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 11:52AM
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I believe congress shouldn't make any deals with the President.  This was a racist vote.  Look at the percentage of blacks and Hispanics who voted for him. They just want all the free hand outs.
Nov 7, 2012 11:50AM
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All the folks who voted for Obama: Thanks.  You have now truly sealed the fate of this once great country.  We are a country of morally bankrupt, selfish, faithless individuals who only care about our own little world in which we live, and give no regard to our fellow brothers and sisters in this life.  Whether you are a God fearing Christian or atheist, morals and integrity always matter and it is what makes a great an stable country.  Now we are just going to be a bunch of whiny wimps wondering where the next freebies come from while trading away our freedoms.



Nov 7, 2012 11:49AM
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Status quo--Obama will lead his unsuspecting mobs of sheep right up to the edge of the cliff, jump out of the way and let them fall.
Nov 7, 2012 11:49AM
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We the voting public have spoken and if the results bring more hardship and a poorer electorat it was chosen by the people at large and we have to live with it.
Nov 7, 2012 11:47AM
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Republicans are all LOSERS!  Bad LOSERS! Little minded LOSERS!

Trying to re-argue the election LOSERS!

Why don't you get out of the way......LOSERS????

Nov 7, 2012 11:47AM
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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. 

 

 

Nov 7, 2012 11:47AM
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Love the liberals chants. As the wealthy here put a stop to investments... yes they have enough money they don't need to create more that will be taxed to a ridiculous rate. You wan't have jobs. Canada has a 15% tax rate and corporate America is 35%. Stop and think... if the wealthy just keep their money and earn no more they do not have to pay taxes on what they already have. Every country allows tax free status on money earned in a foreign country... EVERY COUNTRY DOES THIS. We just requested that the wealthy invest in foreign countries to earn money where they don't have to pay taxes on their earnings. With the additional loss in jobs here everyone will be working for less trying to compete for these jobs. The wealthy can then hire you all for less and only hire you part time so they will not be required to pay health care. When you see way less jobs you will see a higher demand for government handouts... the problem is the government will be taking in alot less in taxes until we see the point where everyone is demanding the government give them more as we see going on in Greece. I am not rich .. not even close... If I had some wealth I would move to someplace south of the US where the weather is warm and the labor is cheap and they can live like a king. I live in the northern midwest and I am truely considering a move to Texas. I really think all s%$t is going to hit the fan and out of all this country I think Texas will be the first to step up and say enough is enough. I even laugh at the way liberals called Romney an enemy for moving jobs to China , yet not one liberal even stops to think that two of the largest corporations in this country... Microsoft and Apple have everything manufactured in China but you don't come after the tech people that the younger generation just love. The 1 % will get even as they decide to place their money elsewhere. Try to change the rules that you must pay taxes on foreign earned income and they will just move. They can sit in islands and invest in every country but ours and still keep earning. You will realize at some point that this will be your demize people. The people of Greece with all their demands have caused their fall which will happen shortly... you voted to place yourselves and alot of us in this same boat.
Nov 7, 2012 11:44AM
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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.    

Nov 7, 2012 11:44AM
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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.... 

Nov 7, 2012 11:44AM
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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.

Nov 7, 2012 11:43AM
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WoW ..

Everybodys 401k is taking a beating today...

Not to worry, Ben FED will fix it with his printing press... lol

Nov 7, 2012 11:43AM
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republicans and democrats need too find common ground,and stop fighting each other like they are in a war!

Nov 7, 2012 11:41AM
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While McConnell congratulated President Obama on his re-election, the Kentucky Republican was in no mood to concede any political ground.
"The American people did two things: They gave President Obama a second chance to fix the problems that even he admits he failed to solve during his first four years in office, and they preserved Republican control of the House of Representatives," McConnell said in a statement.
"The voters have not endorsed the failures or excesses of the president's first term, they have simply given him more time to finish the job they asked him to do together with a Congress that restored balance to Washington after two years of one-party control. "Now it's time for the president to propose solutions that actually have a chance of passing the Republican-controlled House of Representatives and a closely divided Senate, step up to the plate on the challenges of the moment, and deliver in a way that he did not in his first four years in office.
"To the extent he wants to move to the political center, which is where the work gets done in a divided government, we'll be there to meet him half way."


Read more:
Nov 7, 2012 11:41AM
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Welcome to more-of-the-same .......

While McConnell congratulated President Obama on his re-election, the Kentucky Republican was in no mood to concede any political ground.

"The American people did two things: They gave President Obama a second chance to fix the problems that even he admits he failed to solve during his first four years in office, and they preserved Republican control of the House of Representatives," McConnell said in a statement.

"The voters have not endorsed the failures or excesses of the president's first term, they have simply given him more time to finish the job they asked him to do together with a Congress that restored balance to Washington after two years of one-party control. "Now it's time for the president to propose solutions that actually have a chance of passing the Republican-controlled House of Representatives and a closely divided Senate, step up to the plate on the challenges of the moment, and deliver in a way that he did not in his first four years in office.

"To the extent he wants to move to the political center, which is where the work gets done in a divided government, we'll be there to meet him half way."



Read more:

Nov 7, 2012 11:40AM
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Jan 1, we will go back to Clinton era taxes and there is nothing the wingnuts can do about it. That will end the 'starve the beast' treasous policies of the Right. The govt. coffers will be filled for years to come and the debt will be paid down as it was then. Thank God the nighmare brought on by the Republicans is over. We will enter a new Progressive America and Obama and the Democrats will get the praise for the coming U.S. boom that has always been set to happen. I was so afraid the Republicans would get in and get credit for it but no more worries about that. Goodbye conservatives and feel free to take your ball and go to another country, you won't be missed. My real estate business is doing great and I love Obama, and his policies will bring prosperity to the middle class and those are the ones I depend on to survive, not the 1%. Next up...the Supreme Court!
Nov 7, 2012 11:38AM
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I am all for going over the cliff, despite the personal financial hit I will take, and letting the public understand how the silliness in Congress really affects them.  I realize that when the compromise that agreed to the cliff was voted on, no one really expected it to actually happen.  I would sincerely like the electorate to see their Congress for what it is, a collection of self-serving, ideology serving liars and cheaters none of whom have any interest in the country as a whole.  In the meantime welcome to the establishment of the Ugly Socialist Amerika.
Nov 7, 2012 11:35AM
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Four Year Statute of Limitation on Blaming the previous Administration!

It's all on Obama this time.....

If he fixes it, I'l give him the credit. Forgive me for not holding my breath.....
Nov 7, 2012 11:35AM
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What a fricken mess this obamie is making in this country.

 

 How can people be so stupid to let this %&*(*% back in to office. Everyone knows the second four years they set back and do less.

 OPPs! Maybe it is better he does less so we don't go further in the whole.

 Look at the stock market dropping to another record low.

Nov 7, 2012 11:34AM
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phucking idiots, we are all doomed. next year there will be rioting in the streets because we will run out of money and jobs. way to go.
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