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.
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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This is what a vote for Obama got you. And its just the begining. For all the retired people who voted for him you can kiss you retirment fund goodbye. And yes i am laughing my a** off.
Looks like we are finally going to get that correction I've been waiting for (for two years). In the bizarro investment world we've been living through I half expected the reelection of Obama to help the market. After all, it's gone up 67% under his tenure. It would seem that the big boys are either pouting and taking their toys home OR there is finally a capitulation that there has been no recovery and the chickens are coming home to roost. Maybe a little bit of both.
California is now the model that we will be following as a nation...may God help us all. When will Obama finally take responsibility for the economy belonging to him? I won't be holding my breath. Our debt on the books is over 16 trillion, but the federal government also has unfunded liabilities that are staggering, how are we going to pay for it? I already know the answer (sigh) higher taxes and printing money. We are in deep trouble as a nation.
Black Sabbath (I hated that band), They will blame the Republicans for putting up roadblocks everywhere they can. They already do blame them, unless you've had your head up your as* the last 2 years.
God willed it!
It remains to be seen if the Republicans are willing to carry this threat through even though the sequestration axe, hacking with abandon across the entire GDP, would also gut their beloved military spending. If this is to be resolved, BOTH sides must be willing to bend. The Dems must be willing to see cherished programs such as PBS slashed AND Republicans must be willing to see taxes raised on the ubar-wealthy. Unless BOTH sides are willing to compromise (that means you too, Republicans!) we are heading towards a second world recession at a time when we are finally seeing sunlight after the first.
The cancer here is not in the Executive branch of Government. It is in the two houses of Congress. The one thing America can not afford is four more years of trying to make Obama a one-term President. That battle is over, the GOP lost. They need to get over it and quickly so our Nation can move forward and thrive again. Will the Republicans play ball? That remains to be seen. Please, do it for the children.
What the people who voted for Obama don't know is, if the market takes a dive , unemployment will rise. Then who will they blame.
Don't you realize, this is how you lost the election. You tried to scare people with these speculations that aren't worth sh*t.
It appears we have another Flori- DUH moment in Miami/ Dade county.
Even though I live in Volusia county, I would like to offer my apologies on behalf of all Floridian voters to the rest of the country for the Idiots running those polls. (WHAT'S WRONG WITH YOU GUY'S IN MIAMI/ DADE ?)
If New Jersey & NYC can have smooth polling stations amidst the storm troubles- You have no excuses!!
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Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
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