Investment Contrarians

Why the Next U.S. President Is Facing a Mess

By for Investment Contrarians |

Why the Next U.S. President Is Facing a MessThe election is finally here. We are all excited to see who will be the 45th President of the United States.

President Obama wants to stay at the White House, while challenger Mitt Romney wants to evict him. Whoever is the winner, there will be a slew of challenges for him to deal with. It may not be as bad as four years ago when the newly minted President Obama faced a massive subprime financial crisis, government bailouts of the big banks and auto sector, and a great recession, but there are still major obstacles to deal with.

If Obama holds on, you can expect a push to remedy the healthcare system and make it more efficient and cost-effective under the program coined “Obamacare.”  Healthcare cost control is important as a means to control the mounting national debt and avoid a financial crisis. Over $752.0 billion is spent annually on Medicare/Medicaid, which is the second-biggest area of spending for the government following Social Security. (Source: U.S. Debt Clock, last accessed November 2, 2012.) Failure to rein in costs could create a financial crisis.

The $16.0-trillion national debt could grow to a whopping $22.7 trillion by the end of the next President’s term in 2016 if nothing is done, based on the current pace. (Source: U.S. Debt Clock, last accessed November 2, 2012.) This could lead to a financial crisis. By 2016, annual spending on Medicare/Medicaid could reach over $940.0 trillion if costs continue to rise and drive a financial crisis in health care. Social security in 2016 could surpass $1.1 trillion annually, and this is not sustainable. Those who are nearing retirement should be concerned about the government’s ability to pay out benefits.

The big variable in all of this will be the ability for job creation. The Fed is cautious about the jobs market into 2013. We will need a big improvement over the 171,000 new jobs created in October. Obama and Romney have different strategies to lowering the unemployment rate. The reality is that unless Americans are put back to work, the economy will continue to stall and add to a possible financial crisis.

While Obama wants to extend the Bush-era tax cuts to those making under $250,000 a year, which represents the majority of working Americans, Romney wants the cuts to apply to all income earners. While I’m not here to take a side, the importance of the tax cuts are critical to the low- to middle-class Americans. Without the extra cash, this key spending group will likely be hesitant to spend, which in turn would restrict the money flow into the retail sector and, ultimately, the economic recovery, driving another financial crisis.

Yet the most important item on the next president’s agenda will be what to do about the pending fiscal cliff on January 1, which calls for automatic budget cuts meant to avert a financial crisis. The problem is that a significant cut in fiscal spending due to the automatic budget cuts could make the economy worse, according to the Congressional Budget Office (CBO). The CBO predicts the U.S. economy could contract by 0.5% in 2013 if the spending is curtailed, and this could lead to another financial crisis.

It will be interesting to see who wins tomorrow, but whoever it is, there’s a lot of work to be done.

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  • Eric Scher

    Hey, it's not Obama's fault. Look at the mess he inherited from O…. wait…. nevermind.

  • domnic

    This is true, its never Obamas fault, but who cares? G O P is known to be racist wing in America; and for them to come out from this, will take a lot of lies to mannover there way come 2016.

  • domnic

    You are right.