Stuart's 2004 US Presidential Election PredictionSo here we are, a few days away from the 'big event'. It is time for my US presidential election prediction! At the time of writing, the polls are split and you really cannot tell from them who might win. However, a look at the states and electoral college votes indicates that it could well be Bush back in the White House. The swing states are apparently 'the key', but it is all very difficult to tell at this stage. How do you place any reliance on the polls? When they have a margin of error of plus or minus three percent and there is only two percent between the candidates, what can you extrapolate? Even more importantly, with a total population in the region of 290 million, how can you tell what they will decide when many of the polls only ask one thousand people? If you happen to ask the 'wrong' one thousand whose opinion is not evenly split where are you then? So to the economics of it all. I recently read the following passage in JK Galbraith's 'A History of Economics'. Published in 1987, I can highly recommend it. The passage was written whilst commenting on French economist Pierre Joseph Proudhon. 'There are some economic lessons that are never learned. One is the need for the most profound suspicion of innovation in matters concerning money and more generally the field of finance. The thought persists that there must surely be some as yet undiscovered way of solving great social problems without pain, but the simple fact is that there is not. Ingenious monetary and financial designs, without known exception, turn out to be, if not innocuos, then frauds on the public or, frequently, on their perpetrators themselves'. When you listen to the news and hear either or both candidates discussing the fiscal plans of themselves and their opponent, please try to remember that passage. It puts into perspective just how likely it will be that either candidate is able to cut the enormous deficits, spend as they promise and cut taxes too. Could it sound like more pressure on the US economy to come? If my expectation is correct and Bush does regain the White House, I fear that there will be problems galore for the US economy. Having turned a record surplus into a record deficit in just four short years, who can imagine what might be achieved in four more. From the starting point he will find himself at in January, could record deficit be turned into national bankruptcy? His problem will be that he does not know either! With both China and Japan buying huge amounts of US debt and currency over the last few years, if they decide to either stop buying, or worse, stop buying and begin selling US assets, the Fed could be in some trouble. Trouble that they have very little control over. This of course might be some time away or never happen at all. But, if the US dollar falls again in 2005 as it did in 2003, these assets will become a liability as they underperform. It is one thing to hold onto a falling asset in the hope it will recover if you own a few thousands worth. But when you are holding HUNDREDS of BILLIONS worth, you can't wait and hope. You must act. * This was published on 30th October 2004 *
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