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'Clear Path' Needed on Deficit Reduction, BlackRock SaysPrinter Friendly Email Reprints Reader Comments Share | August 1, 2011Tom Steinert-ThrelkeldBlackRock, the large investment manager, said that the benefit of a debt limit deal will only be borne out if investors “see a clear path toward deficit reduction that encourages confidence in the U.S. dollar.’’Like what you see? Click here to sign up for Securities Technology Monitor's weekly newsletter to get the latest news and analysis that matters to the effective operation of capital markets.The manager of $3.6 trillion in assets for institutional and individual investors around the world said it was “encouraged by momentum” to raise the debt celing and cut the federal deficit.But it said, in a formal statement:“The precise composition and timing of any spending cuts will determine whether this proposal produces a real and significant reduction in the deficit. Avoiding default by the U.S. government is of paramount importance, but investors also need to see a clear path toward deficit reduction that encourages confidence in the U.S. dollar.“This is essential if we are to maintain America's AAA rating and encourage long-term investment in the U.S.”“America cannot afford further delay. With the U.S. economy continuing to show weakness, every day of delay in resolving this situation will erode economic growth, jeopardize job creation and undermine the credibility of the United States in global financial markets.BlackRock operates in 26 countries in North and South America, Europe, Asia, Australia and the Middle East and Africa.The BlackRock assessment comes after a weekend of brinksmanship that resulted in a debt limit deal before securities markets opened worldwide on Monday. Here’s The Hill’s summary:Congress and President Obama have a deal on raising the debt ceiling but the timing of the agreement, made late Sunday evening, leaves lawmakers on a tight schedule to get it passed in order to avoid a default.

The deal cuts spending by close to $1 trillion immediately and mandates a 12-member joint committee to create additional ways to reduce the deficit by at least $1.5 trillion over the next ten years. The committee must report its findings by late November. The package does not contain any tax increases.Additionally, Obama would get a second debt limit hike of up to $1.5 trillion if Congress either sends a balanced-budget amendment to the states before the end of the year or if the joint committee finds more savings and cuts.A vote on the deal is expected to take place Monday, though an exact time is yet to be announced.If you look further into the week ahead, you’ll find the debt deal also was something of a birthday present for President Obama. He turns 50 on Thursday.BlackRock, the large investment manager, said that the benefit of a debt limit deal will only be borne out if investors “see a clear path toward deficit reduction that encourages confidence in the U.S. dollar.’’

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A failure by politicians in Washington to reach a deal to raise the U.S. debt ceiling in the next few days -- particularly if Standard & Poor's makes good on its threat to lower the country's AAA sovereign debt rating -- could have “deep and wide reverberations” in credit and equities markets, according to Todd Rosenbluth, an analyst at S&P Equity Research. But bond funds might be unscathed.

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An overnight poll of 1,000 affluent Americans conducted Thursday evening by UBS Wealth Management Americas found that 40% are waiting out a resolution on the debt ceiling before putting any more money in the markets.

Commenting on Friday’s news from the U.S. Bureau of Economic Analysis that the economy grew an anemic 1.3% in the second quarter, The Conference Board said that from a business cycle perspective, there still aren’t signs that the economy has re-entered a recession. However, the business research organization does not expect GDP to grow more than 2% in the remaining half of the year.

As the nation reaches the Aug. 2 deadline to raise the debt ceiling, Fidelity Investments is telling investors not to panic-sell out of stock and bond funds, and to have confidence in money market funds, which have been safeguarded and have complied with stricter holding rules for the past year.