|  Across My Desk
WIth this year almost behind us, America's economic landscape going forward looks to be dotted with some majorly high hills and deep valleys. I found the Nov. 22, Harris Bank "Outlook for the Financial Markets", published under the direction of Jack A. Ablin, Senior Vice President and Chief Investment Officer of Harris Private Bank, very interesting. Hope you do too. Here's some of what was in it: "Although the presidential victory was decided by a larger margin than in 2000, the challenges that face a second Bush administration are enormous. Here are, by our estimates, the key domestic issues: The savings rate. For decades, the average savings rate in the United States has declined. In 1981, savings as a percent of national income was 8.5%. That figure declined to 6.5% in 1998 and plummeted to 1.2% by the end of 2003. During that same period, household debt has soared to $9.7 trillion. Despite lower taxes and tax rebates, household debt has increased by a whopping 39% over the past four years. Sure, spending helps our economy in the short term. But in the long term, an inadequate savings rate has the potential to raise capital costs for investors. Medicare and Social Security. The oldest Baby Boomers turned 58 this year, and it remains unclear how the demands on the nation's Medicare and Social Security can be met. According to a Government Accounting Office study, the present value of Medicare's prescription drug benefit alone exceeds $8 trillion -- almost twice the outstanding U.S. Treasury debt. The outlook for Social Security is equally grim: The number of workers available to support Social Security recipients has dropped from 16 to 1 in 1950 to 3.3 to 1 in 2003. A recommendation to allow workers to establish private savings accounts with part of their Social Security taxes could reduce the federal government's obligations over the long-term, but the cost of such a shift would be enormous. Dependence on foreign oil. Our nation's reliance on imported oil puts us at a strategic disadvantage. Conservation could help, but so far efforts to improve automobile fuel efficiency standards have been met with resistance. According to the Environmental Protection Agency, U.S. oil consumption could fall by 143 million barrels per year if fuel standards increased by just one mile per gallon. Budget deficit. In the past four years, the federal budget has moved from surplus to a deficit of more than $400 billion. The nation faces tough choices between lower taxes and spending cuts. Economic growth in excess of 3% should help ease the deficit. One looming problem is the Alternative Minimum Tax, which could affect 18.6 million Americans next year with its higher tax rates. "And what does Harris Bank see in terms of financial strategies for 2005? "All signs point to equities for the period ahead, although we are only mildly enthusiastic about their prospects. A shift in some Social Security responsibility away from the government and onto individual workers would be positive for stocks. However, without the payroll taxes to fund current benefits the government would likely have to increase borrowing, and interest rates are also likely to move higher. As a result, we believe that equities are likely to remain in a holding pattern until there is a catalyst to move them higher. "
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