Putnam Investments: Election Will Be Referendum on Debt

Friday, 13 Jan 2012 08:28 AM

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November's presidential elections will reveal what path the country wants to take to tackle its debt problems, either through spending cuts or tax hikes, says Jeff Knight, head of global asset allocation at Putnam Investments.

The U.S. economy is improving and money should flow into its markets this year, but the voting public is aware of the need to narrow deficits.

Political bickering has reached a boiling point at times over how to narrow the deficits, with the country almost running into default during the 2011 debt ceiling debacle, in which Republicans and Democrats agreed on a compromise at the very last second.

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"Voters now understand how important it is to keep from going into a spiral of ruin with respect to the nation's finances. And while the process has been sloppy and discouraging at times, I think that the fact that the voters are forcing action at the federal level to try and solve some of our big budget issues is positive," Knight tells Yahoo's The Daily Ticker.

"This year's election is effectively a referendum on how we attack the debt problem. Do we do it through taxation or do we do it through spending cuts? The fact that it's a priority and the fact that it will be a leading issue in the election, I think, really sets the U.S. somewhat apart from other countries who are just as indebted."

The White House, meanwhile, say government spending is crucial to economic recovery.

A Commerce Department study finds that research, education and infrastructure are eroding and need government funding to regain their competitiveness.

"Some elements of the U.S. economy are losing their competitive edge, which may mean that future generations of Americans will not enjoy a higher standard of living than is enjoyed in the United States today," the study, presented to Congress, points out, according to the AFP newswire.

"Common to all three pillars — research, education, and infrastructure — is that they are areas where government has made, and should continue to make, significant investments."

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