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KBW Senior VP of Washington Research Brian Gardner on how European elections will influence the U.S. political climate.
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So investors in the US in US stocks -- very worried about your hard left political -- so.
How -- anti austerity climate influence our government tax and spending policy here to discuss is Brian gardener Katie W senior vice president of Washington research.
Brian hi there are a lot of people pointing out parallels between anti austerity -- in Europe and policies that President Obama favors right -- spending cuts higher taxes.
On the -- you agree.
Yeah -- I think there are Carlos.
But it -- also means that at least in the short term that we're probably heading to some sort of deal at year end.
To put off austerity for a little while that means an extension of the bush tax cuts probably -- for a year.
Buddy the I think it makes it more likely that 42013.
Tax rates generally stay where they are.
OK so again short term positive but.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Not just of the tax cuts but how again do we navigate through what's already been such a divisive political climate in determine where the spending cuts need to happen.
And -- -- that matter if problem.
-- gets more divisive.
It becomes less partisan going forward.
If you remember back to last summer when the president seemed to be getting close to making a deal with congressional Republicans on on the budget and the debt ceiling.
A lot of Liberal Democrats came -- said no you cannot do this on entitlement reform because you're giving away a great weapon for us and I think they're going to dig in their heels after the European votes I think the that Liberal Democrats are gonna say.
Look it it it continues to be a great weapon -- -- we can see it playing out this way in Europe where it's you know.
Cuts as they're as they're called are not really cuts but a lower rate of growth in government.
That wound up with people with politicians losing their jobs and so I think.
Politician US politicians being risk averse are going to look Koran and in the sense of survival will say.
No I'm not going to go along with these with these long term entitlement reforms that are needed.
And I think longer term it it it makes the fiscal position the United States so -- little bit tougher -- almost takes the emphasis and importance off bringing us off this fiscal cliff and then does the US risk another sovereign debt downgrade.
Yeah I you know I think for the next couple months through the end of the year into the early part of 2013 -- I think downgrade is unlikely.
Then I think the rating agencies give give -- Washington a little time to get their act together post election and see what's next.
I think when we get to next summer and that's that's pro or next spring that's pro we're looking at more downgrades.
So should the president what his role be here a lot of people are pointing up the similarities in Europe and US policies favored by the administration.
Should distance himself a little bit any -- -- unravel.
We're talking about comparisons between if Greece leaves the eurozone California it's got significant fiscal problem is well what I -- that if -- -- He succeeds -- and -- income ridiculous scenario.
It's not gonna look good for anybody.
Now but I mean the good that the president can't distance himself from one set of policies or another all there then.
That -- -- wrong on a specific platform to get himself reelected to a minute it's not it's not so much policy right now it's about politics.
And I think the message over the next few months is going to be that that class warfare.
And is going to work a little bit an and I think Democrats are have been convinced of that they're gonna run on that the president's gonna run and that's it's not so much.
Policy right now it's politics.
After the election he's gonna have to shift a little bit assuming for second.
Let's for the sake of argument cities get gets reelected he's going to have to shift at that point but I think for the next.
The next several months through the end of the year there's no change in policy he's not gonna change is stance it's all about getting reelected.
A get let's get back to your view that we will get another extension of the bush tax cuts what kind of economic impact will that bring obviously growth this lackluster job growth is even more concerning.
I think is very little.
To the upside because I think most people think.
That that bush -- are going to get extended done in I was out with clients over the last couple of days and that that's the UBS that I get a reaction that I get from most of them is a sense of cynicism that they expect that the tax cuts will be extended for released a year so I think the risk is to the downside that if that if congress and the administration surprises people and don't extend them.
That's where the the risk is for the economy appreciate the discussion right Gartner thanks thank you lord.
