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US economy

US Election is done and dusted; now for the recovery

John Hewison
Founder and Director
11 Nov 2012

The US Presidential elections are done and dusted and President Obama can un-pack his bags and relax in the White House for another four years. Well relax is probably a bit of a stretch when the media was warning of the “Fiscal Cliff” facing the US even before the President had made his acceptance speech.

Whilst the media will do its usual job of scaremongering, the general acknowledgement and acceptance that the US must take affirmative action or face fiscal disaster is a good thing. It means that both sides of US politics admit the issue exists and that something needs to be done. There are four years before the next election so the Republicans cannot play political games with this and nor can the President, as the Democrats does not hold the balance of power in the US senate.

President Obama has claimed a mandate for increasing taxation as part of the plan to reduce debt and balance the budget. The Republicans have signalled that they are prepared to accept that tax increases are inevitable. This is a positive start but there is still a bit of negotiating to go.

The fact is that the US is one of the lowest taxed economies in the developed world, so the wealthy are just going to cop what is touted to be a fairly modest tax increase in order to achieve the desired outcome. By comparison, high income earners in the US will still be amongst the lowest taxed in the world.

The big challenge for Obama and the US government will be the delicate balance between fiscal tightening and keeping the economy in positive growth territory. It won’t be easy but the Americans are a resilient bunch and if I were a betting man, I would be putting my money on a subdued but positive outcome.

We should bear in mind that US corporates have been showing record profits over recent years and are cashed up. Many US companies are global traders so their fortunes are not restricted to just the US domestic market.

The post election pull-back on the US market is not unexpected and probably would have happened had Romney won, when the Democrat investors would have sold down. I reckon it is likely we will see a recovery in the coming days and weeks.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.