Professional Investors to Super Committee: You Flunk
The U.S. deficit stalemate is a pathetic display — so say a broad range of investment professionals in a recent CFA Institute survey on the Super Committee bust. The bi-partisan committee was charged with determining $1.2 trillion in budget cuts to begin the difficult task of deficit reform in the U.S.
The committee failed to come up with anything — just what we need when markets are already unnerved due to the growing European debt crisis. CFA Institute members offered some advice on how to fix the budget standoff. They overwhelmingly support (71 percent) a combination of spending cuts and generating revenues through tax changes to reign in U.S. debt. All options to control our deficit should be on the table was a common refrain.
In the survey — sent to approximately 43,000 U.S. members of CFA Institute — participants were asked to choose the statement that best describes the congressional stalemate and inability to reach a budget deficit reduction deal. Nearly 90 percent had sharp criticism, calling it either a political failure (49 percent) or a negative sign signaling that serious budget reform should begin now (39 percent).
An online survey was e-mailed to 43,889 CFA Institute members in the United States on 21 November 2011 in order to collect their opinion on the controversy over U.S. budget and deficit remedies. The survey was closed at 7:30 a.m. EST on 23 November 2011. 3,549 members responded for an overall response rate of 8% and a margin of error of ± 1.62%.
Among the several hundred comments received, one respondent stated: “The current situation in Europe should be evidence as to what can happen if budget issues are not dealt with in a timely matter, and the longer it takes, the harder the future decisions become. Despite the evidence right in front of us, Congress still can’t get its act together. An ominous sign.”
“Reform must begin now. We must not allow the political fringes (right and left) to continue to impede the progress of true reform. Most reasonable people understand that our unsustainable debt can only be reduced through a combination of spending cuts AND revenue increases. Unfortunately, the ‘reasonable people’ camp does not seem to include Congress,” wrote another respondent.
Should Congress somehow find the ability to honestly begin addressing the problem, 71 percent of respondents said the correct approach to deficit control and reduction is to cut spending on entitlements and non-entitlements, while raising additional revenue through tax changes.
“A combination of increased revenues and reduced entitlement spending is the only option when you look at the numbers,” one survey-taker wrote. “Bowles-Simpson was a model that Congress and the president’s administration should have followed,” wrote another, referring to the bi-partisan commission that recommended a combination of tax hikes and spending cuts as a workable deficit-control solution that failed to gain traction in Washington.
After a year of bruising budget battles, the impasse only confirms what we already feared — that U.S. lawmakers are too entrenched to find common ground on the tax increases and benefit cuts necessary to stabilize the burgeoning U.S. debt. Less certain is whether fears over unsustainable levels of government debt on both sides of the Atlantic will continue to spook stocks.
There’s a lot at stake as politics plays out in a wide range of global budget crises. Adopting reforms to avoid another systemic disruption seems to be back on the table.
What do you think? Where do we go from here? Please comment below.