The word from global investors is that the US government’s financial situation is the biggest threat to the global economy.
A recent Bloomberg poll shows that almost half of global investors are limiting their exposure to the US as a result. US debt garnered 36% of investors’ concerns, Europe’s sovereign debt crisis 29%, and China’s slowing economy 15%.
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The lack of a grand bargain to resolve the fiscal cliff issues sets up a new series of possible budget crises, although the temporary stay on the debt ceiling may offer some relief.
Even with stocks at a five-year high, the looming deadlines that would usher in the fiscal cliff spending cuts and concern about when the US Fed will end its quantitative easing programs and begin raising interest rates are top concerns.
The poll showed that 47% of foreign investors are growing weary of Washington’s continual budget showdowns. Forty-five percent say political posturing is not influencing their investment decisions and 3% are actually increasing their US investment exposure.
The markets are showing little apprehension, however, despite the fact that investors have little faith that Congress and the president will reach a budgetary agreement this year.
Only modest changes are expected by 58% of respondents, 7% expect sweeping and meaningful changes, and 29% expect no meaningful changes at all.
Some analysts are saying that if the spending cuts
are not avoided, the US will have to double down on austerity at a time when economic growth is still fragile.