Things are finally looking up for the US economy: A growing pool of evidence points to much higher economic growth and even higher stock prices next year.
The causes go well beyond low interest rates, higher capital levels at banks or even the latest pickup in retail sales.
It’s always risky to predict economic gains with the community-organizer-in-chief still in the White House and businesses grappling with his “signature achievement,” ObamaCare. The new Congress also could fail to live up to vows to cut spending — cuts we need if the markets and the economy are to improve beyond current predictions.
But if incoming House Budget Committee Chairman Paul Ryan and his allies do half of what they’re promising, even a pessimist like myself has to concede that the positive signs for the economy and the markets clearly outweigh the negatives for the economy and the markets in 2011. Consider:
* No tax hikes (probably): Obamanomics was predicated in large part on raising taxes on the “rich,” affluent, even if most of those taxpayers aren’t so affluent (consider a family of four earning $250,000 in New York City) and are small businesses who hire a lot of people and investors who put money to work in the markets.
In fact, businesses have cited the likelihood for higher taxes as why they’ve been hoarding cash instead of hiring, and investors have cited higher capital-gains taxes for keeping money out of the markets. But with the Bush tax rates almost certainly extended for two years, businesses and investors can put money back to work.
* Obama’s shrinking job security: In cutting the tax deal, the president vowed to raise taxes rates on families earning $250,000 and above in two years, just when he’s set to seek re-election. In other words, with polls showing the country shifting to the right on economic matters — less spending and fewer taxes — Obama in 2012 is going to stick to his higher-taxes guns, as well as defending his heath-care boondoggle, the largest expansion in government in decades.
Doesn’t seem like a winning ticket.
Of course anything can happen in two years, and the president will almost certainly benefit from an improving stock market and economy. But he’ll be running on policies that would reverse those gains.
* ObamaCare unraveling: Businesses across the country are celebrating Monday’s ruling from a federal judge that a key aspect of the health-care law is unconstitutional.
Ask businessmen what costs worries them most, and they cite two major issues: Taxes and the mandate for universal coverage. Undoing the mandate lessens the regulatory burden on businesses — meaning that they can engage in more hiring. Stocks should move higher simply on the notion that a giant burden has been taken off the backs of American businesses.
Of course, the case will end up in the Supreme Court. But it’s hard to see the current high court siding with the White House — which is probably why the Justice Department is trying to block an effort to move the case directly there and have it heard first in lower courts so all the “issues and arguments can be fully developed.”
* Spending cuts ahead: Even if Paul Ryan turns out to be full of it, and the Tea Partiers immediately “go native” in Washington, the bond markets will all but force big spending cuts next year.
Consider the recent spike in yields on government bonds — just yesterday, prices on the 10-year Treasury fell around a point-and-a-half. Bottom line: It’s getting too expensive (as well as too politically dangerous, given the public’s mood) for the government to keep borrowing as it has been doing.
So the pressure will be on the new Republican House and even a reluctant president to find ways to appease a bunch of bond traders in New York who will otherwise make life a living hell for the big spenders in Washington.
Of course, President Obama could end-run the divided Congress and use the power of the Executive Branch to force more government expansion.
Republicans might forget that they were elected not just to cut taxes, but also to cut spending, thus leading to much higher yields on bonds, which could drain money out of the stock market as investors seek these higher returns.
So the politicians can still do the wrong things and tip us back into recession. But the strong signs point the other way.
Charles Gasparino is a Fox Business Network senior corre spondent; his latest book is “Bought and Paid For.”