While George W Bush and John Kerry fight it out tooth and nail, they might better serve their long-t...
While George W Bush and John Kerry fight it out tooth and nail, they might better serve their long-term interests by throwing the election, according to Steven Andrew, economist at Isis Asset Management.
That surprising piece of advice stems from a prediction of a deeply unpopular economic slump in 2005, a fact for which the president of the time will undoubtedly be blamed.
Andrew said: "By the time the new president's inauguration comes around in January 2005, the US economy will, in our view, be struggling under the pressure of a heavily-indebted and overstretched consumer sector, no longer assisted by tax breaks or easy credit; a government sector dogged by a deteriorating fiscal deficit; and a corporate sector seeing its share of the nation's GDP turning down.
"Add on the risk that the foreign exchange markets decide to punish the dollar for the outsized current account deficit and the attraction of allowing someone else to be labelled as responsible for the US economy's fortunes over the next couple of years rises further."
According to Andrew, a large current account deficit, burgeoning fiscal deficit and an already heavily-indebted housealready indebted household sector are problems that will not go away easily. Cutting taxes and raising US personal borrowing and consumption has preserved the dis-equilibrium up to now - dramatically and temporarily lifting GDP data - but this only serves to delay and worsen the eventual fallout.
From its current starting point, the best possible outcome for the US economy is that a steady decline in the dollar, combined with stronger demand from overseas economies, continues to assist US exporters and encourages a benign correction in the current account deficit. At best, in Isis' view, this still implies a slowdown in the rate of personal consumption growth to below its average over the past four years of 3.5%.
Andrew thinks a Democrat president is more likely to address these problems sooner rather than later, probably through fiscal retrenchment. If Kerry was able to get effective legislation past a Republican-dominated Congress, this would yield a sharper pullback in domestic consumption over the next two years than he currently envisages.
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