Bush versus Kerry: The Economy in the Balance? (Part III)

Beyond what each candidate broadly claims he would do with the economy, and given the global economic context, what is most likely to happen in the alternative economic scenarios of a Bush or a Kerry Presidency? The default scenario for Bush is one in which his desires to continue with policies which either increase the deficit or fail to pro-actively cut it, run into the increasing scepticism of Congress and the Federal Reserve. While this will allow growth to slow, the conflict between the Bush White House, on the one hand, and the Congress and the Fed on the other, could by itself spook the markets into the beginnings of a dollar crisis. The extreme Bush scenario is one in which he manages to secure the accommodation of the Congress and the Fed for continuing to inflate the economy, laying the foundations for a future horror story of dollar collapse and world crisis. The default scenario for Kerry would be to muddle through with no clear policy coherence, within the constraints laid down by a suspicious Congress and an increasingly hawkish Fed. On the other hand, the extreme Kerry scenario –accepting the ‘bitter pill’, pro-actively cutting the deficit, and consciously tolerating weaker growth sooner rather than later, despite the potential political repercussions– would actually be the most positive long run scenario for the US and the world