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Where Do We Go From Here?

Decision 2012-Where Do We Go from Here?
(Photo by Chip Somodevilla/Getty Images)

President Obama has won a hard-fought and narrow victory for president and will face a myriad of existing issues plus new ones on the horizon.

What does the re-election of Obama mean for the economy? As we know, simply stating facts, unemployment (according to the Bureau of Labor and Statistics) was slightly higher on Election Day than it was on Inauguration Day 2009. Gas prices have risen over three years from around $1.89 to (as of  Nov. 5 $3.49 a gallon). The national debt has gone from just over $10 trillion to $16 trillion. The Obama administration added $5.4 trillion in three and a half years.

What could we potentially see in the future? Let’s look at some factors:

The Stock Market:
Based upon the activity seen Nov. 7, the market reacted by dropping 2 percent. All Down Jones components were in the red. According to analysts, Wall Street had favored Romney because the GOP agreed with the stock market over retaining tax cuts and making spending cuts. These analysts said the Obama approach had been to favor raising taxes on the richest Americans, increasing capital gain and dividend taxes (which hurts investors). That’s why Wall Street reacted with investors selling off large amounts of stock.

Leading industry experts, including noted commodity trader Jim Rogers, say continued “loose money policies” (like unrestricted spending) will create wild inflation on the economy. Moneynews.com says Wall Street was the big loser in the Obama election.

The Economy: Noted financial expert Steve Forbes says the U.S. economy will be headed for a recession in Obama’s second term. While the U.S. economy is “robust” he said “raising taxes on capital, raising taxes on small businesses… that is going to pose a real burden.”

The Fiscal Cliff: Many are just starting to hear about this in the last few weeks. Simply put, it’s the looming combination of expiring tax cuts coupled with government spending cuts that were part of the 2011 agreement to raise the debt ceiling. Congress and Obama have three options.

  • Allow the tax cuts to expire and the debt-ceiling spending cuts. This would trim the $16 trillion national debt in half, but experts say it would result in recession, with as many as 2 million jobs lost.
  • Cancel the spending cuts and extend all the tax breaks. This would prevent job losses, but create the same crisis now seen in Europe, and cause the $16 trillion debt to continue to grow.
  • Combine a mix of the previous two, and hope it cuts some of the debt, but not cripple economic growth. In other words, perform a balancing act.

While the future cannot be predicted, most experts seem to agree the same financial policies of the last three and a half years, if repeated, will have a detrimental effect on our economy.

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