Financial

Back

Fiscal Headwinds: National Debt, Government Spending

June 18, 2012

During the last few months of 2012, investors will likely be witness to fiscal policy debates that will almost assuredly be highly political, and at times may contribute to volatility in financial markets.

—Marc Tommasi, Head of Global Investment Strategy, Manning & Napier

June 18, 2012

Given that it is an election year, the likelihood that lawmakers would seek to open discussion(s) on this topic prior to early November is relatively low. This is why it is important for investors to be cognizant of these issues today. During the last few months of 2012, investors will likely be witness to fiscal policy debates that will almost assuredly be highly political, and at times may contribute to volatility in financial markets. As a note, we do not believe the outcome of the Presidential election will have a significant impact on the intensity of these discussions and/or the end result.

Party affiliations aside, politicians have a clear incentive to ensure that their actions help the economy to avoid the most dire of potential scenarios. To be sure, they will walk a fine line in working toward compromise. The ideal outcome would involve agreement on an amount of spending cuts and tax increases that are sufficient to show financial markets that lawmakers are serious about fiscal discipline in the long-run, but where next year's adjustments are also not so overpowering that they wipe out recent positive momentum in the economy.

Download the PDF

¦
Advertisement