Issue: 322
Sent: 07-11-2012 17:29:03
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Dealmakers to the Fore: The Election AftermathThe Essential SMSF Guide 2012-13
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Dealmakers to the Fore: The Election Aftermath

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

The result of the US presidential election will barely be known before attention will move quickly to the greatest economic challenge now facing the world: averting a seemingly unnecessary economic slump in the world's largest economy.

At the beginning of the election week in the USA, Barack Obama seemed set to win a second term as momentum for Mitt Romney, his Republican Party challenger, appeared to dissipate in the key swing states. Nonetheless, the polls are close and the result could depend on which party is better at encouraging voter turnout.

There is a chance, too, that Mitt Romney could garner a higher popular vote than Barack Obama but fail to secure the right distribution of electoral college delegates to become president. There is a small chance of the election being close enough for a tie in the electoral college vote.

There are several state by state voting combinations that could see the almost unbelievable theoretical outcome of Mitt Romney becoming president with Joe Biden squeezing out Paul Ryan as the vice president.

In the event of an electoral college tie, the twelfth amendment to the US constitution requires the House of Representatives to elect the president (with one vote for each state) and the Senate to elect the vice president. On the assumption that the two chambers remain split as they are now, the Romney/Biden outcome becomes a theoretical chance.

Of course, the senators might concede ground and give Romney his choice of vice president in the event he is elected by the House Republicans. Even in an uncertain world, however, strike out the possibility of the House of Representatives voting to keep the incumbent in power.

Immediately following the election, all 537 elected members of the legislature and executive will have to confront the consequences of the so-called fiscal cliff: coincidental expiry of the extended Bush-era tax cuts and implementation of the spending sequestration mandated by the deal hammered out in the Congress in 2011 to permit an increase in the government debt ceiling.

The impact of letting the current laws take their course is generally thought to be a 3-5% contraction in US GDP during the first half of 2013. The stakes for the US and the world are clear and grave: a US recession and, for all practical purposes, a global one as well.

Beyond the direct economic consequences, the standing of the US as a global leader would be, justifiably, in tatters. Economic and political power could be permanently and dramatically rebalanced.

No sensible person, one should easily surmise, could allow this to happen and, yet, the threat remains very real.

Neither of the two presidential candidates has outlined a plan to avert this looming catastrophe. Nor has anyone in the Congress put together anything approaching a coalition to promote an acceptable result. Someone must break the mould. Mitt Romney seems the best suited for the job.

This US presidential election has been notable for its uninspiring set of choices. Republicans are less than fulsome in their praise of their candidate. The Obama presidency has disappointed many of its original supporters. But for his appeal to specific minority groups, Obama's re-election would be unlikely.

Many commentators close to the White House have observed how remote the president has appeared from the deal making that is required in the US system of government. Obama's now legendary detached performance in the first presidential debate seems entirely consistent with his overall approach to the presidency.

His scripted speeches, which launched him onto the national stage in 2004, have been outstanding making him an excellent head of state but limitations in his capacity to bring deals to the table have made him a poor head of government.

Romney's critics cite three reasons for voting against him. Among fellow Republicans, he is considered not genuinely conservative. Others say he favours the rich at the expense of the middle class. Many on all sides of politics believe he is too prone to change his mind on policy issues. The last of these three has been the most effective criticism he has faced during the campaign.

And, yet, in Italy and Greece pragmatic, technically oriented professionals have been called upon when the more ideologically edged professional politicians have failed. Mitt Romney fits this bill.

Romney's history of flip flopping makes him the right man for the times. He has shown a willingness to compromise. Indeed, if his critics are right, he is prepared to shed firmly held views to accommodate the realities of political life. Who better than this to engage with the congressional leadership, whatever its makeup, to fashion a solution to a growing fiscal balance that threatens US and global economic growth.

Of course, Obama will remain president for another two months after the election even if he loses. Win or lose, no longer needing to face election, he could eschew principle for deal making, reticence for engagement. The model for this is Bill Clinton who has come to rival Ronald Reagan as a US political icon for his preparedness to bend to the political wind to retain power and accumulate enough prestige to fight another battle.

But the 2016 Republican presidential candidate could make the difference. Paul Ryan, already respected for his understanding of budget matters and with his standing greatly enhanced by a tilt at national office, could be the one to broker a deal and cement his position as the next Republican leader.

A deal of some sort will be done to avert the worst of the fiscal cliff but hard-line principled stands will result in failure. Pragmatism of the sort displayed by the Chinese communist party will be required.

As it happens, the comrades of the Chinese communist party are also set to install a new leadership team this month. Leaks to the New York Times about the accumulated wealth of the family of Wen Jiabao and planted stories about misbehaviour by the family members of others on the party's standing committee give us glimpses of the intensity of the manoeuvring.

The less than comradely spirit pervading the Forbidden City leaves the number two economy also facing uncertainty about the direction of future policy. In both the USA and China, these differences will ultimately be resolved through the abandonment of strongly held principles. There will be ample incentive for the best dealmakers to rise to the top in the next few days.


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