The US's economy is faring better than its politicsby Charles Dumas / October 17, 2012 / Leave a comment
Published in November 2012 issue of Prospect Magazine
The economy will dominate the problems that confront the winner of the 6th November election, but this is an election worth winning. Either President Barack Obama or Mitt Romney will benefit from the way that the US economy has adjusted in the wake of the 2008 financial crisis—better than anywhere else.
For investors this means that, after some turbulence this winter, the US stock market could yield solid returns, with better growth than Europe or Japan, and probably outperforming all but a few emerging markets as well.
As soon as the election is out of the way, the White House and Congress will be facing the “fiscal cliff” on 31st December, the result of their failure to agree on a budget earlier in the year. Laws are already in place to make budget savings and the expiration of tax cuts from the George W Bush era is also scheduled then. That would enforce a fiscal tightening of a massive five per cent of GDP, unless all parties can agree on a new budget.
No doubt, politicians will find a way to soften these changes, as the result of actually making them would almost certainly be a major recession. But some remnant of the “cliff” will probably remain in place. Although this could slow down the
economy in the first half of next year, it is a big step towards an essential element of the US’s adjustment after the crisis: control of its public sector deficits, and its debt levels, in the face of rising healthcare and pensions.