Today's economy

Four more years for Barack Obama

By Kevin Press,

Comments (3)

Image of the White House.U.S. President Barack Obama won re-election last night with a wider Electoral College victory than many predicted. Network projections started rolling in shortly after 11 p.m. ET. The count was 303 for Obama and 206 for Governor Mitt Romney. (The state of Florida was still counting votes this morning.)

But while the final tally wasn’t close, it’s a status-quo result for the U.S. After a contentious, seemingly endless campaign that saw the two camps spend upwards of $6 billion, little has changed. The Democrats held onto the White House and maintained their majority in the Senate. Republicans kept their House of Representatives majority.

What does this mean for the U.S. economy, and by extension the Canadian and global economies? Four things, I think:

  • The fiscal cliff remains a danger. On January 1, Obama’s extension of the tax cuts implemented by President George W. Bush expires and a $1-trillion series of automatic budget cuts (due over a decade) starts. If left unaddressed, it’s expected that this fiscal cliff will shave more than 5% off U.S. gross domestic product in 2013. It virtually guarantees a new recession. Is Washington more or less likely to produce a legislative solution between now and the end of the year as a result of last night? I’m less optimistic after reading what House Speaker John Boehner told POLITICO. Republicans still have a mandate to block tax increases, he said, even for the richest Americans. “We’ll have as much of a mandate as he will,” Boehner said, referring to the president.
  • Political risk is alive and well in the U.S. The U.S. economy continues to add jobs, housing appears to be on the rebound and consumer confidence is at a four-year high. But absent any real change in Washington, gridlock will continue to make progress on economic policy (including budget negotiations) difficult.
  • That means continued pressure on Canadian exporters to rely less on U.S. consumers. Business leaders understand why finding ways to serve emerging markets like China is in their best interest. As long as U.S. economic policy is hamstrung by an unwillingness to act in a bipartisan fashion, the U.S. recovery will be weaker than it might be.
  • There’s still reason for optimism on U.S.-China relations. Romney’s promise that he would label China a currency manipulator on day one of his new administration was reckless. The global economy is more stable as a result of this not being an issue today.

Yes, this is a glass-half-empty view of things.

It’s not that I think the president doesn’t deserve a second term. I expect historians to credit Obama and his administration for having prevented a far worse economic downturn (one comparable to the Great Depression) after the financial crisis in 2007-08.

But the deep political divisions that led to the debt-ceiling fiasco and eventual U.S. credit rating downgrade in 2011 remain firmly in place. And I don’t see much reason to believe they won’t be front and centre for four more years.

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Weekend Reading: Four More Years Edition on

[…] Press from Brighter Life thinks it’ll be more of the same, with House Republicans blocking Democrat initiatives every step of the way.  The sad thing is, […]

Kevin Press on

Thanks David.

The good news is that the U.S. economy is clearly recovering. If Washington is successful in finding ways to work across the aisle, I think there’s real reason for optimism again.

David on

Definitely an interesting time for the United States. The Americn people rewarded President Obama with a second term, but I wonder how much work will get done. I know the President has worked with Republicans in the past, but he will have to continue to do so since there is a divide in Congress…Republicans controlling the House and Democrats controlling the Senate. The President will likely have to make some concessions in order to pass the legislation he wants.

The fiscal cliff is a great concern, not only in the United States but also for countries around the world. If US GDP does contract as a result of the spending and tax cuts, it would be a result of companies not being able to invest in Research, Development and new hires to get the economy moving. When I was in greaduate school, I read an article that discusses investment by big organizations. When economies are in a slow growth or contraction phase (as it is now), it is the best time to spend in order to become stronger than one’s competitor when the economy does turn around. I would love to see this, as it would be a signal to the rest of the world that the United States is taking a lead in the economic recovery.

From a Canadian perspective, this is why Prime Minister Harper is trying to diversify Canada’s interests and increase it’s trade with emerging markets in China, India and Brazil, and attempting to further solidify its trade deals with countries in Europe. I wonder how long the United States will remain the leading economic power with so much uncertainty ahead. Many business publications have mentioned this for a while now.

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