Global Investors and G20 Fear Fiscal Cliff
It is the talk of the entire world everywhere except for the one place it should be talked about… the United States of America. The issue: The Fiscal Cliff.
A monetary disaster Americans have blissfully ignored throughout campaign 2012 now threatens a full scale global recession! Because of American inaction, a crisis of confidence has arrived and is already impacting the global economy.
The fiscal cliff is at the top of the agenda at the G20 summit that began yesterday in Mexico City.
What is the Fiscal Cliff?
You should know. But, if not because of the election, here is a quick summary…
The fiscal cliff is a combination of two things – taxmaggedon and sequestration.
Taxmageddon is a long laundry list of tax increases scheduled to go into effect on January 1, 2013. They will raise the average American’s tax bill about $3,500.
Sequestion are federal government spending cuts. 50% of those cuts will be applied across the board to all discretionary spending like, for example, on the Department of Energy. The other 50% of the cuts will be applied to the Defense Department.
The G20 in Mexico City
Speaking of the U.S. fiscal cliff, German Finance Minister Wolfgang Schaeuble:
Everything must be done … to negotiate the fiscal cliff in such a way that it does not result in any major additional damage or difficulties for the global economy
The head of the International Monetary Fund, Christine Legarde:
It will be important for the U.S. to address quickly the so-called fiscal cliff. Time is of the essence, and significant policy uncertainty in Washington must be addressed
Not all at the G20 were alarmed. OCED Secretary-General Angel Gurria was optimistic:
I think there will be no fiscal cliff. I think that in the next months, after the election, they will come to an agreement to avert such dramatic consequences
Every politician in America will surely use the Gurria excuse for ignoring it. The big difference, though, is that the G20 is openly discussing it. Our politicians are not and should be.
Global Investors Express Political Concerns
Growing distress about the fiscal cliff and how the outcome of the U.S. elections will affect it tops the list of international investor concerns.
Lisa Emsbo-Mattingly, assets allocation research Fidelity Investments:
If we see the level of dysfunction that typified the debate over raising the debt ceiling in August 2011, that could be very negative for the holiday spending season
The fiscal cliff is already affecting company spending and hiring plans. We are worried that the low level of Vix in the equity market is a function of complacency
Financial Times, 11/05/2012
Zach Pandl, senior interest rate strategist at Columbia Asset Management:
The fiscal cliff is the most important issue for investors as it will affect growth and the outlook for monetary policy.
Investors would like to take a more positive view on the economy, but are hesitant to do so until the cloud of the fiscal cliff has passed.
Financial Times, 11/05/2012
John Brady, managing director of global futures at RJ O’Brian & Associates:
If the polls are correct and President Obama wins, markets will become worried about how successful he and Congress will be in terms of avoiding it
London’s Financial Times summarize U.S. investor political analysis:
Some of the largest US asset managers and pension funds issued an urgent warning over America’s looming budget crisis, underlining concern in the markets of a damaging political stand-off in the event of a narrow election victory for Barack Obama
– “Fiscal cliff looms over campaign climax“, Dan McCrum and others, Financial Times, 11/5/2012
Everyone all over the world, except Americans, are talking about the fiscal cliff.
The G20 and global investors are very nervous about the United States. Past performance gives no one any confidence that U.S. dysfunctional government will perform any better this time around either.
It appears investor’s fear a close Obama victory with a Republican House and Democratic Senate. That is the likely result in today’s elections.
Investors appear to prefer a Romney victory over an Obama one. They think Romney better able to overcome political gridlock than President Obama.
Consider that while contemplating today’s voting.