3 Big Problems for the Next President
Ron DeLegge, Editor
November 6, 2012
The next U.S. President may celebrate his political victory for one day. But when the party is over, he will face tough decisions.
After the November 6 presidential election, the House of Representatives has just 16 working days before adjourning on December 14. Can they get anything meaningful done on such short notice? Let’s look at three big immediate problems the next President faces:
Runaway National Debt
Remember the debt limit debacle that occurred in August 2011? It’s about to happen again. This time, the U.S. government will reach its statutory borrowing limit of $16.4 trillion by December.
The U.S. Treasury Department (NYSEARCA:SHY) said it would use “extraordinary measures” to make sure the government continues to meet its financial obligations through early 2013. What does the Treasury Department have up its sleeve? Maybe they’ll bring out the heavy artillery by issuing century bonds with 100-year maturities and sell them to wealthy babies.
In any event, the President and Congress will have to tackle both the debt ceiling and the “Fiscal Cliff.” (VIDEO: An ETF Trade with a 80% gain in 2-weeks)
The Fiscal Cliff-Hanger
The “Fiscal Cliff-Hanger,” as we like to call it here at ETFguide, describes the U.S. government’s $600 billion spending cuts and tax increases that get triggered on December 31, 2012 when the Budget Control Act of 2011 becomes effective.
Basically, three things can happen:
1) Congress lets the current policies expire as scheduled. If this occurs, they run the risk of severely damaging a fragile U.S. economy. A positive benefit would be the deficit for 2013 would be cut by roughly half, with the cumulative deficit lowered by around $7.1 trillion over the next ten years.
2) Congress cancels some or all of the automatic spending cuts and tax increases. The problem with this approach is obvious; it adds to the federal deficit and leads to an eventual debt crisis like Europe is facing.
3) Congress takes the middle course by initiating temporary measures to buy time to craft a more permanent solution later. This is a plausible course that kicks the can.
Either way, the President will play an instrumental role in negotiating. Will the Republican controlled house and Obama, if he’s re-elected – be able to agree on anything? And if Romney’s re-elected – he won’t be inaugurated until January 2013 – which means he will need to work closely with Obama.
The unemployment situation is not as bad as everyone thinks – it’s worse. The headline jobless rate is 7.9% but the “under-employment rate” is at 14.6%. Here’s what’s occurring: People that can’t obtain full-time worked are being forced to work part-time and that’s why the number of part-time workers has jumped to 8.3 million.
What about job creation? Look at actual quality of jobs being created. The National Employment Law Project estimates low-wage jobs have tripled in comparison to higher-wage occupations. Is it any wonder that one-third of Americans surveyed by the Pew Research Center consider themselves as lower class or lower middle class? That’s up from one-quarter in 2008.
Stocks (NYSEARCA:SPY) have rallied 13 out of the past 15 election years dating back to 1950 and this year looks like a repeat. However, financial markets have tended to decline in the first and second years of a President’s tenure. That means if the future imitates history, the current bull market recovery (NYSEARCA:DIA) is in serious jeopardy.
The November issue of the ETF Profit Strategy Newsletter identifies 12 mega investment themes that are already shaping the investment landscape. Markets always move down faster than they move up – and the next wave of huge profits are ahead if you own the right ETFs.
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