On Friday, Chairman Ben Bernanke reassured investors that the FED is prepared to take new action in order to stimulate the economy. According to Bernanke the economy is still too weak, inflation is too low and worst of all the unemployment rate is stubbornly high. But Bernanke also expressed some unease about too much quantitative easing in round two (dubbed QEII), that it might prove counterproductive, but he also noted that QEII is for the time being the way to go.
While no one doubts Ben Bernanke’s personal conviction as to the apparent unavoidability of QEII at this point, the question is not whether there will be some QE but how much QE is in the best interest of our country. While the markets are up mostly because Ben Bernanke’s positive attitude fired investors up, for real action investors will have to wait until the next policy meeting of the FED on Nov. 2nd and 3rd. By the latter date we will know the outcome of the midterm elections. This is the real joker.
The best-case-scenario for the Democrats is, according to political analysts, increasingly unlikely. Most political experts expect Republicans to regain at least some control. Given the depressed mood on Main Street even the Doomsday scenario for the Democrats cannot really be ruled out. Some political analysts not only believe that around 50 seats are at stake, but they even go as far as to claim that up to 100 seats could change the party.
In the House there are 112 seats up for grabs, 48 of which are leaning Democratic and 27 are leaning Republican. But what makes precise predictions very hard to make is the fact that there are no less than 37 tossups.
What looks really dire for the Democrats are the Senate races. Of 19 seats which are up for reelection only three (California, Conneticut and Delaware) are leaning solidly Democratic and of the remaining 16 seats 8 are leaning Republican (Alaska, Arkansas, Florida, Indiana, Kentucky, Lousiana, New Hampshire and Ohio). To make matters even more dramatic there are just as many tossups, namely eight (Colorado, Illinois, Missouri, Nevada, Pennsylvania, Washington, Wisconsin and West Virginia).
After the pounding of Wall Street by President Obama, Wall Street is obviously truly fed up with too much red tape coming these days from Congress and the White House. Capital gains taxes for instance are going up sky-high in 2011. The fact that the Bush Tax Cuts are expiring at the end of 2010 creates a lot of anger which is mostly being directed against the current administration. Obama started his presidency in 2008 with so much goodwill and support from Main Street as well as Wall Street that it is astonishing how much of it evaporated in such a short time.
Not only did the Wall Street crowd completely loose its fate in Obama but so did Main Street folks. This bodes badly for the Democrats’s prospects in the upcoming midterms. A major power shift is unfolding right now and with it a shift in economic policy seems all but inevitable.