"Quite simply, the U.S. is the closest shark to the boat right now." That comment, from investment strategist Russ Koesterich to the London Daily Telegraph, describes the problem threatening the global economy because of the "fiscal cliff" that Congress will face after the presidential election. Unless Congress and the president -- the current one or the new one -- reach an agreement, enormous spending cuts (the so-called sequester) and huge tax increases will take effect automatically and simultaneously on Jan. 1. If this happens, it will mean 2 million jobs lost and an unemployment rate north of 9 percent, with the pain falling disproportionately on Virginia.
Democrats say they would prefer to raise taxes only on the wealthy. But their standard bearers in Washington -- their congressional leaders and President Obama -- say they would rather go off the "fiscal cliff" and let taxes rise on everyone, including the poor, as a bargaining chip to force the wealthy to pay an even higher federal tax rate than the 33 and 35 percent rates in effect now. Republicans, who control the House of Representatives, have sworn off any deal that increases taxes on anyone. And so there could be a ruinous stalemate on the horizon, depending on the outcome of the 2012 election.
Obama has often referred to this election as "your chance to break that stalemate" between the parties in Washington. But it has now become clear that the stalemate breaks only if Obama loses. With just a week until Election Day, it is now widely acknowledged that Democrats have no serious chance of retaking the House. Stuart Rothenberg, an independent analyst who studies House races in great detail, says it with much greater certainty than we would dare: "They called the fight," he told the Washington Post last week. "It's over. We're going to have a House next year that's going to look an awful lot like the last House."
Rothenberg's view reflects the common wisdom even among the most liberal of mainstream journalists. If Obama is re-elected, expect two and -- thanks to a strikingly Republican-friendly 2014 Senate map -- probably four years of intractable gridlock.
What does this mean for the "fiscal cliff" that both American and world markets are dreading? As the Telegraph's Richard Blackden reports, investment strategists are only debating which election outcome would be worse for the economy: an Obama victory, which guarantees stalemate and higher taxes; or a win by Republican Mitt Romney, after which a recalcitrant lame-duck Obama lets America drive off the "fiscal cliff" before his rival can be inaugurated in late January 2013.
The second fear is likely overblown. If Romney does win, he will likely be able to reverse the Democrats' suicide dive off the "fiscal cliff" retroactively. He will have a friendly House of Representatives, and odds are decent he can peel one or two Senate Democrats away from their leaders to get the job done. The odds are much worse that Obama will suddenly discover after four years that yes, he can work with the opposing party.
If you're rooting for the economy, as we are, count this as one more reason to support Romney over Obama.