Economics, U.S. Economy

A worst-case scenario for the U.S. economy between now and November

With about six months to go before the November elections, what economic factors will most influence whether Barack Obama gets four more years or Mitt Romney becomes America’s 45th president? In looking at the state of the stock market, economic analyst Ed Yardeni outlines what could really go wrong in the economy between now and then:

In this scenario, the latest round of the European sovereign debt and banking crisis spirals out of control. Spanish banks that used the LTRO funds to buy Spanish bonds get creamed as yields spike to 7%. Other European banks that jumped into the carry trade also take hits. … The event that could cause the Euro Mess to spiral downward could be the defeat of French President Nicolas Sarkozy by Socialist candidate François Hollande. … Another possible cause of a bear market in stock prices is the widely feared “fiscal cliff” that the US economy is heading towards, and will be at the brink of early next year. Lately, I’ve been hearing more concerns about this issue than the Euro crisis among our accounts. I don’t expect that it will make stock prices swoon until after the summer closer to the elections. However, a bear market could certainly be driven first by a financial meltdown in Europe and then a leap off a fiscal cliff in the US. And what if push comes to shove in the Persian Gulf right after the US elections, making matters much worse?

Political impact: A mini-version of 1980, with a thumping rejection of the incumbent president. You would have unemployment edging higher and incomes falling. No way could the president argue that the economy is out of the ditch and on the right track. As Obama political adviser David Axelrod said yesterday, voters will have a choice between an “economy that produces a growing middle class and gives people a chance to get ahead and their kids a chance to get ahead and an economy that continues down the road we are on, and everybody else is running faster and faster just to keep pace.” Indeed …

2 thoughts on “A worst-case scenario for the U.S. economy between now and November

  1. There is no doubt in my mind that President Romney will inherit a far greater mess than our current president did (and constantly reminds us of). This, however, is nothing new.

    Our current problems can be reduced by adhering to one principle: getting the overreaching federal government out of the economic way. This can be accomplished by a president and a Congress united to roll back the abuses of the Obama administration and its command-and-control practices that are currently smothering the economy under increasingly non-sensical rules and regulations.

    Case in point: our air and water are cleaner than ever, yet this administration is implementing even more stringent and unrealistic air quality standards that are closing many coal-fired power plants, which will cause everyone’s utility bills to “necessarily skyrocket” just as promised by Obama.

    It’s a plain fact that government cannot, by action, improve the economy, as we have seen these past three and a half years. What is needed is to reverse the dangerous course imposed upon us by Progressive Democrats, get the government out of the way and unleash the power of the free market.

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