With Barack Obama winning the Presidential election, the Democrats picking up seats in the Senate, and the House continuing under Republican control, there are certain trends that are now discernible.

First, our President is a bold risk taker.  He demonstrated this with his response to the auto bailout; jettisoning 400 years of bankruptcy law to place the unsecured creditor (union) ahead of the secured creditors in the bankruptcy turnaround he orchestrated.

Second, he showed the same determination and risk taking when he became the first President to weaken Social Security by enacting a payroll tax cut rather than using the general funds, as all other Presidents since FDR have done.

Third, he showed that same behavior when he brought the economy to a standstill during the debt ceiling debate, trying to tax the rich.  The tax increase he demanded would generate about $90 billion a year in revenue.  According to most economists, the economic slowdown related to that face-off cost $120 to $150 billion in lost economic activity, which is the equivalent of 2 million jobs!

So, we expect the fiscal cliff debate to result in a similar standoff.   As with the 2011 debt ceiling debate, we expect both sides to talk about compromise and watch as the equity markets rise; then when talks seem to breakdown the same markets will fall.  All of this uncertainty will again slow the economy by about $150 billion over the same $90 billion tax-the-rich debate.    In addition, the changes to our society brought about by the Affordable Care Act, also known as “Obama Care,” will continue to shape the country as more of its provisions take effect in 2014.  Furthermore, the president will continue to define America according to his vision with more government involvement and higher taxes.

The Senate is in the same overall situation as it was before the election, except there are fewer moderates because Richard Luger, Scott Brown, Joe Lieberman and Olympia Snow are no longer senators.  They were all replaced by more partisan leaning liberal Democrats.  This means the Senate is poised to continue the policies of the last four years and is probably less accommodating than it was prior to the election.  Harry Reid, Senate majority leader, has proven himself to be less interested in compromise and more interested in following the President’s agenda, while his Republican counterpart, Mitch McConnell, views obstructionism as the best path for his party to continue to have relevance.  So, there is little incentive for bipartisanism or compromise.

The House saw the Republicans continue to maintain a large majority.  In general, the new members are more partisan than the ones they replaced.  These are members who place ideology above success!  So, the no raising of taxes mantra will continue.   The House has shown that Boehner does not have control over many of the Tea Party Conservatives so his ability to negotiate is limited, resulting in what we expect to be less flexibility and more vitriol towards Obama.

Obama could begin trying to bypass the House by using executive privilege more.  He may try to raise taxes in this manner via appointments while Congress is not in session, circumventing the obstructionist House of Representatives.  The grand bargain is not likely under this scenario, so we expect more uncertainty to continue further suppressing economic activity.  Moreover, expect a big battle over the debt ceiling and a likely recession in the second half of 2013.