Alex Carrick: A Status Quo Result but a Very Different Future Ensured
Most estimates place the overall cost at $6 billion. That’s how much was spent by both Republicans and Democrats, the super-PACs and other advocacy groups in the recent U.S. Presidential election. Those huge sums of money went towards achieving what was essentially a “status quo” result.
Barack Obama still resides in the White House, the Republicans are in charge in the House of Representatives and the Democrats control the Senate. From a power-structure point of view, little has changed. But that doesn’t mean there aren’t significant implications for the economic outlook.
The first order of business will be avoid two potential catastrophes: 1) the so-called “fiscal cliff” that will see $600 billion in government stimulus disappear by year-end through automatic spending cuts and tax increases; and 2) a head-bump into the debt ceiling of $16.4 trillion early next year which could lead to the U.S. defaulting on its debts.
Those very same issues proved insurmountable before the election. The Republicans refused to discuss any form of tax increase and the Democrats insisted that the extremely rich should carry more of the public-sector financial load.
So what’s changed? Does someone now have the advantage? Who will prevail, the president or John Boehner, leader of the Republicans in the House?
The Obama camp surely believes the president has a mandate to carry out his agenda. That’s not his only point of strength. His first term in office was largely driven by a desire for re-election. Now secure in a second and final term, that pre-occupation is no longer an issue.
The president would seem to be holding the stronger hand.
The government’s budget is a fiscal matter. On the monetary side, one major issue has already been resolved. While campaigning for office, Mitt Romney was critical of the actions taken by the Federal Reserve since the recession. If he’d been elected president, it was his intention to remove Ben Bernanke as chairman of the Fed at the end of his term in 2014.
Mr. Bernanke’s future is now secure. That means the Fed’s policy of easy money and ultra low interest rates will remain intact. So will the program to purchase $40 billion in mortgage-backed securities each month. This not only adds to the money supply, it’s helping to spur on the U.S. housing sector.
For Canada, certain knowledge that the Fed’s key policy-setting interest rate will stay near 0.00 per cent will guide the Bank of Canada to keep rates down here as well. Otherwise, the value of the Canadian dollar will climb, hurting the export sales of our manufacturers.
Ongoing low interest rates will provide a backstop for a Canadian housing sector that is expecting an easing in starts after an exceptionally strong 2012.
Certain segments of the U.S. economy will receive a boost from Mr. Obama’s ongoing tenure. Firms offering alternative energy solutions have received a lifeline. Natural gas producers, employing new “fracking” technology have thrived under Mr. Obama and should continue to do so.
The private sector energy boom that has been underway at unconventional sites will change the U.S.-Middle East dynamic. The military will receive less funding and American soldiers will be brought home from war zones.
During the debates, the president was quick to express pride for helping out the auto sector when GM and Chrysler fell into bankruptcy protection in 2009. The rescue efforts helped Mr. Obama win the vote in hugely important Ohio, the second largest auto-oriented state in the nation after Michigan.
But much will continue to be asked of the sector. Tough emission control targets, with aggressive implementation dates, will continue to stand. Washington won’t be abandoning its “green” agenda.
Other industries, such as coal mining and financial services, won’t be satisfied with their treatment. The former still has a ways to go before being truly “clean” and the latter will probably face higher taxes on dividends and capital gains.
Unions and the public sector, at least at the federal level, will have an easier time of it. Similar standoffs over wage and pension issues, albeit at the state level, as what occurred in Wisconsin under Governor Scott Walker seem less likely.
The Democrat’s environmental file may leave TransCanada’s XL pipeline expansion to the Gulf Coast in jeopardy, although there have been three key developments since the project was placed on hold by the administration. The president has approved the southern portion of the line. Nebraska has given its blessing to a proposed route correction that would skirt an ecologically sensitive aquifer. And there is the aforementioned fact the president has a diminished need to seek approval from some of his own party’s core (i.e., eco-friendly) constituents.
Some of the key underlying tenets of future America have been altered by the election’s results.
Republican threats to repeal two key pillars of the president’s first term – Obamacare and the Dodd-Frank oversight measures for the financial services industry – no longer have teeth.
By the time of the next election in 2016, those measures will have become firmly entrenched, making full-fledged retreat more difficult. The U.S. has joined all other major industrialized nations in having a national health-care system. And some of the most blatant examples of corporate excess on Wall Street have been clipped.
In a country as preoccupied with elections as the U.S., the fun is about to begin all over again. Speculation will build over who will represent each party in another four years’ time.
For the Democrats, their latest victory resulted largely from a coalition of young voters, minorities and women, as well as the usual liberals. Latinos favored Mr. Obama and they are the fastest growing demographic in the overall population. The Democrats will want to choose a candidate who will appeal to their base.
For the Republicans, it’s unlikely they will ever reach the White House again with a too heavy reliance on conservative white voters and evangelicals. Their policies will need adjusting to attract greater ethnic and gender diversity.
This most recent U.S. election may even see a swing away from intransigent confrontation between the two political sides and a move towards greater bi-partisanship. It’s clear much of the electorate is fed up with the former which has led to legislative paralysis in Washington and a debt downgrade.
One of the leading contenders to carry the Republican standard next time appears to have recognized the importance of reaching across party lines. While assessing the havoc created by Hurricane Sandy in his home state, Governor Chris Christie of New Jersey was generous in praising Barack Obama for his handling of the crisis.
Witnessing the president in full take-charge mode may have played a role in stopping Mr. Romney’s momentum and garnering votes for the incumbent. If the U.S. does shift towards more common ground, it will serve as a good example for Canada where the ruling Conservatives and the opposition NDP are far apart in philosophy.
So let’s put all of this in a snappy summary. While the recent U.S. election may have yielded a status quo result, it did ensure that a very different future has been mapped out.
Alex Carrick is Chief Economist with CanaData, a division of Reed Construction Data (RCD). CanaData is the leading supplier of statistics and forecasting information for the Canadian construction industry. RCD is a division of the global publishing firm, Reed Elsevier. For more economic insight from RCD, please visit www.dailycommercialnews.com/features/economy. Mr. Carrick’s lifestyle blog is at www.alexcarrick.com and he would welcome a follow on Twitter (Alex_Carrick) or Facebook.