Uncertain economic policy holding back businesses, markets

Economic debate is holding back financial markets, a study from the University of Washington Foster School of Business recently revealed. The excessive arguments in Washington over the fiscal cliff, taxes and government spending has created a climate of uncertainty that may do damage to markets in the long run.

The study indicated that uncertainty due to indecision can last until long after a conclusion has been reached.

"We're finding that the lack of a decision can be just as bad as a bad decision," said Jonathan Brogaard, assistant professor of finance, who conducted the study. "The passing of a bill does not necessarily indicate the resolution of all uncertainty."

The research indicates that policy uncertainty can have an impact on cash flow for an average of six months, restricting the opportunities some companies have in regard to expansion or startup funding. Excessive debate can also increase risk premiums for an average of one year after economic uncertainty occurs.

Uncertainty over fiscal cliff could limit opportunity
While the study indicates that it would be beneficial for lawmakers to come to important financial decisions more quickly to better help markets and investors, the task may be easier said than done, especially with current debate raging over the fiscal cliff.

However, with talks seemingly stalled, it may be harder for entrepreneurs to obtain financing from traditional lenders. Negligible progress on the fiscal cliff has caused markets to slow, which could make it hard for startups to get off the ground with small-business loans. This may call for business owners to look to more flexible or nontraditional lenders, such as small or mid-sized banking institutions, which may offer more funding or solutions than big bank lenders.

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