The Likely Economic Challenges of an Obama Second Term

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Higher Taxes Anticipated? Market Adjustments

Arguably, the markets would have preferred a Romney presidency. Regardless, you can bet he’s figuring out the tax angles at this very moment. Credit: By Toby Alter

The markets are beginning to price in an expectation of higher taxes. Pre-2013 adjustments to avoid higher taxes from a budget agreement are already in motion.

This veritable money stampede may in part explain the Dow’s steady downward trend since election day.

It is reasonable to anticipate further negative trends until the new year. The stock market’s 2013 prospects, as always, will largely depend upon the economy as well as the performances of other key investment options, most notably the bond market.

Shortly after the new year, the pace of the country’s tepid economic recovery will leapfrog to front-and-center position on the Obama economic radar screen, and with good reason: another recession may be on the horizon.

Recessionary headwinds may hit an Obama second term

It’s almost astonishing this may well be an upcoming issue facing President Obama, given that it seems as if the last recession is still with us.

It seems that way because for many, it is. And yet, the recession officially ended in June, 2009. After three years of subnormal growth, tapped governmental resources, high unemployment, and middling consumer confidence, the economy appears to be just as likely to lapse back into another recession as it is to take off — if not more.

According to the aggregate list of reports on The Blaze, Energizer, Westinghouse, Hawker Beechcraft, Boeing, U.S. Cellular, Rocketdyne, Husqvarna, Bristol Meyers, and others are laying off workers. This may just be normal corporate restructuring, or even overreaction to Mitt Romney’s loss. On the other hand, it could portend future labor surpluses for an economy that desperately needs further job growth. With respect to investments, a bear market in equities and/or a fresh reversal in the housing market could tip the fragile recovery on its side in the blink of an eye. Ditto with consumer confidence, which now stands at 72.2, 3.8 points above September’s figure. Point being, the contentious fiscal cliff negotiations are only one indication of the true fragility of the U.S economy.

2012 – 2013 Economy Predictions

Anything beyond next Tuesday is difficult to predict with any degree of certainty. Depending upon your political perspective, another Obama term could bring progressive reform or massive growth in the federal government — or both. Debits and credits exist on both sides of the debate as to whether or not the groundwork is being laid for future expansion, or if the U.S. is in danger of repeating Japan’s “lost decade” of the 1990s.

When in doubt, consider the fundamentals. The uncertainties mentioned above would, at the very least, suggest caution. The financial underpinnings necessary for long-term growth just aren’t strong enough to bet upon at this time. If the Congress and Obama administration can strike a “grand bargain” that manages to help accelerate growth (credit) while somehow setting a course toward fiscal sanity (debit), the long-term outlook will likely be good. If not, the economy will certainly falter.

We’ll have our answer in less than 60 days.

 Resources

CNBC. Labor Backs Obama on ‘Cliff’ as Congress Returns. (2012). Accessed November 14, 2012.

Taylor, Andrew. Congress: fiscal cliff cuts would mean recession(2012). Yahoo News. Accessed November 14, 2012.

Lewison, Jed. Norquist backs Boehner, endorses increasing revenue by lowering taxes(2012). Daily Kos. Accessed November 14, 2012.

Business Cycle Dating Committee, National Bureau of Economic Research. (2012). The National Bureau of Economic Research. Accessed November 14, 2012.

Opelka, Mike. How Many Companies Announced Closings or Layoffs Since Obama Won a Second Term? (2012). The Blaze. Accessed November 14, 2012.

Collins, Margaret. Obama Victory Leads Wealthy to Make Quick Pre-2013 Moves(2012). Bloomberg. Accessed November 14, 2012.

The Conference Board Consumer Confidence Index Increases Again (2012). The Conference Board. Accessed November 14, 2012.

Kreitner, Ricky. U.S. Could Be Facing A “Lost Decade” Like Japan In The 1990s (2011). Business Insider. Accessed November 14, 2012.

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