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 1:54PM
We all have our opinions about last evenings election results, but is this really where we are as a nation? This mans butt should be fired pronto!

To all the millions of victims of superstorm Sandy, Chris Matthews has a message: "I'm so glad." 
The MSNBC host, on a panel of pro-Obama pundits including Rachel Maddow, ended election coverage overnight by saying he's "glad" the storm hit, suggesting
 it served a greater good by boosting President Obama to a second term. 
"I'm so glad we had that storm last week," Matthews said, after interjecting to give some final thoughts. Somebody off-screen could be heard saying "ooo" at that remark, but Matthews confidently put his hand up to explain. 
"No, politically I should say -- not in terms of hurting people. The storm brought in possibilities for good politics," he said.

Nov 7, 2012 1:53PM
Hey, republicans, I'll use YOUR line from the 8 years of "W"....."If you don't like it, GET THE F OUT !!!" Your words not mine. Now, don't your own words sound stupid when your on the other side??   LoL
Nov 7, 2012 1:52PM

Countmiester said


"Americans have now officially and permanently paved the way for the decline of the U.S.   Greece, here we come"!


I assume you mean that reelecting Obama is the paving material that will cause the decline.


Does this mean that you blame him and the democrats for the current economic conidition?


How wrong is that.  This decline started with Reagan and each administration since then, 3

Republican and 2 democrat, have each applied paving to the road of decline.  Now we

are headed for the cliff and much of transporation from trip was provided by the Bush II



No the road to economic disaster his paved with the policies of both parties.  Winter is

approaching and this will make the slope to the cliff a great deal more slippery.

Nov 7, 2012 1:52PM



Nov 7, 2012 1:50PM
Yup, thank you to all the folks who re-elected the same old same old same old, different day. Now we will all suffer for it, did not make Wall Street happy today nor will it next week or the week after. Most likely they will fall off the cliff, they already pushed Grandma and the rest of all the frail elderly and disabled off it, now the other lower income folks are not far behind while the lazies who know how to milk the system sit on their duffs. When they take their bows on inauguration day they won't see far enough down the ladder to see the old people shivering in the cold unheated flats because they can't pay for heat and the homeless guy frozen to death in the alley, but I bet they are real proud of themselves. Lies, damn lies and statistics, and all the dummies who believe them. I already gave Santa a lay-off notice, expect many others will too.
Nov 7, 2012 1:49PM

I think I heard every veteran in Arlington Cemetary roll over in their graves last night. We are lost...

Nov 7, 2012 1:44PM
How about them ignorent voters we have in the U.S., don't that beat all.  They voted this Socialist in for a second time, and assured themselves and their grandchildren a third world America.  Guess it's true what they were saying all along, that America would destroy itself from within.
Nov 7, 2012 1:42PM

The American people just validated why we are viewed as a third world, second rate country.  Why would American voters/citizens subject the country to this.  I would say that there is a 47% chance (representing the amount of Americans that pay NO Federal Income Tax) of why this was done.  In my opinion, if you do not pay federal income tax, you do not vote period!


This is a tragic day in American history. Our children's children will remember this day because they will be paying for all of the debt that our current "commander and chief"  (what a joke) has racked up and has no idea of how to get out of other than wanting to tax the very people that create jobs in this country.  Here is a novel idea, make the generational welfare collecting citizens of this country GET A JOB!  Make the 47% of americans that PAY NOTHING in federal tax pay their fair share. 

Nov 7, 2012 1:41PM
OK, all you republicans, let's see how the House will compromise with the Dems in the senate and Prez Obama. I bet it will be like the last 2 years. There will be no compromises. Blame the prez all you want, he CAN'T do it alone. We need all 3 branches to get along. Just look back at the last 2 years without your FOX "news" goggles on, and realize what has been happening..... on BOTH sides. You guys are the pot calling the kettle black... although as I read your posts, many of you don't like the color black. Hmmmmmmm..............
Nov 7, 2012 1:41PM

Gee, the prophets of doom are having a field day; relax, this is what Democracy is all about.  If you wanted

Romney to win the election, you should have hit the pavement and work in his campaign.  It is all over

but the shouting now.  May God bless the United States of America!

Nov 7, 2012 1:40PM
Only one thing I need a answer for is! How in the HELL is it that 66% of the American Populations growth is Mexican and most of them illegal? Did I miss something here or what? This country is screwed now.I know! since Mexican's don't have to abide by any American laws why should anyone? Just throw the Laws of American if thats what it's called anymore into the trash. Wouldn't it be illegal for the courts or our Communist Government to charge anyone for any crimes commented. My opinion would be to take back our country our selves by any means, I don't see to many American's anymore with any back bone just a coward streak up thier backs.
Nov 7, 2012 1:39PM
Here's a novel idea- you can't vote unless you have a job- goodbye Obama's base- the problem for the GOP is a shrinking intellect
Nov 7, 2012 1:39PM
I'm not a fan of either party, and I told myself it didn't matter who won. But today I have that kind of sick feeling, the one that comes when something is really wrong.
Nov 7, 2012 1:39PM
avatar made your own bed.  Good luck obama and you foolish foolish obama supporters.  

Nov 7, 2012 1:38PM
MSN is now blaming the EU for the market drop today. Why not Bush and a video?
Nov 7, 2012 1:38PM
Don't worry.  Republicans always run scared of the media and will find a way to cave in regarding any 'fiscal cliff' issue.  Maybe King Obama will allow Boehner some morsel of face-saving financial/tax pablum to feed the faithful.  Just so you know, I have little use for Republicans, and absolutely no use for Democrats.
Nov 7, 2012 1:38PM

With all the very apparent righty thumbs down to any and all lefty comments, makes me wonder were the he11 were you last night!!!  I guess most of you just could not vote twice, eh? 

Nov 7, 2012 1:37PM
Free Obama Phone!  Please Obama make it an IPhone...
Nov 7, 2012 1:36PM
Anyone who may be thinking about assassinating the SOB, to keep things from getting any more F'd up, needs to go to Billings Montana. That's where the end of the line currently is at.
Nov 7, 2012 1:35PM
I find it funny that the younger people voted for Obama because he is going to give more of your jobs to illegals- Axelrod is a great magician- I guessed that's how he got Obama's support for the 800 million Iron Shield over Israel- guess you got to the mother country at taxpayer's expense- hey let's borrow money from China and give it to Israel- gee great idea- I'm sure the taxpayers will love it 
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