Confrontation is likelier than compromise in the new Congress, and political drama is likely to affect markets, causing swoons and creating buying opportunities, says Andy Friedman of The Washington Update.
That said, there are a few matter on whcih the two parties could possibly find common ground.
The Beltway commentator's current analysis argues that actions occurring immediately after the Republicans won both houses of Congress signal a dynamics of division likely to play out over the next two years.
At that time, President Barack Obama issued an executive order relaxing border control enforcement. Conservative Republicans, who not only objected to the policy but argued it was illegal, pushed to withhold money needed to fund the government.
While GOP moderates prevailed, the resulting compromise funded the government through Sept. 20, with the symbolic exception of the Department of Homeland Security (which handles immigration matters), thus setting up an early showdown for Feb. 27, when DHS funding expires.
That single scene in Washington's political theater foreshadows a climate of deadlock that will likely only result in legislative compromise when "forcing events" compel it.
Friedman examines the issues, relevant forcing events and expected economic impacts Americans can expect in the new year, including at least one fight likely to trigger a market swoon and subsequent buying opportunity.
On the broader issue of the budget, Friedman does not foresee sufficient common ground needed to avoid further borrowing. That is, though the budget deficit has been shrinking, the two parties' priorities are too different to garner bipartisan support in the area of government appropriations.
Democrats prefer funding domestic priorities, while Republicans are more disposed to limiting cuts agreed to in the 2013 sequestration agreement that disproportionately affect defense (and which are on target to cut still deeper over the coming eight years); neither are the two sides likely to agree on raising taxes (which the Democrats favor) or addressing entitlement reform (which the Republicans support).
In contrast, and in a case of politics' strange bedfellows, the possibility of agreement does exist in the area of free trade. That is because the Administration has been seeking passage of the Trans-Pacific Partnership (TPP), which would extend a North American free trade area to include partners in Asia — an initiative that Republicans support as it would boost U.S. exporters.
Congressional Democrats, however, view the measure as detrimental to U.S. labor. "Last term, Senate Democratic leadership — the president's desire notwithstanding — refused even to allow a vote on the TPP," Friedman writes.
If the GOP majority can sustain the administration's trade initiative, the upshot is likely to be a boost to U.S. multinationals racking up sales in Asia or availing themselves of lower Asian labor costs, Friedman says.
Washington's default political divide will be back on track over the Affordable Care Act (ACA), aka Obamacare, in three areas, each with implications, good and bad, for various economic sectors.
The first concerns a Supreme Court decision expected in June on whether the government is permitted to offer subsidies to Americans who meet the financial qualifications but who reside in one of the 36 states lacking their own insurance exchanges.
