After the Election

By Dr Lynn Reaser

No more political ads. No more recorded phone messages telling you who to vote for. No more mailbox stuffings advising you which candidate slate is best. The elections are finally over. What do we have and what does it mean for the economy?

The U.S. congressional results materialized as most had expected. The Republicans soared to a clear majority in the House of Representatives, sweeping with a large margin. In the Senate, the GOP fell short of acquiring half of the seats and well shy of the more important 60 votes required to block a filibuster. Meanwhile, President Obama holds the important trump card in his role as President. Washington today is truly a divided government.

Some important drivers of economic policy and outcomes will see little change. The Federal Reserve, in many respects, is the most important influence over the economy and financial markets and will face little change except for perhaps greater scrutiny and questioning from Congress. The Fed and other bank regulators will remain responsible for interpreting and carrying out the 2,300 pages of financial reform legislation. The various regulatory agencies in charge of a vast range of economic activities, ranging from food safety to securities markets, will remain largely unaffected. The Administration also will remain responsible for negotiating any new trade agreements and setting the platform for global trade and currency arrangements.

Look for some differences, however, from the newly comprised House. The new leadership will not be driving major pieces of legislation that might impact any large business segment in a possibly adverse way. That means that a “cap and trade” bill or legislation to stop global warming is very unlikely in 2011. The new Congress will not be able to repeal the health care reform bill passed this year, but it could block bills authorizing some of its funding. A “technical corrections” bill for the financial regulatory reform legislation passed this year could also reduce some of the power of the new Consumer Financial Protection Agency. The new House of Representatives also will vigorously oppose any tax increases. If not accomplished by the lameduck session before this year ends, the new Congress can be expected to work with the President to extend the Bush tax cuts for at least another two years.

What about deficit reduction? This could be where true deadlock develops. With the Republicans, especially the Tea Party contingent strictly opposed to tax increases and the Democrats unwilling to endorse the spending cuts that will be required, 2011 could be another year where we “kick the can down the road”. This would be unfortunate, as the deficit problem will not go away as easily as election night.


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