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
You are fools to believe the two party dictatorship"s scripted drama and over sensationalized polarity. They are both on the same team, and you aint on it. How easy it is, to fool most people in to believing that their vote actually counts, when in fact, it doesn't.
This is how they do it:
First, they both agree to only allow their own two parties to compete fairly against each other, then, they use media hype to polarize the people on selected trivial issues and ping pong the negetive ads to drive it to as close to 50/50 battle as possible in the polls, And then, They step back and laugh at you fools for being so stupid as to cancel out each others votes, while they manipulate the real votes to go the way they planned on and mutually agreed to, to begin with!
It is so obvious, right under your noses, in plain sight...and you fall for it, and allow it, over and over and over.....
I would laugh with them if I was a psychopathic, greedy, warmongering, power hungry puppet for the hidden elites who really control our country, like they are. But instead, I sit and wonder, where are the adults? The ones who are wise to deceitful childish games?
Not at the voting booths...that's for sure!
Unreal Republicans-Democrats we better become just Americans quick
or stand by
Well well, sounds like a lot of GOP type sore LOOSERS up and about today
The fiscal cliff is not Obama's doing. Where are the middle class jobs that was the backbone of the economy? They were deliberately moved, starting with Reagan, off shore by the following economic terrorists; Wall Street, the Chamber of Commerce, corporate monoliths, aided and abetted by the short sighted American consumer. All of the above created the unemployment problem and the slow recovery!
Do tax cuts balace budgets? Reagan's tax cut and the "Contract ON America" led to a recession, quadrupling the deficit then. Bush #2 tax cut led to a recession. These congressional leaders wouldn't even raise taxes to pay for 20 year of war and the accompanying veterans benefits. Remember the Walter Reed hospital rats and mold story? Remember the epithet Tax and Spend Democrats? Hasn't that changed to borrow and spend Republicans? Eventually that shortfall will have added 4 trillion dollars to the deficit.
The Tea Party's slogun should be "Don't ask me to pay, I've got mine and tough noogies to you".
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. 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 Morningstar Inc.
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] S&P futures vs fair value: -3.60. Nasdaq futures vs fair value: -5.30. U.S. equity futures hover near their lows after spending the past hour in a steady decline with comparable price action across European indices. The S&P 500 futures trade lower by 0.2% while markets in France, Germany, and the United Kingdom display losses close to 0.4% apiece.
The retreat in futures has coincided with a continuation of an overnight bid in the Treasury market. The benchmark ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|