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Tuesday, October 23, 2012

Election Scenarios and Effects on the Economy

By Dan Gonzalez (Washington DC Metro)

 With the U.S. Presidential election right around the corner, I thought I’d share “what if” predictions regarding the election and effects on the economy made by the Principal Global Economic Committee.  The group highlighted three election eventualities and the impact on various economic issues (including the much discussed “fiscal cliff ):  1) Romney wins and Republicans retain control of the House of Representatives; 2) Obama wins and the House goes Democrat; and 3) Obama wins and the House stays Republican. 
Romney wins and the House stays Republican:

The group says, “We would expect taxes to be reduced and entitlement spending cut...and the Bush Tax Cuts extended.  With a resolution to the uncertainty that is hindering economic growth, we would expect to see a resumption of growth in the second half of 2013.”
Obama wins and the House goes Democrat:

 “In this scenario,” the group says, “we expect taxes to go up and entitlement spending would either increase or at least be maintained at current levels.  The Bush tax cuts would probably be maintained.  Even though this path looks different than the scenario above, we would again expect the reduced uncertainty would mean growth in the second half of 2013.”

Obama wins and House stays Republican:

 The group notes that “this option brings the highest chance for a downside scenario...with a continuation of the current dysfunctional dynamic.  Any solution (to avoid the Fiscal Cliff) would require concessions from both sides and would likely only be short term “punts,”..and another temporary fix may not engender much confidence.”  Their absolute worst case is that the economy slides back into recession in 2013.

We will know soon enough --- November 6 --- which scenario will occur.  We certainly live in interesting times. 

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