The most worrisome feature of today's economy is that institutions and individuals are acting as if the boom market will last forever.

Look first at our federal government. We are now operating with a budget surplus and planning tax cuts based on this unusual event. But did the surplus arise from cutting spending or raising taxes-the normal ways of generating a surplus? No, it came from a stock market so buoyant that tax revenue exceeded all expectations.

To plan fiscal policy on the assumption that we will have similar surpluses in the years ahead is like winning the lottery one year and assuming you will win it again every year.

New Jersey has done the same. It paid for a promised tax cut by raiding the state pension fund. The state said it would recoup the money by borrowing heavily and investing the loans in stocks that were expected to earn more than the borrowing cost.

I wish I were as sure of my market predictions as New Jersey's administration appears to be.

But what is equally scary is that individuals are reacting the same way. For example, my friends who work in the investment field report that many stockbrokers with high incomes are buying bigger homes on the assumption that their incomes will remain high.

What really made me see red, though, was a statement stuffer I received from a big brokerage house. It indicated that it might be smart to refinance your mortgage so you pay only your interest, and stop paying down principal.

"Paying off a mortgage as quickly as possible is often more of an emotional decision than a sound financial strategy," the statement stuffer said. It continued:

"Mortgage financing is often one of the least costly sources of funds available. So if you believe your investments may earn a higher rate of return than your mortgage interest rate, then it may make more sense to use your funds for investments rather than paying off principal monthly.

"It also may make sense to finance your down payment with 100% financing if these funds can be used for investment."

Wow!

We know that no fixed-income securities will yield more than a mortgage costs. And certainly the dividend yield on any stock will be well below the cost of mortgage finance. So what the brokerage is proposing, in essence, is that homeowners consider planning their finances on the assumption that stocks will continue to go up at a pretty nice rate.

God help those who have 100% financing whose stocks stay the same or go down!

My track record, like most economists', is not too good. In 1963 I was wrong on a forecast just eight minutes after making it. And when I speak in public, I like to be given the introduction: "Of all the economists who have been wrong, Nadler is the loudest."

But on one forecast I will stake any reputation I have: There is no investment as valuable as paying off your debts first. Individuals cannot count on earning more than the cost of a debt by investing the proceeds.

Community bankers should be wary of making business loans whose repayment depends on a soaring market. Financing luxury-car dealerships and other such ventures can be dangerous if the borrower has no fallback plan in case the market drops.

And if individuals took this big brokerage's proposal to heart, a market decline could also threaten mortgage loans and other consumer credits.

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