The fiscal cliff just got steeper

Obama's re-election portends a big fight over the national debt and lots of volatility in financial markets.

By MSNMoney partner Nov 7, 2012 10:31AM

US NewsBy Rick Newman

There's less uncertainty on the political landscape. But there's now more to worry about.


For a short while, Wall Street seemed to be fantasizing about a strong Republican showing in the 2012 elections, which would have brought single-party control to a notoriously fractious and dysfunctional government in Washington, D.C. That's one explanation for why the stock market had a banner day as voters were heading to the polls, rising by nearly 1 percent on a day when there was little tangible news to justify the gain.


But after a seemingly endless campaign and $6 billion worth of political spending, Americans voted to reelect President Obama, keep Congress more or less the way it's been, and continue the divided government that's been in place for the last two years. Many analysts considered that a worst-cast scenario in terms of resolving the "fiscal cliff," the huge set of tax hikes and spending cuts set to go into effect in 2013 if Washington doesn't come up with a better plan.


Since averting the cliff would require some kind of compromise between Democrats who control the White House and Senate, and Republicans who control the House of Representatives, a continuation of the status quo suggests that the same spiteful partisan squabbling that already dominates Washington will suffuse negotiations over cutting the deficit and starting to pay down the $16 trillion national debt.


"A status quo outcome will be viewed as a disappointment, and markets may sell off somewhat in the short run," wrote David Joy, chief market strategist for Ameriprise Financial, in a brief analysis of the election's consequences. "It will be viewed as an outcome which offers the prospect for continued partisan bickering on a budget deal, and which increases the likelihood of brinksmanship on the fiscal cliff."


Many analysts assumed that a Republican sweep, including control of both houses of Congress, would have raised the likelihood of a deal to rescind most or all of the tax increases scheduled to go into effect in 2013—which amount to about $545 billion. But Obama wants to raise taxes on the wealthy, which Republicans have said they won't tolerate.


That portends a nasty standoff similar to the meltdown that occurred when the U.S. borrowing limit needed to be raised in the summer of 2011, and bitter partisan wrangling went till the very last second. The borrowing limit did get raised, but the needless 11th-hour drama—plus the collapse of a broader deal to corral the mushrooming national debt—led to the first-ever downgrade in the U.S. credit rating. Over the next month, the stock market fell by seven percent.


So it's little wonder that Wall Street expects more of the same when an even bigger set of deadlines hits at the end of the year. "In a scenario in which the political makeup inside the beltway is largely unchanged from last summer, we expect an intense battle," investment bank UBS advised clients in a research note ahead of the election.


There are still plenty of ways that a divided Washington could steer clear of the cliff and spare the economy another unneeded shock. President Obama, who hasn't staked out a strong stance on deficit reduction, could grant House Republicans a few of their priorities—which mostly involve spending cuts—in order to reach a compromise. Chastened Republicans might show a stronger inclination to solve problems rather than scoring political points. Business leaders, who have been heavily lobbying for a solution, might finally bang some sense into the politicians.


But none of that will happen for a while, if it happens at all. In the meantime, brace for a few weeks that may be the bumpiest of the year so far. The election is over, but the fighting probably isn't.

More from U.S. News

Nov 7, 2012 10:48AM
Americans have now officially and permanently paved the way for the decline of the U.S.   Greece, here we come!
Nov 7, 2012 10:58AM
Looks like 47 million on food stamps + Obama's allowing millions of illegal aliens + his skin color clinched his re-election. 

Its sad that 5.62 Trillion in debt in 46 months + 15 million more on food stamps + broken promises + 2 years without a budget and two budgets that got ZERO dem votes  would have told most voters this man can't lead.   

I guess tax returns , Big Bird , and more hollow promises was enough. 

I wished Obama in 2008 would have done a great job for this country and he fell short I sure hope he puts JOBS first unlike his first term. 

Well the Liberal west coast and blue dogs of the east  hold on tight because the next 4 years are ALL YOUR FAULT.

Nov 7, 2012 11:01AM

We can now kiss what this country was goodbye.


Nov 7, 2012 11:19AM

There is an old saying that you get the government you deserve by electing it.


May God help us all.........

Nov 7, 2012 11:10AM

The decline of America is now set in stone you don’t have to work to make your own prosperity the government will provide it for you. (Till the money runs out) U.S. debt is $53,400 for every man, woman, and child, compared to $39,400 for every man, woman, and child in Greece. We will now pass the point of no return, better learn to speak Chinese.  

Nov 7, 2012 11:18AM

In 2008 it was "we will fundamentally change America" - for those of you with your head up your you know what - this meant making us like Europe.  Executive privilege will be worn out the next 4 years and there will be no compromise from Barack Hussein Obama.  He has a mission and he will get his way by the end of 2016.


In 2016 - please do not blame Bush- I do not think he was a great President, but he does love this country-unlike Barack and Michelle Obama.


The pay you can keep to spend as you see fit and not how the government sees fit to spend will be significantly less over the next few years.  And health care - just wait for a rude awaking.


Go ahead and continue to be focused on reality TV, and other empty programs, that are there to distract you.  Also, continue to only listen to PMS MBC and other networks that spew out lies and hate.


God Bless America!!!  We are going to need all the prayers we can get!!!  


If you work for the government either as a military person or as a person representing our country on Soverign soil - do not expect to be protected by this man!



Nov 7, 2012 11:02AM
It's obvious people voted to protect the hand outs and to uphold perversion of the society. Now there is no reason for the government to keep pumping up the everything by excessive printing. Let the corrections begin!!
Nov 7, 2012 11:22AM

Obama bringing socialism to America and stupid voters loving it.  Enjoy your mistake you idiots.

Nov 7, 2012 11:33AM

RIP the late great USA-

Born July 4, 1776

Died November 6, 2012


You were great while you were here, and you will be sorely missed by the entire world. Your greatness and achievements will never be equaled. Amen!

Nov 7, 2012 11:20AM

This week is evaluating suppliers who are in those states that supported Obama, I stopped doing business in California nearly 7 years ago and it hasnt hurt my business.  Now we will look at those who support this idiot Obama.

As people fall deeper into poverty, dont expect my wallet to open to help, I am not donating anything to those states who supported Obama or organizations who supported Obama such as AARP.

We all need to let the minorities who voted for Obama to languish in their decision and too bad for public assistance.  Start turning in welfare and food stamp fraud, people need to rise up and allow these ignorant people to live in their ignorance. 

The next four years will continue to decline our nation, that is why world dictators supported Obama's re-election.


You made your bed liberals now lie in it and no one should help these ignorant people who believe Obama is their savior.

Nov 7, 2012 11:19AM
The New World Order is now a given.  The American lifestyle will now more quickly resemble China, Korea, and Mexico.  The Job creators will now sit, flee, but not engage.  What was the Angry American thinking?  America was great because we engaged in Commerce.  Who will start a Company in America now?  No job, no paycheck, no taxes paid.  When the Job Creators give up we have no tax base.  What in the world do Americans think will happen now?  We will now see the market retrace to 6,000.  We will see more deficits, more poverty, and more anger.  I don't make good decsions when I'm angry and it looks like the angry American has now angrily slit his own throat.  JMHO
Nov 7, 2012 11:00AM

Congress has always planned to go over the Cliff.  That's why they created it.  Why was it impossible to come up with a budget agreement but Congress was able to come together and create a Fiscal Cliff. It's because things have gotten to the point that they will have to pass some very unpopular legislation in order to fix anything.  Political suicide.  The automatic nature of the "Cliff" allows all the unpopular stuff to pass but every politician can stand up and say he didn't vote for it.  It's that simple. Ah...politics!


(I personally don't like the term "cliff".  It's more like a gradual decline that starts Jan 1.)  



Part 2 (Added around 3:00) It also will allow Congress to look like heroes when they come back later in 2013 and remove some of those provisions that were enacted automatically on Jan 1.  The cliff is a win-win for them. 








Nov 7, 2012 11:14AM
Nov 7, 2012 11:29AM
Welcome to


Who you gonna blame this time????????????
Nov 7, 2012 11:15AM




After four years of preparing - and waiting - to start a new business related to the real estate and construction business, I've now had to make the unthinkable choice that it’s safer to apply for disability. After all, as Obama said - government needs to be a bigger part of our lives.

Nov 7, 2012 11:20AM
I surely hope that you liberal POS that voted to allow the dictator to continue with his dip sh%t VP will remember that it was YOU that have created to downfall of the USA.  Four more years of enabling the welfare bums that do not want to work or pay taxes, to enable the blacks to continue holding their hands out for thier entitlements and the continuing deficit we have.  Raise the taxes for the working class, both democrats as well as republicans, raise it so high that you to scream and want to revolt.  Just remember that YOU re-elected this POS.
Nov 7, 2012 11:29AM
I really believe the best solution may be to let the fiscal cliff take place in January. I realize that I will take a hit personally but I think that it may finally shake this country up enough to finally try to turn things around. You can only grow government for so long. There are only so many "rich" people that you can gouge their hard earned money from.
Nov 7, 2012 11:34AM

Who will start and run businesses in America now?  Anybody with any business sense will now flee or sit out.  What were Americans thinking? Tell me who would want to run a store or business in America now?  What is the plan of the voter for this POTUS?  How will you eat?  How will your kids eat? What were you thinking?  How will you take care of yourself?  When business people no longer want to conduct business where will you work?  I don't think  the media did very well in terms of defining the alternatives in this election.

Nov 7, 2012 11:09AM
Welp, here we go. Americas chickens are comeing home to roost
Nov 7, 2012 11:44AM

I agree this election was a farce and Obama is a farce.   The rally cry "four more years" applies more than ever to Obama.  Four more years of Washington Gridlock, high unemployment, increasing debt, and increasing disintegration of our status in the world.  Of course the world is cheering Obama's win, he is an unqualified snake oil salesman who has destroyed America's place in this world.  They want more of  the same.  Blame Bush?  please.  That excuse is so four years ago.  


The dreams of his father?  His father hated America and wanted nothing more than to see it destroyed due to its supposed "imperialistic" ways. 


Well for those of you that drank the Obama Kool-Aid (again), get ready for a nasty hangover.... 

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