CLSA’s Chris Wood — author of the popular Greed & Fear letter — has been warning about the US fiscal situation for a while, and so he’s obviously not surprised by th big S&P downgrade we got this past week.
And he’s also a fan of Paul Ryan’s plan to address the situation.
But thanks to the way politics works, he sees a problem.
For the evidence is that President Obama hopes to exploit the alleged “extremism” of the Ryan Plan, in terms of its frank acknowledgment that America cannot afford its entitlement programme, to win back the so-called middle ground in American politics. It was certainly the loss of this “moderate” voter which cost the Democrats control of the House of Representatives in last November’s mid-term elections. Hence Obama’s most blatantly partisan speech for some time delivered last week. Indeed this speech probably signalled the opening of the presidential campaign. GREED & fear must also admit that, while the view here is that the current American president is better qualified to be the head of a college debating society than head of what is still for now the world’s major power, the reality is that he is on the evidence to date a far more effective partisan election campaigner than chief executive.
The above is why there is a real risk that the Ryan initiative proves an electoral liability for the
Republicans in terms of handing the Democrats that cherished middle ground. This is, of course, well understood within the establishment congressional Republican Party, which is why
it is having such a hard time forging a compromise with the recently elected Tea Party brigade
who are motivated more by ideology than partisan political calculation. The reason it could be a liability for the Republicans is that it is far from proven that the electorate is willing to vote for cuts in entitlements.
In other words: The Ryan Plan arguably makes it more likely that Obama gets re-elected, and thus… no real fiscal solution.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.