Paban Raj Pandey

Over 30 percent of U.S. households own shares in a mutual fund, an astonishing increase from six percent in 1980. Despite a slowdown during the summer months, America’s romance with the bulls is not abating. In other countries, people anticipate the return of the bears, augmenting other forms of personal saving in case
trouble hits. Americans, on the other hand, appear to have thrown all caution to the winds, putting their faith in “paper profits” from the stock market rather than the steadier, more boring accumulation of real personal savings. Dazzled by newspaper stories of people who accumulated a “stash” by age 50 or even younger and go off into merry retirement, Americans are continuing to save less. U.S. personal savings have crashed from 9 percent in 1981 to 4.7 percent in 1995.

But what if the bears return? With so many future nest-eggs being placed in the stock market basket, many of today’s equity gamblers could face a ruinous future should their luck run out. Already there are longer-term trends that point to real trouble.

The 76 million Americans born between 1946 and 1964 will begin to retire
in 2010. As their number outpaces the number of U.S. workers paying
payroll taxes, Social Security the traditional savings pot for many Americans  will cease to be secure. By 2031 it is projected to go insolvent. Earlier this year trustees for the Medicare trust fund reported that by 2001 Medicare will be $53 billion in the red. At the same time, more and more companies are switching from defined benefit plans under which retirees are paid a guaranteed monthly sum to plans like the 401(k)s in which employees do the bulk of the contributingincreasingly in the stock market.

Moreover, as Americans are living longer, parents are consuming assets
that would otherwise go to their children as inheritances. So they are
trying to make up for lack of assets and savings by hoping for even
higher yields from the stock market than those today.

In the 1950s, Americans saved twice as much as they save today. And most people trusted in Social Security. A decade later, when Medicare was introduced, few doubted that
government would be there for them. Today, amidst warnings that both institutions are heading for trouble, that confidence has eroded. Nor are people able to soothe their worries on the wage front. Last year the Economic Report of the President showed
that the average hourly wage, adjusted for inflation, has steadily
declined since 1973.

All the more reason for Americans to take another look at the more traditional forms of personal savings. Some economists have argued for lower taxes as a stimulus for personal savings. Others insist that the government’s own habits must set the example.
Right now, the federal budget deficit, though it has dropped from six percent of GDP in 1983 to about two percent now, is still a big drag on national savings. Were
government to achieve bigger savings through a balanced budget, borrowing
rates would drop, freeing up more capital for investment, leading to more
jobs and higher wages.

The net effect could finally encourage households to start saving again
as the best way to cope with their futures. Until then, Americans will
continue to ride the bull market
and pray, with their heads between their knees, when the bears eventually re-enter the ring.

) Pacific News Service

Quote of the day

As God is my mortgage

“My saying that the righteous should go into government is no different than the realtors celebrating one of their own going into politics.”

 Ellen Craswell, GOP gubernatorial candidate in Washington, who calls herself a “Christian radical.” (From “Battle in Washington Brings Soul-Searching,” in Tuesday’s New York Times)

Enter roulette, blackjack and one-armed bandits. Gambling has long provided cash-strapped states with a means to raise revenue without having to tinker with the tax laws. That explains how legalized gambling has grown into a $40 billion industry in the last two decades. In Nevada, 40 percent of state revenues come from gaming taxes. Today, only Utah and Hawaii do not permit any form of gambling. Since New
Hampshire became the first state to approve a state lottery in 1964, 36
more states have joined the club. Their argument: about 40 percent of the lottery revenue is channeled towards public education, economic development, the general fund, and other state accounts. The bottom line for each and all: revenue enhancement.

Gambling is also an industry that creates jobs. Following the collapse of its oil and gas industry in the early ’80s, Louisiana permitted
commercial gaming in 1991. In Mississippi’s rural Tunica County, the poorest
in the nation according to the 1980 Census, gambling chips have replaced cotton as the chief cash crop since the state legalized gambling in 1990. Indian
reservations that permit gambling have boomed. For some states, there is another temptation: If California, for example, had commercial casinos instead of just card rooms, the state could be saving billions that Californians spend every year in Nevada casinos.
Despite its economic benefits, there has been a voter backlash against gambling. When Tennessee officials, fed up with Memphis residents gambling in Tunica casinos, tried to legalize gambling, voters rejected the proposition. Attempts to broaden gambling in several states in 1994 and 1995 all failed. Organized
resistance groups have proliferated. Congress is now seeking to create a commission on the economic and social impact of gambling.

However, these recent reversals may be temporary.
Perhaps the most important factor holding back its growth has been the
expansionary cycle that followed the 1990-91 recession — an expansion
that no economist expects to last forever. As boom follows bust, and
states desperately seek additional sources of revenue, gambling will
again become an enticing option.

Even without a recession, states will be looking for ways to expand job
rolls under the new welfare reform act which requires welfare recipients
to go to work within two years of applying for benefits.

Gambling may not be an ideal way to go about raising revenue or creating
jobs. But don’t be surprised if the very same officials who inveighed
against welfare cheaters or the addictive dangers of tobacco are mum on
gambling. They may be eyeing the casino or the lottery as their one safe
fallback.

Quote of the day

Getting the life

“When they talk about ‘keeping it real,’ what is the reality they base it on?
What’s really real is you got to get down in the dirt and develop a responsibility that
says you can take care of yourself.”

– Abiodun Oyewole, a member of the Last Poets, on gangsta rap and the images portrayed by the late Tupac Shakur and other gangsta rappers. (From “Poet Warns of Rap Anger
Without Pride,” in Wednesday’s

New York Times ).