I have always tried to avoid politics in my blog. Today is therefore an exception and I apologize if I offend or disappoint anyone.
In Hong Kong we had the luxury of watching the the outcome of the US Presidential Election at a civilized hour of the day. By the time Mitt Romney gave his concession speech it was early afternoon and when the President appeared it was barely mid-afternoon. Watching the lengthy campaign it seemed to me to be quite typical. Most of it focussed on the negatives rather than the positives. Fortunately this time the election itself did not paralyze the country as it did in 2000 when Al Gore was handed his wonderful line: Hi. I’m Al Gore and I used to be the next president of the United States of America. Instead, apart from a slight wobble over whether Obama had or had not won Ohio it was a relative shoe-in.
Except that the popular vote seems to have split straight down the middle, Bing Crosby style. The Senate and Congress are in broadly the same shape that they were before the election. Essentially therefore, although the country has a Democrat President it has a divided view on the course the country should take.
I knew Obama would win. I am sorry if I offend Republicans but Romney did not come across as a sympathetic figure. Obama, whether you agree with his politics or not, is a fine orator. Apart from his rope-a-dope approach to the first debate he came across as more Presidential, as of course he should. Romney was on a hiding to nothing with his gaffes but he put up an admirable fight. His concession speech was gallant, gracious and commendably brief. Obama was fiery and passionate in acceptance. Maybe he is not of the calibre of JFK and MLK but they, sadly, are remembered for reasons other than their oratory, both having been assassinated. I was 6 when JFK was shot. I don’t remember it much but I remember the murder of Martin Luther King and Bobby Kennedy very vividly. What disappoints though is the knowledge that both sides find compromise too difficult. Obama’s fine words count for nothing if he can’t find a way to push through legislation.
During the campaign I was bemused by the way the candidates seemed to look at the USA’s troubles in a vacuum. Obama never had a chance of achieving what he set out to do. The millstone of the 2008 financial meltdown has not gone away. I heard very little reference to Europe yet the challenges facing the Eurozone lie pretty much at the heart of our and America’s woes. Growth has all but disppeared. Social unrest threatens to make some countries ungovernable. Asia has slowed in tandem with the rest of the world. A couple of years ago people speculated that Asia might have decoupled from the West. Well of course it hasn’t. Trade is global and a key concern has to be the growth of protectionism and the reinstatement of trade barriers, real or artificial. In the same way the USA can’t heal unless the rest of the world heals too.
Unless there is a significant pick up in global growth many countries have no alternative but to reduce debt. Cutting spending hurts. Taxing more hurts. In the absence of a rapid and substantial pick up in GDP it is likely that debt will have to be reduced to more acceptable levels. Deficits can not be sustained at excessive (and growing) levels indefinitely. The bond markets won’t buy and simply shuffling the paper onto central or commercial bank balance sheets doesn’t make it go away. You need a stronger top line or a debt restructuring. Simple.
The USA is fortunate in being what Bill Gross calls the cleanest dirty shirt. But it is still a dirty shirt. It pays the square root of nothing to borrow at present. When the interest rate cycle turns the pain of higher rates will kill it. And turn the cycle will. So, President Obama, how do you reduce the deficit and stimulate growth? I submit that it is remarkably difficult until the Eurozone finds a way of resolving its debt overhang. Don’t look to China to solve your problems. There are plenty of reasons why China could yet suffer a hard economic landing and exacerbate the problem. Governor Romney’s plan to classify China as a currency manipulator on day one of his now never-to-be presidency was a naive boast aimed at the populist vote. My sense was that although they ran the democrats close, the GOP lost it in the acrimony of their very selection process. Nobody really seemed to want Romney but he was the least unpalatable choice. I remember driving home one day listening to the best radio station in the world, the BBC World Service. A prominent Tea Party member was being interviewed about whether she would, if he were ultimately chosen as the Republican candidate, endorse and support Mitt Romney. Her answer, not unsurprisingly was ‘of course’. There was no alternative. Yet she had endless lists of reasons why she did not want Governor Romney as ‘her’ candidate. And thereby hangs the problem for the 2016 election. Can they find a candidate, who will bring together the broad church of the party into an electable package? If Romney is right and 47% of the electorate will never vote for the Republican party then the battle will always be about the middle of the Venn diagram. A good starting point would be enabling sensible legislation to be passed to put the USA back on the path to good health. Get rid of the Fiscal Cliff. Allow confidence to flow back into corporate America. Spark new investment instead of watching cash pile up on corporate balance sheets, much of it outside the USA, unable to be repatriated because of punitive tax regulations.
The USA can do much to mitigate its own problems. Far more than say France or Italy. It is a remarkably free and flexible economy. Its capacity to innovate is huge. It may have to determine soon whether the unemployment levels are cyclical or structural and I fear they are structural. The New Normal may mean full employment has to be redefined. But to take advantage of these assets requires the government to act in a less confrontational, dysfunctional way. People have to be willing to compromise. If President Obama wants a legacy other than being the first African-American to lead America and a Nobel Prize winner, then he needs to navigate the treacherous waters of polarized politics.
Why does this interest me so much? Well if like me you are retired and you have a modest pension fund, you need the global economy to heal so that investment returns can put some spending back into the retiree’s pocket. In the current climate goals for investors tend to be in the following order: capital preservation, income, capital appreciation. I can’t predict how and when Europe will resolve its problems but it will. Probably with some tears along the way. What I fear most is the spread of the current woes to France, the UK and the United States of America. France may just have twigged quietly behind the scenes that it is in a dreadful mess and at great risk. The UK knows it is and the question is whether it can push on with unpopular measures knowing the likely consequences both socially and politically. We desperately need the USA to show world leadership. Obama has to reach out with his new team and together try to find the bridge to renewed prosperity. He can’t fix the world but he can lead the way.
President Obama truly comes across as a man of the people. Both he and Governor Romney seem to be fine family men, a credit to society in that sense. I am not sure whether the USA has it in itself to unite in compromise but if the President and the Governor truly want the best for their fellow Americans they need to drag their respective allies kicking and screaming to a swift and lasting resolution. How long has the President got? Probably a few weeks at most. The markets are watching and waiting, gentlemen. One thing it is not, Mr. President, is ‘signed, sealed, delivered.’