2012 Elections May Change Policy Course, But Not the Need for Deleveraging, According to New Report from Pershing and Roubini Global Economics

June 27, 2012

With the U.S. Economy Facing a Heavy Fiscal Drag in 2013, Political Gridlock or a Withdrawal of Stimulative Policies Could Threaten Growth, Further Stunt Deleveraging

JERSEY CITY, N.J., — Pershing LLC, a BNY Mellon company, today announced the release of a study on the fiscal dynamics impacting the global economic environment in this critical election year. The report, Elections and Economies: The Limits of Power in the Age of Deleveraging, available exclusively through Pershing Prime Services, examines the potential impact upcoming global elections may have on markets and fiscal policy. Commissioned by Pershing and authored by senior economists at Roubini Global Economics, the independent study also explores the trend of deleveraging as a response to the current political and financial environment.

With political elections this year in the U.S. and EuroZone, and new leadership taking over in China, the report provides interesting perspective on variety of timely issues including:

  • Renewed recession risk in the U.S. if fiscal contraction triumphs
  • Reluctance of Eurozone politicians to shift gears on austerity or prevent a breakup
  • Prospects for emerging markets in an era of state capitalism
  • Policy-driven distortions in fixed income markets
  • The likely decline in currency carry trades
  • The impact of government intervention on commodities

"Political officials elected in 2012 will face a difficult set of trade-offs," said Nouriel Roubini, Chairman of Roubini Global Economics. "Public policy engagement and central bank intervention have been necessary to avert a second Great Depression, but political gridlock has lowered the prospect of a faster recovery. While policymakers can influence the mix of spending cuts, stimulus and taxes, they should not assume that upward momentum will continue in the absence of accommodative monetary and fiscal policy. This could lead to slower growth and, potentially, a disinflationary environment, which could in turn hinder deleveraging and impede the economic recovery."

According to the study, investors and investment professionals can make informed investment decisions and seek opportunities for positive returns by assessing the key top-down factors driving the global economy. However, even with those assessments, the macroeconomic forces at work in both established and developing markets will continue to be dominant factors in driving these returns. The report notes the potential impact that central bank policy could have on alpha seeking investors.

The report goes on to state that though upcoming elections could potentially bring new thinking to the various problems facing markets, transition to a better-balanced global economy is likely to be long and arduous.

"While we are living and conducting business in challenging times, the potential economic changes create enormous opportunities for our customers and the global economy,” added Gerry Tamburro, managing director, Pershing Prime Services. "As we approach the upcoming elections and the year ahead, we are dedicated to providing investment managers with high-level insight that will allow them to stay ahead of macroeconomic developments, understand the forces that are influencing policymakers’ decisions and anticipate global events."

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About BNY Mellon

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