has averaged since

World War II.


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Our DC system gives us a great base to build on

The good news is that we do have a strong private savings system in this country: a

defned contribution workplace savings system that reaches more than 83 million

workers and rising. And we still have over 40 million people who enjoy defned beneft

coverage, though that number is at or alling outside the public sector.

This suggests to me that a key point o leverage or restoring confdence is this: I we

can strengthen the DC system and extend its reach, we can make huge strides toward

shoring up Americans confdence in their own utures. And theres every reason to

believe we can because the defned contribution system is dynamic, not static. It has

been changing and evolving or 30-plus years now, ever since the frst generation o

401(k) plans emerged in the 1980s.

Defned Contribution savings are both a huge success story and a great

base to build on

38

48

62

83

40

4239 40

42 42

75

20

35 38

0

25

50

75

100

1980 1985 1990 1995 2000 2005 2008

American workers covered

DB plans

DC plans

(Millions)

Sources: Private Pension Plan Bulletin, Abstract o 2008 Form 5500 Reports, U.S. Department o Labor,

December 2010.

Collective Bargaining Status o Pension Plans, Total Participants by Type o Plan.

The Pension Protection Act o 2006 has revitalized DC

With the passage o the Pension Protection Act (PPA) o 2006, we took a giant step

toward making the 401(k), and defned contribution generally, Americas primary

retirement system.

The PPA endorsed three game-changing elements o workplace savings plan design:

auto-enrollment, savings escalation, and guidance to wise asset allocation. The law also

gave plan sponsors who adopted such designs strong legal protection against litigation.

Taken together, these core elements o plan design marked a qualitative shit or the

better. Today, the evidence on these policy innovations is in. We have essentially solved

the challenge o accumulation. We havent yet ully implemented this solution, but we

do know what works.


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The Pension Protection Act o 2006 has revitalized the DC system

$5,784

$6,109

$5,419

$5,063

$4,727

$4,431

$4,246

$3,549

$4,538

$4,229$3,708

$3,410

$3,087

$2,585

$2,765

$2,943

$3,084

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

2015E

($B)

Projected DC assets 19992015

Source: FRC Monitor, September 2010.

Recent research shows that young workers in plans that enroll them automatically, that

escalate their savings rom 6% or so to 10%, and that oer guidance to age-appropriate

asset allocation, mostly liecycle unds, should be able to replace between 40% and

60% o their pre-retirement incomes, just rom their DC plans! Thats beore you countSocial Security, other savings, home equity, lie insurance holdings, or any other assets

they may have. In other words, post-PPA, auto-pilot plans really do get the accumula-

tion job done.

As more and more plan sponsors adopt this approach, millions more workers are being

put on the right course. And the DC industry is being revitalized, with total assets

projected to reach over $6 trillion by 2015.

Now, DC aces a new threat

But as I mentioned earlier, we do ace a potential new risk, aimed right at the heart o

retirement savings, rom well-intentioned, but poorly thought through eorts in

Washington to cut ederal defcits.

To understand this risk, you need to see savings incentives through the bizarre lens

through which many budget hawks in Washington view the world. They view the

temporary tax orgiveness that retirement savers get or putting unds in an IRA, a

K-plan, or variable annuities as tax expenditures. They have no way o measuring any

dynamic beneft that savings may bring.

So its not surprising that both o the recent defcit commissions proposed caps on the

maximum amount o savings incentives they would allow. One o the commissions

actually proposed initially to sweep away all savings incentives, then backed o to

suggest a cap o $20,000 a year or 20% o salary, whichever is greater.

Now that may not seem terribly menacing. But once savings tax breaks are on the table,

then they are in play, and the temptation to cut deeply into them is great. I anyone here

thinks this risk is small or remote, remember the last major tax code overhaul in 1986,

when ceilings or 401(k) contributions were severely slashed and so many conditions

were placed on IRAs that their sales were stymied or years.

Recent research shows that

young workers in plans that

enroll them automatically, that

escalate their savings rom

6% or so to 10%, and that ofer

guidance to age-appropriate

asset allocation, mostly

liecycle unds, should be able

to replace between 40% and

60% o their pre-retirement

incomes, just rom their DC

plans! Thats beore you count

Social Security, other savings,

home equity, lie insuranceholdings, or any other assets

they may have.

Personal and workplace savings

are an essential element to

restoring Americas long-term

solvency because true solvency

includes strong household

balance sheets as well as a

sustainable ederal budget.

Every dollar o retirement

savings is one less dollar that

will be asked or rom the

government in the uture.


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Heres a quick glance at tax expenditures as they are seen by budgeteers in

Washington.

Tax expenditures in the bulls-eye: 2011 estimates

Home mortgage deduction: $119.9B

Workplace health plans: $115.2B

Total retirement savings: $117.8B DC plans: $32.6B

PB plans: $51.5B

Self-employed plans: $16.2B

IRAs and Roth IRAs: $17.5B

Source: Joint Committee on Taxation, January 2010 estimates ASSPA.

As you can see, retirement savings are right up there with workplace health deductions

and home mortgage deductions as possible targets or capping or elimination.

Let me be clear. I completely agree that the ederal defcit is a true national security issue.

We need to get defcits under control and get our economy growing aster than our

debts, or we will wreck the America we inherited. But whatever we do to curb ederal

defcits, we should never cut into incentives or personal or workplace savings. It would

be a truly grotesque policy mistake to try to curb government proigacy by undercut-

ting incentives or individuals and amilies to secure their own retirement utures.

True solvency includes strong household balance sheets as well as a sustainable ederal

budget. Every dollar that retirement savers set aside is one less dollar that will ever be asked

or rom the government in the uture. And the incentives or workplace savings do work, in

part by encouraging employers, especially small businesses, to oer plans to their workers.

Lets look at some numbers. Heres a look at the distribution o the tax breaks or work-

place savings by income level. Sixty-two percent o these tax deerrals go to people

earning less than $100,000, 38% to those earning more.

Share o tax expenditures going to workplace savers by income levels

30%32%

27%

11%

0

20

40

60

Under $50,000 $50,000$100,000 $100,000$200,000 $200,000 or more

Participants with access and retirees with account balances

(%)

Source: American Society o Pension Proessionals and Actuaries, 2011.

Some on the political let see this as an unair tax break to the auent, but lets compare

these tax deerrals; as you all know very well, these are just postponements, not ull

orgiveness to the taxes the recipients actually pay.

But whatever we do to curb

ederal decits, we should

never cut into incentives or

personal or workplace savings.

It would be a truly grotesque

policy mistake to try to curb

government proigacy by

undercutting incentives or

individuals and amilies to

secure their own retirement

utures. True solvency includes

strong household balance

sheets as well as a sustainable

ederal budget.


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Share o tax expenditures vs. share o ederal income taxes paid by

income levels

30%32%

27%

11%8%

18%

23%

52%

0

20

40

60

Under $50,000 $50,000$100,000 $100,000$200,000 $200,000 or more

Participants with access and retirees with account balances

Share of federal income taxes (after credits) paid

(%)

Source: American Society o Pension Proessionals and Actuaries, 2011.

Here, you can see again that 62% o these tax deerrals go to those earning less than

$100,000, but these low and middle income workers pay just 26% o ederal income

taxes, so they get more than twice as large a share o savings tax breaks as the share o

income taxes they actually pay. Thirty-eight percent o the tax deerrals go to those

earning more than $100,000, but these people pay 75% three quarters o all

ederal income taxes.

In other words, more auent earners get almost exactly hal the share o savings

tax breaks as they pay in taxes. That seems pretty air to me you might even say

progressive. And as Im sure you also know, under every serious Social Security

reorm proposal being discussed in Washington, low-income workers benefts will be

protected, as they should be, while the brunt o tax increases and beneft reductions

would all on upper-middle class and wealthy Social Security recipients. How, then,

would it be air, or politically easible or that matter, to also undercut these peoples

private savings eorts?

Let me suggest another reason or caution about any defcit or tax code change that

undercuts workplace savings, or the incentives many businesses have to oer them.

Percent o moderate income workers ($30,000$50,000) who save

or retirement

71.5%

4.6%

0

20

40

60

80

With access to workplace plan Without workplace plan IRA only

(%)

Source: Employee Benefts Research Institute (2010) estimate using 2008 Panel o SIPP (Covered by an

Employer Plan) and EBRI estimate (Not Covered by an Employer Plan-IRA only).


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The impact o access

Access to workplace savings is vital to low- and moderate-income workers. Over 71% o

workers earning between $30,000 and $50,000 do save or retirement, but only i they

have access to payroll deduction savings plans at work. Among moderate-income

workers who lack access to savings at work, ewer than 5% set money aside to prepare

or retirement.

So capping or eliminating incentives or workplace and other retirement savings is

exactly the wrong direction to go. Moving in that direction could have devastating

impact, sending millions o low- and moderate-income workers toward retirement with

essentially no savings.

I hope that everyone here today will stand with me in opposing any reduction in savings

incentives, and I urge you to share that opinion with every member o Congress you

meet. We should not be cutting savings incentives; we should be doing everything we

can to expand workplace savings coverage or the many millions who lack it.

This is why Ive supported ideas like the auto-IRA payroll deduction proposal, a very

reasonable, cost-eective way to draw many millions o lower-income workers into

retirement savings, and give them a stake in our ree-enterprise system.

A new solvency

As this country grapples with both retirement issues, and the macroeconomic and

budget challenges they are part o, we need a new round o innovation, rom public policy

and rom the fnancial services industry, to move America toward what I have called a

New Solvency, grounded on higher savings, investment, and new business ormation.

The very frst step has to be admitting that our core entitlement programs need to be

reormed. As I see it, those politicians who deny that we even ace a real fscal problem,those who say we dont need to make any serious changes in Social Security or Medicare,

are the people who threaten to lead America straight into crisis, and then into truly awul

austerity, just as were seeing happen in Europe. I their kind o denial continues,

Americas entitlement programs will be slashed, but under extreme market pressures,

not through thoughtul policy reorm.

Those politicians and policymakers who are seeking good-aith, bipartisan solutions to

curb ederal spending and bring our defcits under control, are, in act, the truest

deenders o the common saety net. They are the real leaders, pointing Americas way

to fscal stability and a shot at renewed prosperity. And we can fnd them in both polit-

ical parties.

I believe the best frst step we could take would be to reach a grand bargain compro-

mise on Social Security, which may be the simplest part o our fscal challenge an

arithmetic problem, really even i it is one o the toughest politically. Both o the

recent defcit commissions oered reasonable solutions that would, in act, preserve

the essence o Social Security and protect the truly needy. But a deal here would almost

surely require Republicans to compromise on some measures to increase revenue,

The very rst step has to be

admitting that our core

entitlement programs need to be

reormed. As I see it, those

politicians who deny that we

even ace a real scal problem,

those who say we dont need to

make any serious changes in

Social Security or Medicare, are

the people who threaten to lead

America straight into crisis, and

then into truly awul austerity,

just as were seeing happen in

Europe. Those politicians andpolicymakers who are seeking

good-aith, bipartisan solutions

to curb ederal spending and

bring our decits under control,

are, in act, the truest deenders

o the common saety net.

Access to workplace savings

is vital to low- and moderate-

income workers. Over 71% o

workers earning between

$30,000 and $50,000 do save

or retirement, but only i they

have access to payroll deduction

savings plans at work. Among

moderate-income workers who

lack access to savings at work,

ewer than 5% set money aside to

prepare or retirement.


11/12

11

while Democrats would have to concede that beneft increases will need to be slowed,

or means tested. So this will require real courage and leadership.

We should link a solvent Social Security system to reorms that strengthen private

workplace savings, including the payroll deduction auto-IRA, so we reach virtually all

working Americans. The best practices seen in leading plans, such as auto-enrollment,

savings escalation, and smart, age-appropriate allocation, should be made the norm or

all workplace plans.

Public policy should also encourage lively competition among a host o lietime income

vehicles, annuities, non-annuity drawdown unds, and other lielong income solutions,

within plans and beyond. And the next round o retirement and pension legislation

should oer plan sponsors who adopt these best practices strong legal sae harbor.

Personal solvency, based on solid savings rates and a revitalized, expanded workplace

savings system, complements and reinorces a national commitment to fscal health.

And a robust private retirement savings system also uels economic growth, the most

critical variable o all.

Pro-growth policies

Higher savings lower capital costs. They oster more investment in existing businesses

and the creation o new businesses that we cant even imagine. To help these additional

savings fnd their way to ruitul investments, we need a series o positive policies to get

our economy growing more rapidly, especially on the job ront.

High unemployment is doing more than anything else to undermine confdence. So

why dont we aim at the bulls-eye, private sector job creation, right now, in this

Congress. Just as we give tax breaks or research and or investing in new plants and

equipment, why not oer a direct incentive or private sector companies to hire people

here in America?

I call this the 1% solution. Lets give any company, large or small, that hires one percent

more U.S.-based workers, a 10% cut in any ederal business taxes they may owe. Lit

your work orce by 10% or more in a single year, and your business would have no corpo-

rate tax obligation at all that year, none. The idea is to power our way past this phase o

slow growth onto a stronger upward trajectory, so our economy can grow aster than

our debt, and deliver a huge shot in the arm to public confdence at the same time.

This same direct pro-growth, pro-job ocus should shape any uture eort the

Congress makes to overhaul our crazy, complex tax code. We need to shit tax policy

away rom encouraging debt and consumption to rewarding savings, investment,

and entrepreneurship.

Since most new jobs in our country come rom young, growing businesses, lets

encourage venture capital ormation, oering access to equity, not just loans, or start-

up businesses. Lets oer a multi-year holiday on capital gains rom any initial public

oerings that an investor holds or a year or two.

Personal solvency, based

on solid savings rates and

a revitalized, expanded

workplace savings system,

complements and reinorces a

national commitment to scal

health. And a robust private

retirement savings system also

uels economic growth, the

most critical variable o all.


12/12

And lets acknowledge the vital role o talent, human capital, by encouraging the immi-

gration o more people who are willing to bring capital to America and launch a business.

Lets oer a ten-year green card to any oreign student who graduates rom an accred-

ited American university. We need their skills. I never think o these talented young people

or would-be investors as oreigners or aliens. I think o them as uture Americans.

ConclusionAs I said at the beginning, I am an optimist. You really have to be, dont you, i you are

lucky enough to be born in this country? People risk their lives to come here, every day.

And theyre right to want to.

So as scary as our defcits are, as huge as our national debt is, as stark a challenge as the

one we ace in securing our national solvency, America has dealt with much tougher

challenges beore. Im convinced we can meet this one, too, and reboot our American

dream. It will take common sense and some uncommon political courage. But all we

really need to do it, is the will.

The views and opinions expressed are those of Robert L. Reynolds, President and CEO,

Putnam Investments, are subject to change with market conditions, and are not meant

as investment advice. Mr. Reynolds is aliated with Putnam Retail Management.

Putnam Investments

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Boston, MA 02109

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Robert L. Reynolds: Meeting America's Solvency Challenge

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