Magazine article The Hispanic Outlook in Higher Education

Money Realities and College Costs

Magazine article The Hispanic Outlook in Higher Education

Money Realities and College Costs

Article excerpt

When candidate Bill Clinton challenged George H. W. Bush for president in 1992, he was a long shot.

President Bush was very popular in early 1992. He had conducted a successful invasion of Kuwait. He intelligently secured the support of all the Arab countries, secured a favorable United Nations resolution and promised to pull our troops out after Iraq was expelled from Kuwait. He kept his word.

Our victorious troops returned home to parades and festivities that helped the nation heal its lingering Vietnam wounds. There was a renewed sense of optimism and pride.

Bush was so popular that well-known Democrats, who were widely considered strong presidential candidates, decided not to challenge him for the presidency. Bush seemed unbeatable.

The relatively unknown Arkansas governor, Clinton, however, stayed in the race. He was a long shot. Then the economy began to go south. It slipped through the spring and summer of 1992.

It became a major campaign issue. Clinton's team seized the moment and modified the old managerial bromide HSS (keep it simple, stupid) to ITES (it's the economy, stupid). It became their drum beat. Led by James Carville, they were relentless, to put it mildly, in keeping Clinton's campaign on that message. They peppered the Bush administration persistently about the sagging economy. It worked. The comeback kid was elected.

The nation is now engaged in another presidential campaign, and the economy is wobbly and outright disastrous for those who are unemployed. Unemployment at an implacable 9 percent is devastating. It will be a significant problem for the incumbent administration.

But this is not 1992. News headlines recently screamed that "Americans are making a little more money and spending a lot more."

Under normal circumstances, that would be a troubling sign for the economy. But a closer look at those government figures suggests another possibility: People are saving less money because it earns next to nothing in interest.

Saving is also difficult because inflation is raging in those areas that most affect Americans, i.e., gasoline and food prices keep rising.

Interest rates have been kept artificially low by the Federal Reserve since 2008 to help the economy. Unfortunately, super-low interest rates leads to lower returns. This discourages those who want to save and hurts retirees who have historically depended on higher interest rates to make ends meet.

Critics say the Fed's policy is punishing those who play by the rules - those prudent enough to set aside money or those who built up a nest egg and are living on fixed incomes that depend on interest.

So are Americans really spending more? Well, yes, they spent 0.6 percent more in September, three times the October increase. Spending was stronger among durable goods: cars, appliances and electronics, which is good news for manufacturers.

At the same time, earned income was quite flat. Salaries increased 0.3 percent; and overall income, just 0.1 percent. After deducting taxes and adjusting for inflation, income actually fell for a third straight month.

So to make up the difference, many Americans cut back on savings. The savings rate fell to its lowest level since December 2007, the first month of the recession. That was also when the Fed started its series of interest-rate cuts.

Considering how little one receives for bank deposits, and given price rises in products everyone needs to buy, it is not surprising Americans are saving less.

Consumers have hit a level of saturation in their savings. The propensity is to spend, not invest or save. That cannot be good for the economy or for individuals long term.

The annual yield on six-month certificates of deposit has been low for months on end. Recently at around 0.23 percent, it is a far cry from 3.62 percent five years ago.

Paul Ashworth, chief U.S. economist at Capital Economics, believes the trend of Americans spending more will continue for years. …

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