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 7:00PM
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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!

  

 

Nov 7, 2012 6:59PM
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must be nice just to complain about the end of the world. i remember when bush was elected twice alot of people had very similar things to say about him. and you know what, we survived and will survive any president because america is not whom we elect, it is the people,  enough with the doomsday BS,  its not that bad and you know it. if it is that bad then leave and go start your business (everyone seems to be ready to start a business all of a sudden) in canada, or mexico or europe,, no, you arent going to move? why not, if america is SO bad then why dont you leave? you dont leave because you know this counrty is strong and will survive and thrive.  it doesnt take much energy to complain, you people seem really good at it. why dont you try to contribute somehow? ever think of that? actually helping with something you believe in. you voted, you lost , now suck it up, get off your butt and help make this country a better place. that all our jobs
Nov 7, 2012 6:53PM
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Participantship be damned.  The president is the president (it could have been Romney) and the congress is the congress.  Both need to work for the good of America and stop the sniping that constantly stands in the way of progress.  The election is over and Obama is the president.  It sounds like those who even mention 'impeachment' are simply trying to carry over the hate and mistrust that slowed down the last four years.  If you want more of the same, keep fighting everything and nothing will get accomplished.

I like the adage: If life gives you lemons - make lemonade.  (bitching doesn't give you anything). 
Nov 7, 2012 6:49PM
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It looks like the libtards are never going to grasp the concept that we are BROKE!! Who gives a rip about the skin color of the person in the White House? Keep playing the victim mentality race card while you drive this nation into the ground with entitlements and freebies. Keep punishing hard work, and free enterprise. Keep apologising for what happened a very long time ago. (slavery) Keep pandering to that crazy radical terrorist in Iran. Keep yourselves metaphoric slaves with your recreational drug use, and shiftless lifestyles. You libtards are never going to convince me that bigger gooberment from cradle to grave is the answer. I do NOT want the government deciding my healthcare issues. I do not want to pay for your reckless choices. Mind your own business, better yet go start a business and employ people just like you. Good luck! Think I am an old, rich, white fart? I am female and conservative and that's not going to change anytime soon.  This election was clearly not a mandate, you do NOT speak for me.
Nov 7, 2012 6:45PM
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It will be a cold day in hell when I donate to another charity , toys for tots, angel tree @ christmas.
I can't wait for the tattooed , t-shirt kids to come into our business seeking employment.
I'll be lucky if I can hang onto the one I have.
Biz propert tax doubled already from last year.
Businesses with 50+ employees are already shedding their employees to get under 50, to be exempt from obamacare.
He won because they drug out voters from every crack and crevice they could find.
Nov 7, 2012 6:40PM
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Where is another Lee Harvey when you need him?. Don't be surprised if he paints the White House black. I hate this SOB>>>>>>>>>>
Nov 7, 2012 6:38PM
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Unreal  Republicans-Democrats we better become just Americans quick

or stand by

 

Nov 7, 2012 6:34PM
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Since the media has hidden the truth about Benghzi (sp) until after the election, NOW maybe they will let the rest of our nation know what really happened and the truth will set OBAMA free, like in his up and looking forward to IMPEACHMENT, do you think I'll have to wait long MSN, or do I need to go over and focus on FOX NEW!!!
Nov 7, 2012 6:31PM
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What a bunch of pessimists, sore losers and blamers. Where were you when Bush shoved us off the cliff into a huge recession, including the enormous (800,000+) monthly job losses? How about just working together to make things better for the country instead of obstructing everythhing just because you like to be bullies and haters? Of all the griping and bitchin' I've ever heard, you bitter bunch take the cake. OMG
Nov 7, 2012 6:27PM
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Pray for four years of intense fighting heretofore unknown or anticipated. Government that can do nothing is far superior to the lousy leadership over the last 100 hundred yeas.
Nov 7, 2012 6:24PM
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Alternative Minimum Tax folks.  If you make more than $50,000 or you are married and make more than $100,000 combined - you are going to be in for a nasty shock when you get your tax returns prepared next filing season.  Unless congress passes an AMT exemption increase like they have done for many years in a row (but always in place by now), tens of millions of American Taxpayers will be subjected to the Alternative Minimum Tax for 2012.  Couple that with the 2% (4.2% to 6.2%) increase in the FICA rate (back to where it was before the decrease 2 years ago) as of 1/1/13 - plus the Bush Era tax cuts for EVERYONE expiring on 1/1/13 - and we are all in for one hell of a tax increase.  Well those of us who work anyway.  Call or write your congressman today.  This is not a partisan issue.  This is a issue that will take Billions of dollars away from the working citizens of this country and give it to the Government for them to (cough, waste, cough) redistribute as they see fit.  Why wasn't this a campaign issue?  Good question.
Nov 7, 2012 6:10PM
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i say don't fall over the cliff step back and run full blast over it then look for a real president run the country straight to hell and that way we can form a new government one that really understands budgets not just spend and raise taxes  i just shut my company down because of the taxes and health care only 18 people lost their jobs but it affects a lot more  the families of those that i had to let go the tax payer that has to pay for the welfare they will need because there are no jobs for them to go get there are kids school lunches that tax payers will have to help with and all you people that smoke pot and are jumping for joy most of the employees that  worked for me were in recovery from addiction. from the very drug you think is so great as well as other drugs but each one started smoking pot before they shot dope so smile now but wait till you need something stronger to get you where you need to be  you all are stupid and will still be living in mommys basement  and drawing welfare  in 10 years
Nov 7, 2012 6:09PM
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Actually, although I absolutely hate oblamer, it is money that got us into this mess.  Of all the people that were running for the office of president, the two WORST ended up on the ticket.  Neither one has a shred of moral integrity, but both are filthy rich.  If Jon Huntsman had Romney's money, he would have wiped obozo off the table and into the trash (how ironic that because the clown got re-elected America is the one sliding off the table and into the trash).  I have read extensively about all of the Republicans originally running for the presidential ticket and I have live through four very scary years of inept, incompetent, egotistical, arrogant, and blatantly anti-American obozo rule.  Of all the candidates, the only one who has any right to be in the White House, the only person that actually behaved like a leader and had no skeletons in the closet was Jon Huntsman.  Now America, and all working Americans, are paying for the fact that he could not buy the presidency like the other two candidates could.  Sadly, we scraped the bottom of the barrel and barrack hussein obama bin Laden was the scum we dredged up.  I propose a new law be enacted:  any sitting president running for a second term is not allowed to advertise at all, but has to run on their record from the past four years.  We all know how that would have ended for oblamer.
Nov 7, 2012 6:05PM
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Well well, sounds like a lot of GOP type sore LOOSERS up and about today

 

Nov 7, 2012 6:04PM
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I have said and written many time you can't save this country, it is to far gone and yesterday proves it. Once the peeps found that they could vote into office Dumbocrats who would take from the private productive sector. And give to lack of public service workers and the leechs on the governement tit it would be over. You can however save yourself and your family So my suggestion got heavy into gold and silver when the 1st barry term in 08 and now will stay heavy until this whole thing collapes. Funny the Dow went down +300 today, I wonder who the leeches will get their next tit from, not me, got liquid and underground no more money going into the rat hole known as NY state and very little into DC. Good luck your all going to need it.
Nov 7, 2012 5:58PM
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America, America, God shed his disgrace on thee......without brotherhood, he crowned his own goods, from sea to asian sea!!!! 
Nov 7, 2012 5:56PM
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And if you really look at this from the beginning it is the voters fault, our fault that this all went awry, we did not have patience with the president and his plans, as usual.  He was not acting fast enough so we voted for, yes, the almighty Republicans into Congress, to block all his decisions and plans that he initially had for America.  It was us not anyone else people.  It was not Obama, Bush or anyone else, we created the block because we just can't wait for anything to work.  So guess what? Now we have to live with our decisions.  Obama cannot get anything done without having a drawn out battle with Congress since the Republicans are pissed off at everyone and everything because they want to stay as rich as possible, so yes, I see these next four years to remain the same as the last two since there were no changes made to the House or Senate.  Congress is still the same.  They will make it hard for President Obama to implement any of his ideas or plans without a battle.  BUT IT IS OUR FAULT...THE VOTERS!
Nov 7, 2012 5:54PM
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Well lets see. You peeps have just about covered almost everything! Nice Job! But, there are things that scare me. Unconscious able 6 billion spending on this election and "NOTHING" has changed??? How bout the woman that spent 100 MILLION and lost I think was in Mass. I bet her family is really happy with her :P Now, where is this country heading? Well if you studied the last census you should know! This election just confirmed it. Demographics won the election for big O! Most of em are prolly feeding off the Government and won’t work. They all call him African American??? Just like poor Tiger. That just kills me. Why do all the biracial black and whites are called Black?? It was great that a commentator on ABC said last night that this is the last election between two white guys was right on. Should have heard the black lady! Bottom line. Latino's and rest of minorities are breeding like rabbits and quickly taking over this country! They say by 2046 whites will be the minority with only 1/3 of the population! I myself have learned Spanish and Ebonics and am looking for a Latino wife because if you think the reparations of the black is something, wait till you see what the Latinos get!!! I want in on that one! :P I wont be around but by 2050 and after all the wars here and abroad we<--for now, I'm moving out of this country for sure, will be a 3rd world country ! You do know this country has been bankrupt since way before 911 right? I have been a successful businessman for 35 yrs and if I did this in any of my companies they would be long gone! Unless you get a bailout from the government :P I can remember the days before 911 we found out the government was trying to steal money out of our social security fund! You know the war in Afghanistan is costing us 350 million dollars a DAY! YEA I SAID DAY! and this has been over the last 10 yrs! If we would have put that money in a fund for our wounded hero's or health insurance fund for all! The only thing keeping this country afloat is that the government can still keep printing money! But that will not be the case after the world currency switches to prolly China's or Japan's. Then no more printing! We will have to declare bankruptcy and go into a deep depression, and when China hears that she isn't getting any of their trillions we borrowed off them back, look out! How bout what ole Trumpy said hahaha. If I said that I would have Fbi at my door in an hr. and I would be up on Terrorist charges! I just loved all the people dancing and all happy last night in that hall waiting for old O to show up! They have NO CLUE what is going on! They are acting like everything's going to be ok now and we all get a pot of gold or something! All I got to say is good luck O you are headed for a chit storm! Wait till the nukes start flying in the middle east and maybe here :( You still have a real battle with congress still intact! I just heard why we can’t vote them bastards OUT! <--especially the ones that voted to invade an innocent and sovereign Iraq with Bush and his cabinet. They structured the districts so they can’t be voted out.....bastards...they are dug in like fleas on a hound dog!! Why these people aren't up on WAR CRIMES I just can’t figure! Well that is about all for me. Good luck to all you peeps here! Prepare for the storm that is coming! Katrina and Sandy is gonna be like a walk in the park! :(
Nov 7, 2012 5:53PM
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We have seen a microcosm of what our president will now more agressively pursue nationally, on a far smaller scale: Detroit. The one-time great city and bastion of innovation was destroyed by all of the same policies the re-elected shepard the dumb sheeple of our nation voted for will put in place.  
Nov 7, 2012 5:53PM
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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".

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