Casino Enterprise Management

As gas prices in the United States rose to historic levels in 2008, the gears on the machine of the U.S. economy began to seize. In July of 2008, Americans witnessed a gallon rising to an unthinkable cost of $4.34. As a result, prices of goods and services throughout the economy skyrocketed. In reaction to the much higher cost of doing business, American companies began changing the way they operated. Layoffs began sweeping through the country. Many businesses that didn’t or couldn’t act quickly simply shut their doors. The American household also went through a behavior metamorphosis, looking for ways to get by on less until better times prevailed. As a result, the gaming and hospitality industries took a big one to the chin.

By the end of the summer of 2008, gas prices began to decline rapidly with the average cost of a gallon of gas dropping to $1.87 by December of that year. Was this too little too late? No; other economic ailments in the economy were just beginning to take shape. The financial markets were beginning a meltdown due in a large part to an unavoidable collapse in the residential and commercial real estate markets. Property values had risen to artificially high levels due to an unsustainable increase in demand brought about through government interference with the laws of supply and demand for real estate. For years they had applied various forms of pressure on financial institutions to make more loans available to more people by relaxing credit requirements. This thuggish and naive economic engineering catapulted the global economy off the proverbial cliff.

Recessions are as unique as we are as individuals and even more difficult to predict. It’s interesting to contemplate how the Dow Jones Industrial Average of today can appear to be on a trajectory to regain our losses of since the crash of late 2008. Considering bank real estate repossessions are at an all-time high and unemployment levels are holding steady at just below 10 percent, the disconnect is perplexing.

Fifty years ago, gaming was almost recession-proof, but today’s gaming is a much different animal. Back in the day, it was all about games of chance. Dining, entertainment and lodging were tools to bring customers in the door. The real money was made on the tables or on the slot floor. Somewhere along the line, gaming got in its head that yesterday’s goodies were tomorrow’s new source of revenues. That theory proved to work well. Revenues did increase enough so that it brought about changes in how casinos were planned, designed, built and operated.

Was the change worth it? Opinions vary, but it’s undeniable that a lot of money was made as a result. The cost is that the business of gaming became a much more volatile commodity. If you made your money pre-2001, you probably think it was well worth it. If your primary income earning days are post-2008, you might be wondering where the prize is.

Six dollar a gallon gas is survivable on its own. That market will correct itself in time, albeit some short-term pain. What’s most troubling is that there is a lot of seismic activity that’s been occurring in the tectonic plates of the global economy that could spell disaster for the United States. I refer to it as the American debt bomb.

The fact is that we are broke as a nation. We cannot pay our obligations. In order to not default, we are printing trillions of dollars and in turn devaluing the U.S. dollar while exploding our deficit. This is significant because the international financial system is pegged to our dollar, but that’s about to change. For the first time in history, the credit rating of long-term U.S. debt has been downgraded to negative, and it’s appearing more and more likely that the U.S. dollar will lose its pinning as the world’s reserve currency. That would be the single most significant event to occur in all of the U.S. economic history, causing gas, oil and produce prices to shoot through the roof, and almost overnight. Everything we consume will become immediately more expensive.

So in the end, Obama’s big bet could make $6 a gallon gas seems like the good old days and make a lot of us casino people long for the days of $18 rooms and $2.95 prime rib dinners.


Peter E. Mead
Publisher,
Casino Enterprise Management