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KM, Russia

Fat Cats Lose Election


By Aleksandr Bakalov

Translated By Mark Nuckols

7 November 2012

Edited by Gillian Palmer


Russia - KM - Original Article (Russian)

As soon as reports came out about Barack Obama’s victory in the presidential race, American stock indexes began to fall.

That’s even how it was supposed to be; the re-elected president has long spoken of most stock speculators as “fat cats” and promised to moderate their appetites.

To the contrary, the Russian market opened with a gain. That’s also clear: Obama is obviously a more convenient partner for us than Mitt Romney. Besides, even Obama recently spoke his mind on the matter, saying that during his second term the president can be “more flexible. … Transmit this to Vladimir.”

In general, Americans evaluate the second presidential term differently than the first. They say that the president prepares for the new elections in the first four years, and in the following years, he tries to go down in history. Since American law prohibits a third term, the second term is the only chance to do something to be remembered not just as a “man who eavesdropped on others” like President Nixon or “an aficionado of the simultaneous use of cigars and girls” like President Clinton, but as the fellow who was able to do something useful.

How might Obama go down in history?

First of all, he might become that president under whom the U.S. cedes its top economic position to China (which is now the second largest economy in the world). In either event, it doesn’t depend in the least on Obama.

He’ll try to do that which does depend on him to some degree. I say “to some degree” because Obama’s convincing victory with an advantage of nearly 100 Electoral College votes didn’t guarantee him a majority in Congress. The American system is such that, as it always turns out, the partisans of the elected president find themselves in the minority in the legislature. That is, they can promise whatever they want, but that doesn’t mean that Congress will approve their actions.

Obama has promised and continues to promise to raise taxes on the wealthiest in order to help those who are poorer and the cut the monstrous budget deficit ($1.1 trillion). In order to meet that goal, it will be necessary to pass the appropriate laws and take more taxes from the rich. But Congress hasn’t approved such laws in the past and is unlikely to do so now. As for the moral aspect, members of the lower house of Congress (where there are more Republicans) justify this by asserting supposed liberal values. It is useless, they say, to increase taxes on the most hard-working and successful to feed the sloths. Republican sociologists hasten to back up this claim with statistics showing that Obama’s supporters are primarily failures who envy the successful and wish to take part of their income. In fact, there are at least two famous ardent supporters of Obama — Warren Buffett and Bill Gates — who take turns at being the richest people on the planet, and who publicly advocate increasing taxes on speculators. Buffet even calculated that he pays less in taxes than his secretary.

It’s not a matter of moral imperatives: Although Buffett, Gates and their brothers-in-arms long ago put all their fortunes in funds to help sick children, cynically declaring that you can’t take it all with you, but your descendants can keep it with interest. It’s just that Democrats, billionaires and representatives of the lower-middle class argue that the very system of manufacturing money “out of thin air,” which is accepted on Wall Street, is flawed, like when managers who ruin banks retire with billions of dollars in benefits, for example.

Those who oppose the advocates of raising taxes on the rich (I only note that it’s not about that more stupid kind of raising taxes on the rich, as proposed by some Russian economists and politicians) are not poor, but are not as famous as Buffet or Gates. Mitt Romney said that he began with a small business and a team of five. Nobel laureate Paul Krugman explained what kind of business it was: Several fellows, somehow chosen by someone, obtained a multimillion-dollar government order; they were not fools and managed to get rich. There are many like them, they are a majority in the House of Representatives, and they will resist tax reform.

The second issue which is capable of allowing Obama to go down in history is reform of the healthcare system. The Kennedy brothers started on it long ago. To put it roughly, reform is summoned to guarantee insurance for all Americans, even the recently arrived and [recently wealthy.] It will mean some raising of insurance payments, and many Americans don’t want it. (By the way, almost 100 percent of Russian immigrants oppose Obama and all his Democratic brothers-in-law.) A skirmish for reform lies ahead, and it’s not evident that Obama will win. Republicans again take refuge in so-called liberal values, saying that it’s not right that well-provided-for citizens should pay for the lazy bums. The Democrat and Nobel laureate simply argues: Gentlemen, are you advocating freedom? But in the given case, you simply propose that the children of families without coverage die freely without medical assistance. There are complex underlying issues to healthcare reform, and the outcome is not clear; in the last 40 years, no one has succeeded at carrying out anything of the sort.

On the eve of the election, by the way, Barclay’s Bank surveyed its clients on where to invest in the event of a Republican victory and where in the event of a Democratic win. Today, from the initial reaction of the markets, we see that the results of the survey turned out to be reliable. As Barclay’s predicted, Obama’s win does not make financial instruments such as currencies and raw materials worthy of special attention. Under Obama, in the opinion of investors, it is better to take long positions in bonds; the stock market most likely awaits a short but definitive sell-off.

Following Obama’s win, investors’ main fear remains first and foremost a budget precipice and secondly a re-introduction of taxation and regulation.

The “fiscal cliff” could happen very soon, since most Republicans in the House are entirely capable of ensuring it if they don’t come to an understanding with Democrats.

As far as taxes go, everything is clear. Regulatory changes mean that which Nobel laureates have long called for: limitations, including limitations on the opportunities and freedoms of banks. It will hardly be carried out by legislators.

There is one plank which, according to most experts, Obama will continue to realize: the policy of quantitative easing — or to put it simply, printing money and throwing it into the economy.

“Obama wins and will keep Bernanke and therefore risk asset rally. The dollar is lower tonight, evidence of continuous quantitative easing,” financial analyst Tom Sowanick told Reuters.

It’s worth adding that Ben Bernanke professionally researched the period of American history known as the “Great Depression.” He understood that the most serious evil was deflation. Cheapening goods could not make buyers happy for long, so businesses simply began failing. It follows that controlled inflation is preferable because it supports buyers’ demand. That is why the Federal Reserve is printing money and will continue to do so.

Sberbank analysts told the Finmarket agency that for “the Russian stock market [given] the reelection of Barack Obama is positive with reservations, considering his soft position, which might renew an influx into the Emergency Market funds (and an outflow of capital from the U.S. market) in the event that global markets will be more risk-prone.”

Thus, we can assume today a high degree of probability for the following: The dollar will continue to fall in price, to the delight of American manufacturers — and Russian consumers. The ruble could put the brakes on a fall. Money from American markets will pour into the world’s stock exchange floors; maybe even some will make its way to us.

And here’s the main thing: The period of uncertainty has ended. On the other hand, it may not make all politicians and economists happy. Now it’s time to stop prognosticating and get to work.



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