Obama election signals shift in economic policy

Barack Obama’s historic election to the US’ top job could mean a return to more interventionist economic polices, a shift many investors in the current climate may welcome.

These are the views of AMP Capital Investors chief economist Shane Oliver, who believes the new US administration is more likely to have a positive than negative effect on share markets, both in the US and locally.

He said that with the recent loss of confidence and retreat of the private sector, “more interventionist [US] Government policy may be viewed by many investors as what is needed right now”.

Oliver said Obama’s election is likely to herald “an even more aggressive approach to dealing with the financial and economic crisis now gripping the US”.

Oliver pointed to a new, larger fiscal stimulus package as one of the key aspects of an Obama administration, with a new package “likely to be enacted early next year”. But he said this would be constrained by the Government’s existing debt levels.

Oliver said more active Government intervention to prevent home foreclosures and increase bank lending was also a likely outcome of Obama’s election, as were tax cuts for low and middle-income earners and tax hikes for the wealthy.

Oliver said there was also the possibility of an increase in tax rates on dividends and capital gains from 15 per cent, potentially up to 20 per cent.

Increased regulation of business, particularly the financial sector, is also likely — though Oliver said this is inevitable in most countries following the current crisis.

“It’s also worth noting that the Democrats’ increased majorities in both Congress and the Senate puts President-elect Obama in a good position to implement his policies,” Oliver said.

This will allow the US Government to have a more “decisive” approach to the current crisis and potentially avoid another “debacle”, as seen in the passing of the bank rescue program, he said.

However, reports from Shaw Stockbroking show US stocks slumping on Wednesday “as focus turned from Obama’s electoral victory to the country’s ongoing economic plight”.

Shaw Stockbroking said new data revealing a softening labour market highlighted the daunting task that lay ahead for the President-elect. The Dow, S&P 500 and the NASDAQ all fell more than 5 per cent yesterday.