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 14, 2012 11:24PM
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Obama was a blank sheet in 08 but was known to NOT have experience. Although this was proven in his first 4 years, the country re-elected him again. Those that voted for him deserve the consequences.  Unfortunately, many who did not, will experience the bad judgment of this vote. People are deluded and God will judge a "BABY KILLING" - HOMOSEXUAL country. Read the Bible - Lev. chapts 18, 19, & 20.

Also Romans chapter 1.

Nov 12, 2012 9:06AM
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Just remember, we got what the majority of Americans who voted, voted for; four more years of Obamanomics. It is amazing to see the ignorance and/or careless attitude of so many in our society. Obama says by the vote of the majority he now has the mandate to continue what he has been doing the past almost four years. How many more trillion dollars of debt did he give the taxpayers? If you think his last term was bad (Oh, I forget, most do not seem to care one way or the other), wait until 2016 rolls around and see where our country is. How much bigger a welfare state will our country have become (especially if Obama and his Democrats get THEIR comprehensive Immigration reform instituted)? Obama will be gone and he could care less, as will many of the Democrats currently in the House and Senate as they will retire, too. Maybe then some of the folks who voted this inexperienced community organizer into office will wake up and finally see how he has fundamentally changed our country forever.

The one good thing about this coming term for Obama is, he can't blame Bush ad everyone/everything else for whatever goes wrong. HE NOW OWNS EVERYTHING!

Hope and pray for the best but expect and get ready for the worst!

Nov 9, 2012 12:24PM
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Lincoln was wrong. You CAN fool all of the people all of the time.

(Or at least for four years and counting.) 

Nov 8, 2012 10:48AM
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FOSSIL49       MOST IMPORTANTLY YOU SHOULD LEARN HOW TO READ . I SAID THE REPUBLICAN JEWISH COALITION .THERE THE GROUPTHAT PUT THE T V ADS ON SAYING WE SHOULD GO TO WAR WITH IRAN IN SO MANY WORDS AND PUTTING THE ISREALI P M IN THEIR AD SAYING  WHY SHOULD WE WAIT WAIT FOR WHAT? WE DONT NEED ANOTHER WAR. THE AMERICAN TAX PAYER GIVES ISREAL 4 BILLION DOLLARS  [ A YEAR ]  TO SUSTAIN THEIR MILITARY IN DOING SO I FEEL THE AMERICANS DO THEIR PART. AS FAR AS BEING A BIGOT LOOK IN THE MIRROR!!!!!!!
Nov 7, 2012 11:36PM
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The Republican members of Congress simply need to vote "Present" on the Democratic initiatives put forth. Let the country fall off the cliff so those that pushed can be held accountable for the economic results they've supported.
Nov 7, 2012 11:11PM
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i want to help republicans commit suicide let me know where i can lend a hand, either on the trigger or placing the shot gun between their feet for them. 
Nov 7, 2012 9:33PM
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I find it so amusing to see how many Romney supporters there are. Considering he knows ONLY how to outsource jobs.  Was caught lying and flip flopping more times than I can count on both hands and feet.  Keeps his money over seas so he can pay less taxes (very UN-PATRIOTIC IMO).  How can anyone trust Repubs after what Bush did?  Trickle down DOES NOT WORK!!!  They hoard the money and not invest it.  And anyone in the house or senate that blocks any kind of bill that would help America, needs to be fired and NEVER allowed to work in Government again.  All the Tea bums that blocked EVERY bill the POTUS put forward needs to be gone!!!!  Really crappy of them for agreeing to block EVERYTHING Obama put on the table.  Just because they didn't like the guy.  GROWN UP YOU IMMATURE WORTHLESS PIECES OF CRAP!!!! COUNTRY FIRST!!!!! Not your childish feelings!!!

Nov 7, 2012 9:05PM
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“OBAMANATION” – A GREAT NEW PLACE TO LIVE FOR THE ENTIRE FAMILY!

YOU ARE ENTITLED TO:

FREE HOUSING!

FREE HEAT!

FREE FOOD!

FREE EDUCATION! – FREE COLLEGE - ESPECIALLY COLUMBIA UNIVERSITY!

FREE MEDICAL INSURANCE!

FREE U.S. CITIZENSHIP – EVEN IF YOU’RE ILLEGAL!

EVEN A FREE CELL PHONE!!  WOW!!

TO QUALIFY YOU JUST HAVE TO BE ONE OF THE 96% OR 69% WHO VOTED FOR ME!

AND DON’T WORRY ABOUT A THING – IT’S 100% PAID FOR.

 

 

I'M BARACK OBAMA AND I APPROVE THIS MESSAGE.

 

 

 

Nov 7, 2012 8:45PM
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Both of my sisters are tickled pink that Obama was re-elected , now the monthly checks are safe .
Nov 7, 2012 8:32PM
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I wonder what 6 billion dollar$ would have done in the fight against disease, or paying for the education of America's children... when will we ever get our priorities straight in this country? I guess we will continue to reap what we sow.
Nov 7, 2012 8:31PM
Nov 7, 2012 8:28PM
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Sweet Jeebus, for a group that supposedly espouses standing proud and moving forward and such, you conservatives certainly whine a lot. The election is over, your guy lost. Get on board, be Americans now (and not just 'Republicants'), and move on! Or you can decide that remaining fractured is the best way to be, and the country can remain in gridlock even though the majority has now spoken.

Honestly, do you teach your kids to whine this goddam much? For f@^k's sake!

I'd write more, but this Democrat has to get back to work now. 

Nov 7, 2012 8:19PM
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Since we are going to eventually solve our budgetary we should be debating solutions, not impaling ourselves on our swords.  I'd suggest a reduction in our military size, pushing health care reforms, raising taxes on the wealthy, revising tax codes for everyone, and reviewing regulatory reforms to encourage efficiency.

 

The last numbers that I saw indicated that the top 2% of our income recipients were saving 54% of their incomes.  That is too high a figure for a healthy economy because it encourages capital concentration that pulls income out of our middle class and actually pulls down economic growth.  (70% of our demand is from the middle class)  The way to an equitable income distribution is by spreading increases in income among all the participants, not just the banks and corporate owners.  We need to reinstitute equitable income into the economic equation, and not just ownership of resources. 

 

The key to our growth and strength as a nation is a strong middle class that participates in the wealth that it earns as increased marginal contribution.  That can be accomplished through taxation and reinvestment into our government necessities, or through direct restructuring of the income distributions to compensate according to marginal contributions.  The middle class has made it possible to grow our national income, they just have been compensated less than the amount of their contributions because of legislative and economic structures implemented since the 1960s. This has set up compensation systems that reward ownership out of proportion to contribution.  Revising this faulty system is key to our health and economic viability.

Nov 7, 2012 8:07PM
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Better hurry and get all your free birth control pills and all you rump rangers better hurry and get hitched. The cliff is coming up fast.
Nov 7, 2012 7:58PM
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its a sad day indeed for our country. not because my guy lost but because obama has already shown he does not have the smarts to run this nation. we as Americans are walking a tightrope and its a very, very, thin rope .this nation is headed in the wrong direction and all you who voted for this man just be warned. the election is done !! lets just pray this country isn't.
Nov 7, 2012 7:50PM
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The whiners are always so scared,so they sit in the corner whining about everything.

The repubs will always whine about everything except having more money for themselves.

.I hope the folks that can still reason without murdocks help,will vote the whiners out in 2014.

Nov 7, 2012 7:40PM
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As president, it is Obama's responsibility to LEAD the country. That includes closing the divide

that exists between parties to reach agreements and move the country forward. All succesful

leaders such as CEO's, Business owners,  etc have this ability or they don't last. My guess is he will continue to blame Bush, Congress, etc because he can't accept this responsibility.

It's goung to be a long four years.

Nov 7, 2012 7:21PM
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I just want to see if their still blaming Bush after the next four years pass. My bet is that they say that he had it so bad that even after 8 years they couldn't fix it. Anyone want to lay the odds on that?
Nov 7, 2012 7:02PM
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I've had it with the liberal media, especially on this website.  I'm switching to yahoo as my home page so I don't give msn my page views anymore, from which they profit.  If you feel the same way do so as well and boycott msn. 

Socialism is not the answer and the greed, envy, and class warfare Obama is sewing, together with his reckless overspending, are tearing our country apart and sending us down a path to ruin.  Shame on you people who voted for him.  You are dooming our young people and children to pay for your excesses and overspending.

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