- Pressemitteilung BoxID 335493
"Days of Reckoning: The Potential Impact of the 2012 Elections on the Markets"
iShares Market Perspectives by Russ Koesterich, iShares Global Chief Investment Strategist
The US economy remains dangerously close to "stall speed", a condition in which any exogenous shock can push the US back toward recession and impact global markets. At the same time, fiscal pressure is expected to hit a tipping point later this decade as the full brunt of demographic shifts begins to hit pension and healthcare obligations.
The first imperative for policymakers post-election will be to avoid the "fiscal cliff," potential spending cuts and expiration of the Bush tax cuts that would exert a fiscal drag on the economy of roughly 4% of GDP. If the US is not steered away from the cliff, the US economy could slip back into recession early next year- a view Koesterich shares with the Congressional Budget Office (CBO) - and stocks will be vulnerable.
But beyond this year, two critical macro issues could dramatically impact the long-term economic and fiscal environment: entitlement spending and tax reform. Koesterich says it will probably become apparent before the end of the next Presidential term that US entitlement spending is not currently sustainable. In 40 years the combined costs of Social Security, Medicare and Medicaid will consume all revenue of the federal government, the CBO estimates. In addition, we face ever-growing federal debt, which as of the end of June was equivalent to roughly 97% of GDP. Additional research shows that high debt burdens reduce long-term growth rates by one-third -- and can impact growth for over 20 years.
Because the markets are not today contemplating another one to two decades in the "slow lane," if the federal debt issue cannot be resolved, it would be a "game changer" for US financial markets, Koesterich believes. In fact, if the next Administration cannot begin to make a dent in the fiscal position, Koesterich believes investors should reconsider the long-term argument for US stocks.
In his latest iShares Market Perspectives (attached), Koesterich argues that fundamental change to economic policy can only happen inside the Beltway and the next administration is likely our last chance to make real structural reforms that would help keep long-term solvency in the US economy. In addition to entitlement programs and debt build-up, Koesterich argues the tax code has and will also become a significant impediment to growth. High corporate tax rates- among the highest in the G7 even with loopholes and credits- combined with complexity and the growing instability of the tax code harms the ability for US companies to compete against foreign companies who face little or no home country tax. Koesterich argues policy that leads to a more certain and less complex tax code could help trigger an increase in spending and potentially hiring, and with it faster growth.
Koesterich points out that the US government's inability to provide long-term solutions to critical issues has not yet hurt our financial markets to the extent of others. But soon attention will shift from Europe to Washington. Even assuming that a fiscal drag can be postponed, US economic growth is dependent on a number of structural issues- a sensible overhaul of the tax code and reforms of the long-term entitlement state- that requires policy makers to come to a quicker and more definitive solution than in the past four years. If we continue to stumble along with an indecisive or divided government, argues Koesterich, Europe may no longer be the biggest problem child in the global economy.
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