A sell-off in U.S. Treasury securities is a virtual certainty and the only question is when and how, according to major Wall Street bankers. Wall Street banks are big holders of Treasury securities and could suffer large losses if there is a sell-off. Wall Street apparently believes that such a sell-off could be drastic unless fiscal discipline is imposed in a rational and measured way rather than abruptly and indiscriminately, or not all. Unfortunately, the likelihood of a lame-duck Congress getting its act together to prevent automatic deep budget cuts and tax increases from occurring in January is thought to be low (“Alarm on Wall Street Grows as ‘Fiscal Cliff’ Nears,” CNBC.com).
Putting government spending on a sustainable and predictable path would also help jumpstart the economy and jobs, according to some. Failure to do that would have the opposite effect.
As Wall Street adds its voice to the chorus of demands and pleading for Congress and the President to act, the politicians seem to be defiantly refusing to come to terms even as the fiscal cliff approaches.
Investors and their advisers should be very cautious about making new financial commitments in the present environment. As always, investment decisions should be informed by the client’s investment objectives, risk tolerance, time horizon and overall mix of assets.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.