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.


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660Comments
Nov 7, 2012 1:20PM
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Why is the stock market dropping today?  I for one am selling because I have $27,000 in the stock market that has a $10,000 captial gain.  I make less than $50,000 a year and this is my retirement fund. By cashing out now, I will save $1500 in taxes instead of waiting until January when the Bush tax cuts end.  Anyone who has stocks with captial gains needs to sell off now to secure the reduced taxes.  
Nov 7, 2012 1:20PM
Nov 7, 2012 1:19PM
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It went pretty much as expected.
So is the market... ... ...


Nov 7, 2012 1:19PM
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Here comes the 10,000 DOW I predicted a year ago would happen by the beginning of 2013 if our elected leaders in Washington weren't changed.  The cliff is closer than we think.  Just wait and see.
Nov 7, 2012 1:19PM
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gee looks like not everyone likes the win-Obama won America lost
Nov 7, 2012 1:18PM
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Well we made our bed but we wont be sleeping in it since we will all have to work harder and make less. While those 47 million on welfare get to enjoy the fruits of our labor. Oh and lets not forget all the illegals that will become legal without penalty but rewards. What have we done? are there really that many ignorant people out there that we defeated us.
Nov 7, 2012 1:15PM
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Allow me to sum up so many of the hyperbolic posts here today....

 

 

WHAAAAAAAAAA!

Nov 7, 2012 1:14PM
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apparently everyone here is a businessman and not an hourly worker! try walking in our shoes! the republicans turning this country over to the koch brothers might be great for you, but i like the wages i'm getting now and i'm not interested in working for $5 a day! the republicans would have allowed big business to dictate EVERYTHING! do away with minimum wage, lower the working age for children, do away with public education, why not? more profit to be made by the hierarchy, the uber rich. and you small businessmen, are you that naive to think that the koch brother america would care about you? so, Walmart cared about the small businessman when they came in and took over entire communities, killed businesses and now those people who were making a decent living are working at walmart for $10 an hour? who can live on that? what is the use of having a job if you still can't pay your bills? i know the solution the koch america has. you work, your wife works and your  children work! and the working class goes from middle to lower and then you get rid of public assistance, you get rid of medicare, you get rid of social security-that will help because then if you can't work it's because you're dead!!!!! and forget the elderly-let them die and die quickly! and let's force every single pregnancy to come to term but once the kid is born, well, you're on your own!!!! and if you can't feed the child, then i guess it's gonna die! 
the mantra for the business world should be "are there no workhouses? are there no prisons? better yet, let them die and decrease the excess population." we should be country where people are happy and willing to help raise those up who are down. i'm not talking about continuous handouts. i'm talking about an equal chance. that isn't communism or socialism. it is americanism and humanism. but, you have to have conscience before it can bother you,  so i guess that's the problem with the rich. 
we will survive and we will succeed. if the republicans had been willing to work with the president over the last for years instead of doing every single thing they could to destroy him, WE WOULDN'T BE IN THIS POSITION!!! so stop blaming the americans who have faith in obama. start looking at a party who was so obsessed with regaining power that it allowed this country to suffer. your posts are rife with racism-'illegal aliens-his skin color.' it's dispicable. 
i am a hard working american who has never relied on the government but i will NEVER bend over for the corporate overlords who want to take over this country. i WORK for my wages and i DESERVE every single penny i get. and i am just as good a person as any of you!! who the h8ll do you think you are judging the obviously millions of people who still believe in altruism and hard work. the 47% are far from being bums, we are PROUD, hardworking americans who DERSERVE the same life you have and if you think you can take it away from us, you better so some history reading about governments that got so rich and powerful that they forgot who put them there. US! and if you all want to leave this country with your business, then go!!!! it will leave more room for the small businesses to start up again and bring back mom and pop stores where people knew each other and treated each other with respect and dignity and not just statistics on a piece of paper. so, you go cry in your dom perignon (sp) i'll go celebrate with a beer!!! ha!!!!
Nov 7, 2012 1:13PM
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Wall Street was going down no matter what happenned. They were set in manipulation mode and were set to take away all gains for the year no matter what news good or bad happenned. Plain and simple!!! It has been a con game of there's for decades. Noting happenned in 24 hours that they didnt know before today!!

Nov 7, 2012 1:12PM
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Its freakin HILARIOUS that these CONS that voted TWICE for war criminal, room temp IQ Bush who got us into this mess have ANY CREDIBILITY EVER AGAIN IN THIS WORLD!

YOU DO NOT CONS!!!!

Nov 7, 2012 1:11PM
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Doom & Gloom for the next four years, Thanks America !!!   Watch and see the Wealth of this Nation being moved OFF Shore now.
Nov 7, 2012 1:10PM
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The "markets" have nothing to "churn" other than the same k's and pensions.  They know it as now we have become a "nation" with no tax base to "churn" from.  Get a clue!  There will be more with part time jobs and on welfare and stamps.  Count on it.   It will not change.  :"Entitled" will be here and that does not mean those that will and can.  Adios.
Nov 7, 2012 1:08PM
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The only way to get this straightened out is le tthe fiscal cliff come.  That's what we agreed to 2 years ago and now we need to finsih it.
Nov 7, 2012 1:08PM
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Its freakin HILARIOUS that these CONS that voted TWICE for war criminal, room temp IQ Bush who got us into this mess have ANY CREDIBILITY EVER AGAIN IN THIS WORLD!

YOU DO NOT CONS!!!!

Nov 7, 2012 1:07PM
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Have tp admit that I'm part of the sell-off this morning.  I put my sell everything order in last night when I saw which way California and the rest of the country was going.  This is almost all of my retirement money and at 52 years of age, I just can't risk it.  We're looking at rising taxes, rising food, rising energy and rising rents in CA and I have no idea how I'm going to survive.  Cried twice already this morning thinking how am I going to tell my family there is no Christmas this year?
Nov 7, 2012 1:05PM
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Opinions are opinions and facts can be fairly viewed in different lights...but RACISM? RACISM is just pure ignorance and hatred and I am SHOCKED at the flagrant racism on display here in these comments and that MSN is allowing it.  Racism, ignorance and hatred are far greater threats to the stability and success of this nation than the fiscal policies of a term president.   Like him or not, Obama will be out of office in 4 years, but our great nation will continue to be poisoned by these vile, hate-filled people for generations.  How appalling! 
Nov 7, 2012 1:05PM
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The market does not like the result.  We need to allow the bus to go over the fiscal cliff.  We put these clowns in office and allowed the skyrocketing debt.  It is our responsibility to bring it under control through tax increases and spending cuts.  We can't pass this mess on to our grandchildren.  If we don't take a stand now, we never will.  Show some guts, and do the right thing.  Of course, doing the right thing is something Washington has always had an aversion to.
Nov 7, 2012 1:04PM
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Many have said on here we are on our way down.....and I totally agree..and we are left with no alternatives....cannot impeach Obamination because the one that will take over- Bi -dumb is no better than his boss....we need to tough it out for four years and get rid of all the bums that have caused this mess.....it is not going to be an easy four years with almost half the population paying no taxes at all. I for one am close to retirement and was going to invest in a small business to help me get through the retirement years....Now that money is going into gold and the mattress...it is mine and I plan on keeping it away from the Washington IDIOTS especially the one in charge....time to start thinking about moving to New Zealand....and get away from this madness of a Nanny COuntry.

 

Nov 7, 2012 1:03PM
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EASY FIX  SHEEPLE DRONES  EASY FIX...

 

1. Tax the rich like the countries with the HIGHEST standard of living in the world..

 

2. Tax corporate America- BIG TIME

 

3.TAX THESE CHURCHES THAT OWN BILLIONS IN REAL ESTATE!

 

4. SLASH the bloated military budget in HALF

 

 

FIXED!!!

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