About half of U.S. institutional money managers fear the eurozone is headed for a breakup while just shy of 75 percent fear the U.S. will suffer another credit ratings downgrade, a poll shows.
A Merrill Lynch/Bank of America Securities poll finds that 44 percent feel at least one country to leave the 17-member eurozone, a third saying such a scenario will unfold by the end of next year, MarketWatch reports.
Meanwhile, 70 percent predict a fresh of downgrade U.S. sovereign debt, and 48 percent predict such a move will happen as early as 2012, about a year after Standard & Poor's stripped the U.S. of its coveted AAA rating last August.
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"The gloom wasn’t just about Western government finances, either. A large balance of money managers expect the global economy to weaken and for earnings to fall over the next year, and nearly all of them expect the Chinese economic juggernaut to slow," MarketWatch reports.
In Europe, governments are rolling out austerity measures with the aim of convincing investors not to punish their debt, which increases pressure on some governments to default and abandon the currency.
Some, however, say austerity measures, including public-sector layoffs and tax hikes, may do more harm than good in that they eventually lead to less taxes coming back into the government, thus choking off growth in the process.
"The expansionary fiscal contraction story says that you cut, you show you are serious about cutting and then the confidence fairy will come along and she will start pulling in private investment," says Stephen Kinsella, professor of economics at the University of Limerick, according to Reuters.
"The expansionary fiscal contraction story is a lie. You don't cut your way to growth."
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