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.
More from U.S. News
What a bunch of whiners.... good grief.....How about you try and get behind the country instead of trying to hobble it with bickering. Yes, here we go again, but not because of the President, because of the whiners... hey there is a catchy name for a new polictical party.... The Whiners..... good grief.
Trying to re-argue the election LOSERS!
Why don't you get out of the way......LOSERS????
It is amazing that with all the chinks in Obama's armour, the republicans could not muster a better candidate. Since congress didn't change, we must be happy with their work too???
I saw the voters in this election reacting out of fear rather than any great idealogical purpose. While few people will say that Obama has done a good job, Romney gave anyone on the fence enough reason to fear what he might do. No solid ideas, no solid numbers, no track record, no trust. The only reason people supported Romney was because he wasn't Obama. That's just wasn't enough.
Once again we go with the Devil we know.
The very sad truth is the fact that our country has become so divided among such vastly different ideologies. When was the last time a president won by a fairly significant majority?
The "Old America" is no more. Our country has become a more progressive society, where the traditional family values, religious beliefs, and a capitalist economy is no longer the accepted norm. I, for one of about 1/2 the population, believe that these traditional ways are what paved the roads and is th ecorrect path for this great nation, but I am also realistic about the way times change. For better or worse, the move toward a socialistic society (similar to Europe), is unavoidable. The majority (albeit very slight) of the people in this country have spoken, and this is the direction in which they have chosen. As an conservative American, the best approach that I can see is to let nature take its course and try to find the best ways to make it work for me and my family. I do not have to like it, but since I have no control, then I must try to find a way to live with it. In my heart of hearts, I believe that a hard work ethic coupled with a capitalist economy, faith in a higher power, and traditional family values are the best best path. I also believe the European modeled social system, which is similar to our future system, is self destructive; I hope I am wrong, for the sake of my children, but time will tell.
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....
After more than $1 billion in negative advertising by Obama & Company, the election was a mandate that we should all hate Mitt Romney and that gridlock should continue unabated.
Given the alternatives, I'm in favor of one out of two.
Everybodys 401k is taking a beating today...
Not to worry, Ben FED will fix it with his printing press... lol
republicans and democrats need too find common ground,and stop fighting each other like they are in a war!
Welcome to more-of-the-same .......
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
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.
VIDEO ON MSN MONEY
[BRIEFING.COM] The major averages hover near their recent levels with the S&P 500 leading to the downside (-0.6%). The Dow and Nasdaq trade ahead of the benchmark average, but the two indices have returned into the red after making a brief appearance in positive territory.
Cyclical sectors continue to pressure the broader market with financials down 1.0%.
Notably, gold futures have strengthened. The yellow metal trades higher by 1.8% at $1392.50. Nasdaq -12.52 at ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|