Oct 15, 2013 3 min read

As Congress worked toward a short-term deal Tuesday to keep the United States from defaulting on its debt, those working locally in financial services or teaching finance expressed the need for reaching a more permanent solution than “kicking the can down the road.”

Melissa Stein, of Stein Wealth Advisors LLC in McMurray, acknowledged that failure to raise the debt ceiling could have “very wide economic and financial” effects.

Stein also said the three-month agreement that Congress was working on Tuesday would be “a Band-Aid,” but not a long-term solution, noting that the debt-ceiling issue surfaced in 2011 without a satisfactory result.

“That’s why we’re here again,” she said, referring to the fiscal cliff of last winter.

That sentiment was echoed by Jason Drill of Cecil Township, an investment adviser with Waddell & Reed, which will open an office later this fall in the new Park Place at the Meadowlands in South Strabane Township.

Drill said investors don’t like uncertainty.

“I think they’re tired of this ongoing sort of kick-the-can nature of things,” Drill said. “We had a debate at the end of last year, and here we are again.”

Drill said he’s telling investors to be vigilant with regard to their portfolios.

“I’m mentioning to folks to not be too complacent,” he said. “The stock market has been up this year, so a lot of investors seem to think ‘What’s the problem, really?’ But I tell them you can’t be too complacent, which can be dangerous as well.”

Stein said that so far, U.S. financial markets have shown their resilience in the face of Washington’s inability to reach a decision. On Tuesday, the major indices were down, but not excessively so.

“The market is smart,” Stein said. “It doesn’t expect (Congress) to actually let the deadline pass” without taking action.

While the markets have shown patience with Congressional inaction, Drill, who predicted a last-minute settlement before Thursday’s deadline, said failure to reach a long-term solution about national indebtedness “reminds investors how much debt we’re in.”

“Right now, I don’t see anything dramatic happening this week or immediately. But if this goes on, it can cause problems if we don’t address this as a country.”

Failure to take corrective action could have dire consequences for U.S. financial markets, said Dr. Nan Li, assistant professor of finance at California University of Pennsylvania.

Li said Tuesday that a three-month agreement on the debt ceiling will only postpone further the need for a much broader solution to the country’s debt.

“The government deficit is very serious in the long run. They have to find a valid solution or series of solutions,” Li said, adding that in her opinion, the government would have to cut some expenses and decrease spending, or find additional ways to raise revenue.

Li said without a way to effectively service long-term debt, the country would eventually see problems in the housing market – which has been in a strong recovery this year – and with increased difficulties in meeting short-term debt obligations such as commercial paper.

She underscored the markets’ vulnerability to uncertainty by pointing to the Federal Reserve announcement in May that it was considering tapering its bond-buying program – also known as quantitative easing – in coming months. The financial markets reacted so negatively that the Fed later postponed any tapering, keeping bond-buying fully intact at a pace of $85 billion per month.

“We found out that our economy is not as strong as we thought,” Li said.