Michael View

The U.S. Elections - What it means for Australia

05 November 2010

This weeks election made it clear that American voters want change in Washington.

The U.S. House of Representatives, under Democratic control for the past two years, saw a shift to Republican control in the 2010 mid-term election, picking up 60 seats in the part of Congress that initiates tax bills and government spending.

No surprise here. The swing from Democratic to Republican control had been anticipated for at least the past four weeks ‘" a foregone conclusion according to the endless polling data that made its way around the globe.

With the U.S. economy still in sluggish mode and the world economic engine mired in 17 trillion dollars of debt, what impact will these elections have on the Obama administration and U.S. economic policy? I think the answers will be felt globally.

If you own or operate a business any where around the world, the U.S. mid-term elections will have an impact on your business.

The Ailing U.S. Economy

While the global economy is chugging along nicely, and the Australian economy doing very well, the U.S. economy remains in decline. The numbers speak for themselves:

  • U.S. government, official Labor Department statistics put unemployment in the States at 9.75% - exceedingly high.
  • The actual unemployment rate in the U.S. is estimated at 17.5% counting those who have given up looking for jobs or are working part-time jobs to pay the bills.
  • Despite historically low interest rates on mortgages (as low as 4.25% on a 30-year fixed) the housing market in the States is on life support. Housing is always a leading indicator of an upward swing in any economy, making this news doubly dangerous.
  • While the stock markets have come back smartly in the past 24 months, key indicators, like number of IPOs, are down indicating a ‘numbers‘ recovery rather than a genuine, confident recovery.
  • Businesses in the U.S. aren‘t buying or hiring, protecting capital rather than investing it.

The election results and the loss of control of the House will force the Obama administration to seek compromise on spending, taxes and tariffs, creating increased tensions among overseas trading partners, especially China, which holds a lot of U.S. debt and relies on U.S. consumers to purchase the country‘s products.

Can The World‘s Economic Engine Recover?

Most financial and business experts believe that the U.S. economy will recover. Let‘s face it, economics are inherently cyclical.

The U.S. Senate, the upper house of Congress, remained under the control of President Obama‘s Democratic Party. The lower chamber, the House, switched to Republican control. The House generates all fiscal legislation that is then passed on to the Senate for approval, reworking and ultimately compromise.

This changing of the guard indicates that Americans voted for fiscal change and, assumedly, fiscal restraint. With the American deficit growing at unprecedented rates, Americans voted to change the fiscal policies initiated by the Obama administration including an $875 billion bailout of the banking industry with billions going to big players on Wall Street including Goldman Sachs, Bank of America and Fannie Mae, the quasi-governmental agency that oversees mortgage lending.

I doubt if the U.S. economy will see a significant improvement despite the change in leadership in the House of Representatives. I suspect the economy is at least 24 to 30 months from a genuine, sustainable recovery based on bi-partisan politics in Washington.

The Impact on Australian Businesses

The Australian economy will continue to expand. Money will remain (relatively) cheap, enabling business to borrow to expand product and service offerings.

Access to U.S. markets will be simplified, as well. In fact, if your business had planned to establish a presence in the U.S. now‘s the time to make the move. Exchange rates are favorable, real estate (especially commercial property) is still a bargain with inventory backing up six months and longer in some sections of the U.S.

American companies, large and small, will outsource more to save operating capital in a stagnant economy, creating opportunities for every Australian business from book printers to electronics retailers, consultants and other service providers.

America has become a major source of remote services delivery. In fact, America is now a leading outsource along with India, the Philippines, the Ukraine and other expanding economies. Small Australian businesses contract with quality U.S. service providers from virtual assistants to highly-knowledgeable consultants at lower costs.

The American people voted for fiscal change by electing at least 60 new representatives to the Congressional House. This sends a clear signal to Obama‘s White House that, as the old saying goes, ‘it‘s the economy, stupid.‘

In this election, it was all about the anemic American economy. The people want to see lower spending, a shrinking debt load and a real, foundational change in U.S. fiscal policy.

This bodes well for the Australian economy, keeping interest rates low, increasing business opportunities within the U.S. and engaging U.S. companies eager to partner with Australian businesses as consultants, outsources or business partners seeking a presence in a more robust economy. The Australian economy.

The recent changes in the balance of government power will only last 24 months before the Obama administration faces a new election. It‘s reasonable to assume that the current administration will have to accept the will of the American people and pull in the reins on spending and borrowing away the country‘s future.

Free, open markets develop in this kind of economic climate so look for synergies with the U.S. while the opportunity exists.

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