Presidential Election Preview 2: Where They Stand And Why It Matters

Tyler Durden's picture

The 2012 US presidential election is perhaps one of the most unique and important elections in recent history from an economic perspective (with the time-line rapidly approaching). In choosing its leader for the next four years (for which we provide a handy 'where-do-they-stand' cheatsheet), we agree with Goldman that the country will likely be determining the path for near-term economic growth, medium-to-longer term fiscal stability and monetary policy at a time when the stakes are exceptionally high - whether or not the US economy returns to recessionary conditions in 2013, the US sovereign debt rating and the broader credibility of the US government to Americans and foreigners alike all hang in the balance. Goldman sees three factors that set the 2012 election apart.



Via Alec Phillips, US Political Economist at Goldman Sachs:

Legislative inaction now a greater risk than legislative action


The potential for legislative inaction may pose a greater risk and more uncertainty than legislative action, suggesting that the one almost foregone outcome of the current election - divided government - poses greater challenges than in the past. Typically, divided government is viewed as a constructive political outcome by markets as it (normally) reduces the likelihood of major policy change and hence policy uncertainty.


But in the current environment the opposite may be true, as Congress must take action (by year-end in many instances) to avoid large (and mostly undesired) shifts in policy. This is because policy has become more temporary, mainly owing to the congressional budget process, which measures the cost of legislation over ten years and thus makes temporary legislation appear less expensive than longer-lasting policies.


The glaring risk in front of Congress is the “fiscal cliff” - roughly 3.5% of GDP in tax increases and spending cuts set to occur at year-end. This makes the 2012 election one of only a few contests in which such a large fiscal policy shift was on the table so soon after the election took place (2008 is arguably another example, when the election represented, in part, a referendum on the size and composition of a stimulus package expected to be passed early in the following year). Our base case is that Congress will just barely reach an agreement before the end of the year, averting most of this fiscal restraint, but it is quite possible that Congress could fail to address the issue by that deadline, leading to a substantial fiscal drag on growth, at least temporarily.


A status quo political outcome raises the risk of a game of fiscal “chicken” at year end, in which policy goes “off the cliff” unless one party reverses their long-held position on the upper income portion of the 2001/2003 tax cut (luckily for the US economy—and unlike the real game of “chicken”—a retroactive extension is possible in early 2013). A Romney win seems more likely to lead to a short-term extension of the 2001/2003 tax cuts and some aspects of the fiscal cliff. In either scenario, it is imperative that Congress act, which is a unique and important difference from typical elections, with the economic consequences of them failing to do so potentially recessionary.


The fiscal stakes are higher than they have been in decades


Beyond the fiscal cliff, the winner in November will face a potentially frustrating fiscal landscape: on one hand, the elevated level of debt—around 75% of GDP and rising—limits the fiscal room to maneuver. On the other hand, the Treasury’s exceptionally cheap interest expense—around 1.4% of GDP, less than half the level that prompted deficit reduction efforts in the late 1980s and 1990s—has dulled the pressure on lawmakers to tackle these issues. This should be a recipe for inaction. But two issues will likely raise the stakes in reaching a longer-term fiscal agreement early on in the next administration:


(1) the need to once again increase the debt ceiling which congressional Republicans would like to match with deficit reduction (over ten years) of an equal amount, and

(2) the renewed threat of a sovereign downgrade by the ratings agencies, who have signaled as much if the US doesn’t stabilize its debt ratio by mid-decade.


A deficit reduction agreement of $2 trillion over ten years could resolve both issues, but with the easy cuts already made in last year’s debt limit agreement, only the most difficult aspects of a fiscal “grand bargain” remain.


Monetary policy in (political) focus


Elected officials have hardly been indifferent to monetary policy in the past, but there have been few elections where Fed policy was as widely debated as it is today. Compounding this is the expiration of Chairman Bernanke’s term in January 2014; Romney has already indicated that he will not nominate Chairman Bernanke for another term. While Romney is not alone in making his intentions to replace the chairman clear, what makes this situation unique is that it comes at a time when the Fed is pursuing unconventional policy that depends much more than usual on a forward commitment that occurs mostly past the end of the current Chairman’s tenure.



Any of these issues would make the upcoming election an important one for the economic outlook, but the combination of a near-term risk in the fiscal cliff, increasingly problematic medium-term fiscal dynamics, and election-driven uncertainty on monetary policy at a time when the credibility of future commitments is necessary for its success make this a unique election, with potentially substantial and far-reaching economic impacts.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bank guy in Brussels's picture

George Soros counting black box voting, bitchez!

true brain's picture

Obaromney, Obaromney. Now say it with me. Obaramney, yes we can.

john39's picture

both obama and romney are distant relatives of the Bush family.  figure it out people, you get no say in who runs the country or how it is run.

malikai's picture

Romney/Ryan are going to try to get a balanced budget amendment in the constitution?


The Alarmist's picture

OMG! IF we don't act now to borrow from the future, we will lose 3.5% of GDP now!

Uh, what are our children going to do in the future to replace the GDP that was stolen from them now?  

Oh, yeah, I forgot ... they won't have to worry because WWIII will be the mother of all resets.

malikai's picture

Long southern hemisphere.

Surly Bear's picture

Presidential Election Preview 2: Where They Stand And Why It Does Not Matter

There. Fix'd. Yeah, this is what I told my dad last night on the phone.

macholatte's picture



  • Communist vs Capitalist


  • Muslim vs Christian


  • Blue Progressive vs Red Progressive





caconhma's picture

I don't like Romney at all. He is POS.


But voting for Obama or writing in Ron Paul will lead to the Obama's 2nd term. The results will be

·      Collapse of the US economy

·      Hyperinflation

·      Flood of illegal immigrants with Mexican drug-lords coming to your town

·      Civil unrest


Obama and his union bosses’ supporters must be stopped. He is too dangerous for the economy and the social order. Obama has ruined the US legal system already.


UGrev's picture

how about everyone else grows a mother-fucking pair of balls and writes in Ron Paul instead of acting like a bunch scared little children and running for their woobie....

Raymond K Hessel's picture

Write in Ron Paul when we stand to lose to Obama?

They call it falling on your sword for a reason.  We voted for RP during the primaries.  

Ron Burgundy says to no to cat poop.  We will not eat cat poop to prove a point.  So we write in RP, will you bring me a big steak?


UGrev's picture

Because it's going to make a fucking difference to us if you vote for the same evil? yes.. they are both the same. Failure to realize this and to act upon this is sheer idiocy. 

TheFourthStooge-ing's picture

caconhma said:

I don't like Romney at all. He is POS.


But voting for Obama or writing in Ron Paul will lead to the Obama's 2nd term. The results will be...

...the same, regardless of whether Obama or Romney wins.

caconhma's picture

Before playing a smart ass, one must ask him/herself: Do I want Obama in the White House for 4 more years?

Right now, this is the question. The rest is BS and propaganda.


As for Ron Paul, he is gone from politics. Period. This is the reality.

UGrev's picture

The reality is that the vast and proper majority of voters who think the only answer is to elect a person who was successful in banning guns and instituting a take over of healthcare are dumber than a box of liberals.  Go ahead.. vote for him.. show the WORLD what a bunch of fucking hypocrites you are REALLY are.. 

XitSam's picture

Stop being such and alarmist. Oh....

nmewn's picture

Somehow, this will all tie in to jooos, 911 and chem trails...I can just feel it.

But I have to ask (and I know I'll be how much of a distant relative is O'Barry to the Bush family?...O'Barry's a closet Mormon ain't he? ;-)

knukles's picture

Don't forget HAARP.

Now listen.... There was this article about a week ago that the HAARP magic beams were workin' big time magic over the Eastern Seaboard.
And the this storm develops.
Here's an updated article (not the original from a week ago... it had forecast a big time problem over a week ago...)

Now, I am not an acolyte, subscribing to this stuff.
BUT, coincidences when repeated so many time get creepy, and this is just one of many.....

Now, the best ting about this kinda stuff is the lunatic fringe comments it develops.
Beats the shit outa Honey Boo Boo, Jersey Shore and the like.

But Adult Swim and Robot Chicken still rule....


Oh and why's this apropos to a thread on the election, mayhaps the most meaningful election in generations?
Because it's about as relevant.....

Like a promise to cut the federal deficit from 23% to 20% or GDP whilst promising a balanced budget amendment.
My loins hurt

nmewn's picture

"We think Hurricane Sandy is being steered into the USA. Since this showed up over a week ago before anyone started talking about the storm, do feel we are seeing a controlled storm. If the storm tries to leave into the ocean away from the United States and steers back west toward it then it would prove that HAARP can steer storms."


Never paid much attention to HAARP I know why ;-)

"Now, the best ting about this kinda stuff is the lunatic fringe comments it develops."

Kinda like finding iron & aluminum oxide dust after a building collapses and trees being raped by old man winter year after

"But Adult Swim and Robot Chicken still rule...."

Web Redemption!!!

Miss Expectations's picture

My Lunatic Fringe Comment:

Let's see, storm hits on Halloween (10/31) thereby making it impossible for SNAP card users to stock up because their cards are at about zero by the end of the month...Electricity out for 10 EBT cards working either.  YIKES.

nmewn's picture

No EBT candy corn?



knukles's picture

Riots in the flooded streets!
I can see it now, thousands on tippie toes screaming at the top of there lungs, wading ever so slowly toward wherever they'd decide to wade.  Million man wade-a-thon.  Give every man woman and child a bar of soap....

nmewn's picture

Save the flat screens and liqour first!!!

Oh God the humanity of it all ;-)

John_Coltrane's picture

Will ObamaPhones still be functional in such an event?  Well, at least with flooded streets they won't be able to burn down their homes and what little business remains in the getto after that Rodney King thingy.

A Lunatic's picture

Israeli intelligence indicates that the Iranians have a secret underground facility from which this storm in particular seems to be generating........

XitSam's picture

... via jet contrails ...

knukles's picture

True story... "Only in California Story"
probably about 8 or so years ago one of the local newspapers ran a local map on the front page with flight paths over it with the accompanying headline "Stop sending us letters about Chemtrails" or something of that ilk.
They noted that the flight paths represented a portion of the great polar route between California and Asian airports.
Whole bunches of local folks had been sending letters to the editor demanding they do something about this Chemtrail spraying over the local area which they claimed the Government was doing "in order to get people to vote Republican"

Only in California

nmewn's picture

Arnold's Fault!!!...he was channeling Ray-Gun!!!

Its all true...I seen it on da web!!!

Hulk's picture

You two obviously haven't had enough George Noory...

nmewn's picture

lol...theres more than a few making a decent living off of really REALLY off the wall stuff. But hey, as long as the peeps don't elect one of them to the presi...oh, wait...they did.

Well now, clearly we need more carnival barkers to choose from...the cream always rises to the top!

Heyoka Bianco's picture

Where in California? All of inland California is staunchly Republican.

knukles's picture

Central Coast area in a pleasant spot of paradise somewhwere between the shit holes of LA and SF

nmewn's picture

...from south Lebanon.

nmewn's picture

If we go back far enough...either through evolutionary or creationist theory...we're all related, we are not unique snowflakes in that regard. I have (and you have) tenth cousins wé don't even know about.

Its intriguing but thats about as far as it goes. I'm related to English royalty through my mother but her father was a simple farmer in south Georgia who worked his thirteen kids in the fields in order to survive.

I was more intrigued by O'Barry being related to a

Hulk's picture

Can you imagine the fucking transition from england to georgia? They must have yearned for the days of summer fog , come August !!!

nmewn's picture

It was a long transition.

I have an aunt & uncle who's really into tracing that sides (maternal) geneology. One of them/mine (ancestor) was a captain in North Carolina during the Revolutionary War before moving on to Georgia.

Another one on that same side...came here as an indentured servant (a slave to the government educated kiddies following along at really fascinating stuff.

Same "roots"...two different paths.

literarybeer's picture

what is your evidence of this?


john39's picture

try a search engine... its public knowledge. Bush, Obama, Cheney, Romney, Truman.. all related, with many other presidents and English royalty. inbred garbage:

kralizec's picture

Uhh, yeah...lets go back far enough and...oops, that pecker poked the wrong wench, OMG!  A conspiracy!  LOL!

NotApplicable's picture

Only an idiot would think this election matters from an economic perspective.

And by 'idiot,' I mean 'voter.'

Harbanger's picture

Speaking of idiots, "Republican" Colon Powell said he would vote for Obama again.

The Alarmist's picture

Gee, I guess that makes him a White House Ne.... Never mind. Don't want to go there

kralizec's picture

< - - Senile?

< - - Can't see past skin color?

iDealMeat's picture

I wasn't going to vote..  But I saw Rosanne Barr has her name on the ballot..


Ignatius's picture

I wrote in Ron Paul... not because I agree with everything but to send a message, I guess.

These two war mongering, rights stealin', corporate muppets can go f*ck themselves.

The Alarmist's picture

Wouldn't it have been precious to see Roseanne debating Big O and Ward Cleaver?

For that matter, if the had let Gary Johnson in the debates, he would have wiped the floor with them; good thing the Party has control of things.

Harbanger's picture

Gary Johnson is not a libertarian. Look up his interview with the daily caller.

The Alarmist's picture

Who cares. The point is that he delivers his talking points spot on, and they have substance.

Did you notice that the MSM debates covered nothing of substance to an ordinary American?