Elections Eve & The Solution to the Economy

Tomorrow = election day and what many believe will mean the beginning of a divided government. Whether it be a divided Congress or a divided Congress/Pres. administration, division is believed to = idealogical divide = no new legislation. While some consider this a benefit to business (via a reduction of the amount of law/regulation that can be imposed on the business community), there is another viewpoint, and one that thwarts the potential solution to our current mess from being implemented.

The Solution == short term fiscal and monetary stimulus + medium term deficit reduction and medium/long term fiscal restructuring to reduce government programs (i.e. Medicare, Medicaid, Social Security, Healthcare).

In practice, this means:
(1) Congress pass stimulative measures such as a payroll tax holiday and a temporary tax holiday for corporations to bring money into the US that is currently overseas (due to lower taxation).
(2) Helicopter Ben continues with very modest treasury purchases - maybe 250 billion over 3 months - in the short term and then re-evaluate this plan every 3 months.
(3) Extend Bush tax cuts for all but the very "rich" (i.e. those making 250,000+ as a couple) -- only to repeal them after one or maybe two years from today
(4) For the medium term, taking budgetary actions that are committed to ensuring a balanced budget no later than 5 years from today.
(5) For the long term and the sake of staving off debt-default, Congress must reorganize & restructure our systemic debt-laden institutions (incl. Social Security, Housing, Healthcare, Tax Code/taxes, and Medicare/aid).

The Reality = a political divide that will prevent any short term fiscal stimulus, any moderate term budget credibility, and any long term systemic restructuring. Which leaves only the Fed to attempt to ensure growth via Quantitative Easing measures which are either limited sucessfully or ensure high inflation if successful fully.

Political gridlock may be a market boost for the near term, but the problems that helped cause the debt-laden US economy are still here as they were in 2000, and that means that the symptoms of those problems will return sooner or later.