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Obama faces 'fiscal cliff' budget emergency after election

Published time: November 06, 2012 21:24
Edited time: November 07, 2012 13:38

U.S. President Barack Obama delivers his victory speech after being reelected for a second term at McCormick Place November 6, 2012 in Chicago, Illinois (AFP Photo / Chip Somodevilla)

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With President Barack Obama’s reelection securing him a second term in office, he now faces several fiscal crises and a stubbornly high unemployment rate, experts warn.

The president elect will "have to address the fiscal problem," Angus Campbell from London Capital Group told RT. "Whether it comes in the form of a decision in the near term or whether they go for the so-called fiscal bridge, that is just pushing back a deadline for such fiscal measures to be implemented, we are not certain at this time,” according to Campbell.

The so-called fiscal cliff applies to conjoined tax raises and spending cuts, which come into force at the early 2013. The move is expected to result in a 5% GDP tightening of fiscal policy, raising concerns the country’s economy would slow down. Until the decision about fiscal problems becomes clear the markets will remain uncertain, Campbell said.

Another problem Obama will face is high unemployment, according to Jacob Nell, chief economist of Morgan Stanley Russia. “The jobs are going to be the first priority for the new president, getting the economy moving, bringing it above a lackluster 2% and at the same time balancing a need for growth with a need to reduce America’s very wide budget deficit, which is running to 99% of GDP,” he stressed.

According to Campbell, if Mitt Romney was elected, then the US would more likely see the deadline on fiscal measures pushed back as the new president doesn’t get into office until middle of January, when tax raises and spending cuts should come into force. He said Obama's reelection will bring "some sort of a deal ahead of fiscal cliff in order to address concerns.”

“As we saw the last four years, he [Obama] was a great advocate for the work of Ben Bernanke, which made several rounds of stimulus measures which supported the markets,” he explained. With Obama’s win, Bernanke is likely to continue his policy. Nell also expects Obama to close a deal with Congress. 

In the meantime, Romney’s fiscal plan included cutting spending up to 20% of GDP, reducing the federal workforce and lowering taxes. It would be "worse for global growth at least in a short run,” Nell said.

The expert warned that if Obama fails to address the fiscal problem it will result in a global recession, because if America slows down, it will trigger a slowdown worldwide. “It will affect Russia through the oil prices and other channels of contagion,” he stressed.

“A lot depends on who has a majority at the House of Representatives, who has the majority at the Senate, how the challenges and key committees are distributed in the Senate and elsewhere," Nell added.

As for US-Russian relations, the major challenge is to increase economic cooperation, experts say. “The problem about Russian-American relations is that there’s not enough economic foundation to it, there’s not enough trade and investment between the two countries,” Nell said.

“It makes it easy for people to politicize the relationships,” he added, referring to Romney calling Russia Washington's number one geopolitical enemy. However, the situation is changing, as Russia is increasing trade and investment with America.

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