It’s easy to see why the GOP win could lead to an acceleration of economic growth. Bear in mind, that more stimulus has been off the table for a while, so to the extent that that’s a negative, the election hasn’t changed anything:
- To whatever extent “regulatory uncertainty” was holding back business investment, that may go away, as there won’t be any huge overhauls of industry now.
- Taxes are not going to get hiked.
- Obama will be forced to aggressively be seen as more “pro-business” if he wants to have any chance of winning re-election. That probably means more tax cuts, etc.
But, here’s the catch… you can have a pro-growth environment that’s also crisis-prone:
- If the banking industry needs a bailout, it’s way less likely to get one.
- There’s a chance the debt ceiling won’t get increased, which would be catastrophic.
- State bailouts are also going to be a longshot. If California is on the verge of going insolvent, help from Washington is going to be harder to come by.
- Pressure on the Fed to print aggressively will increase, threatening to slam its standing.
So it’s a barbell, basically, and the outcome is either likely to be good or horrible, and not in between.
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