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July 29, 2011
Investors to Obama and Congress: Raise the Debt Ceiling
    by Robert Kropp

A group of asset managers and owners warn that inaction could lead to a downgrading of US debt and threaten the savings of pension plan beneficiaries.

Warning that "our nationís economic future is in doubt, and so is America's financial leadership in the world," a group of asset managers and owners, including a number of public pension funds, sent a letter to President Obama and members of Congress this week, urging them to raise the nation's debt ceiling immediately.

However, the letter stated, "Addressing the current federal debt ceiling crisis, by itself, will not fix the entire problem." The letter went on to argue, "Without a credible action plan to reduce the budget deficit, the US debt will likely be downgraded by one or more rating agencies."

The ongoing impasse on Capitol Hill over raising the debt ceiling has come to focus, not upon spending reductionsóboth parties agree that reducing the budget deficit is inevitableóbut upon increases in revenue. Conservative Republicans in the House have thus far rejected any plan that, in their view, increases taxes. This morning, as news of another slowdown of the US economy led to revisions of the severity of the recession, President Obama called on House Republicans to abandon a plan that "does not solve the problem."

Many economists argue that a significant contraction of government spending in a time of slow growth and high unemployment could plunge the nation back into recession.

The investors' letter to the President makes no mention of the imbroglio over increasing revenues, but stated, "The idea of America's losing its AAA rating was once unthinkable, but now highly likely if our leaders fail to act."

"If we are no longer among the highest rated government borrowers, investors will increasingly seek other currencies to store their wealth," the letter continued. "The decline in the value of the dollar will intensify inflation risk in the future, which will further erode our standard of living."

"As custodians of Americans' savings, we urge Congress and the Administration to reduce the deficit substantially," the letter added.

Signatories to the letter include the Florida State Board of Administration and the Public Employees' Retirement System of Mississippi. BlackRock, an investment manager that is a signatory to the United Nations' Principles for Responsible Investment (PRI), also signed the letter.


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