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July 29, 2011 at 10:10 AM
Investors are keeping an eye on the debt ceiling fight in Washington, and they don’t like what they see, according to poll from UBS Wealth Management Americas, which also indicates that investor sentiment has reversed in recent days.
An overnight poll, released Thursday, indicated that pessimism over the short-term future of the economy reigns supreme, reversing a trend that in April showed 53% of respondents to be optimistic. Now 60% are pessimistic, with only 21% believing that in the short term things will improve.
Affluent investors are far too wary of the goings-on in Washington over the debt ceiling to place their trust in the markets just now. Among respondents, 40% said they were awaiting an outcome to the debt standoff before they would consider putting money back into the markets. The lack of a resolution to the debt ceiling situation worries them as well, with 40% highly worried that the nation will actually default.
While the size of the debt worries many in the context of how it will affect their financial goals—65% cite that as a worry, compared to 56% in April—Simon Johnson, former chief economist at the International Monetary Fund (IMF), wrote in a New York Times blog in May that the size of the debt itself is not the concern, nor is the need to cut the deficit as immediate as the current debate would have it. In fact, he says, “the total Treasury debt outstanding since 1950 has fluctuated between 30% and 90% of GDP, with the debt-revenue ratio never worse than 5 to 1—and in recent decades between 2 to 1 and 3 to 1.”
