The Second Obama and the Fiscal Cliff

The American President Obama was elected to another term during the presidential elections, despite difficult economic circumstances that were threatening defeat, only to find himself confronting another big challenge.

Obama’s success depends on how he deals with domestic and international difficulties. One of Obama’s advisors in his electoral campaign, David Axelrod, said that 56 percent of moderates, 70 percent of Hispanics, and 55 percent of women voted for Obama. In his opinion, it is this logical majority that permits Obama, in his second term, to confront the great economic and political challenges that are posed both domestically and abroad. Domestically, Obama confronts intractable problems related to the budget deficit and the massive public debt, in addition to the decreasing income of a large portion of the middle class. The president of the Federal Reserve, Ben Bernanke, warns that the American economy may enter into a recessionary period if Obama is unable to compromise with Congress and avoid the fiscal cliff (raising taxes and lowering spending). He is also calling to raise the debt ceiling to avoid bankrupting the American government and to guarantee the ability of the government to uphold its commitments to repay its debt. An inability to arrive at a solution will lead to a greater recession in 2013.

As for abroad, a fragile global economy exists in light of the current economic crisis. At the same time, Obama faces China’s emerging economic and political might and the fall of Europe into the swamp of recession. The global influence of America will weaken in the case of a depression in the United States, not to mention the problems in the Middle East that threaten to lure the United States into an armed conflict or new military adventure. At the same time, many research institutes show that the American voter cast his ballot for Obama in order to adopt resolute measures that benefit the American citizen, not for the sake of political leanings, as is usual. The real measurement of the success or failure of Obama in his second term will be how he deals with the specific challenges of the budget, the public debt, and social safety net programs. The fiscal cliff, a series of measures to increase taxes automatically at the end of 2012 after the conclusion of the tax cuts enacted by President Bush, will be the main subject of conflict with the Republican party.

In addition to the decrease in public spending after the world financial crisis, many economists believed that the West was passing through an “Age of Great Moderation” after the explosion of the financial crisis (the “Age of Turbulence”). After Obama won a second term, a third expression was coined: the “Age of Political and Economic Brinkmanship.” It is said that Obama survived the curse of the financial crisis, while the crisis dealt a major blow to the Italian and British prime ministers (Berlusconi and Brown) as well as the French President Sarkozy. Alan Beattie of the Financial Times points to the success of Obama while noting that the relationship between the economy and elections is not entirely clear. Perhaps the American voter did not fully blame Obama for the deteriorating American economic situation, especially since 70 percent of Americans blame George W. Bush for the economic problems that Obama inherited.

A number of businessmen and American voters are losing hope in the economic situation (with growth at less than 2 percent and 25 million without work), and they fear that the United States will fall off of the fiscal cliff in the beginning of 2013. It is said that the United States is riding on the edge of a fiscal cliff that is close to $6,000 billion deep*. The game of dancing on the fiscal cliff could go on for a long time, but we may see the beginnings of financial compromise between Obama and the Republican Party concerning taxes, public spending and raising the debt ceiling. Perhaps they will retreat from the disaster on their fingertips, but perhaps the violent political division in Washington will continue in 2013 over all or some of the economic problems and difficulties. At the same time, Obama’s second administration will remain in a difficult and embarrassing position. The continued dancing on the fiscal cliff will also have a negative influence on Washington’s economic, political and militarily aggressive policies throughout the world.

*Editor’s Note: This figure, while slightly unclear, is accurately translated. According to the Congressional Budget Office, the fiscal cliff would cut the federal budget by about $503 billion.