The proportion of 47% was made notorious by the 2012 election campaign. Of course, it was Republican Presidential Candidate Mitt Romney and his controversial response recorded by a hidden camera at a private fundraising dinner that first introduced the phrase "47%" to the political dialog. The 47% being referred to at the time were those that Governor Romney proclaimed would vote for President Obama no matter what for a variety of reasons, thus it was his "job not to worry about those people". The Democrats swiftly and understandably pounced on this gaffe, with the Obama campaign countering that the President is "out there fighting for every American regardless of whether they support him politically".
But it seems it may be a different 47% that many in Washington D.C. feel its their job to not worry about. And this prevailing attitude only serves to further ingrain the festering uncertainty across financial markets.
Unfortunately, recent statements and posturing by the President and selected Democrats since the election suggest that they stand more than ready to do just that - effectively ignoring the interests of 47% of Americans. This is a troubling development that warrants closer discussion.
Before going any further, it is important to note that this article is not about policy or singling out either side of the political aisle. Instead, this article is about process. To this point, in the current debate across various economic, social and foreign policy issues, I support Democrats over Republicans on some issues and Republicans over Democrats on others. And since the remainder of this article will focus on an aspect of the process that Democrats are pursuing to implement their policies, I am compelled as a brief counterbalance to point out the fact that the Republicans did themselves no favors from a process standpoint in their negotiating strategy on the fiscal cliff, as they allowed the debate to be consumed by tax rates and never clearly organized or articulated their argument about what spending cuts if any needed to be made. In short, both sides are worthy of scrutiny at any given point in time.
So who exactly are the 47% of Americans that are at risk of being effectively ignored today? It is the 47% that voted for Republican candidate Mitt Romney during the 2012 Presidential election.
And how exactly are they at risk of being ignored? By the rhetoric being put forth by the Democrats on some key legislative items over the last few weeks.
Let's begin briefly with the debate on gun control. As the meetings continue in Washington DC to explore what can be done to help curb gun violence, Vice President Biden declared that the White House is considering using executive action that would bypass Congress to implement new gun control rules.
Moving on to the upcoming debt ceiling debate, the President has already declared that he will not negotiate with Congress on the approaching debt ceiling. And a number of Democratic leaders in Congress are openly calling for the President to invoke the 14th Amendment to declare congressional action unnecessary to raise the debt limit. This includes House Minority Leader Nancy Pelosi, who recently declared that if she were President, she would use the 14th Amendment to increase the debt ceiling without hesitation.
Here is the problem with this approach. As mentioned before, the contention here is not about policy, as valid arguments can be made for both sides on these two critically important issues. Instead, the problem is about process and the signal that it sends to the American public, which has spillover effects into financial markets. The President did not win the 2012 election by unanimous vote or even a resounding majority for that matter. While 51% of Americans believed that he did a good enough job to deserve a second term, 47% of Americans did not and would have rather seen Governor Romney take over the job for the next four years. And many of these 47% of Americans have very strong views on these topics and others that may differ widely from the policy solutions that the Obama administration may be putting forth, particularly as it relates to spending and the national debt. While those in this 47% did not see their Presidential candidate win the office in 2012, many saw the congressional representatives for whom they voted win their district. And it is these elected senators and house representatives that the 47% is reliant upon for their voice to be heard in Washington DC.
Thus, by repeatedly invoking the idea that the President may resort to executive action to bypass Congress, Democrats are effectively threatening to disenfranchise those Americans that may hold a view that is different from the policy solutions the President is putting forth by blocking their elected officials from fully representing their positions in the legislative process. Put simply, it sends a message that the views of 47% of Americans that recently expressed their disagreement with the President through their vote for the other candidate need not be worried about. This is not at all a healthy sentiment to potentially spark among the American public.
This is not at all to say that the legislation being promoted by the President and congressional Democrats should not be implemented. To the contrary, they may make perfect sense as the best possible solutions for the country. Then again, they may not. But regardless of what is agreed upon in the end, it is best that such policies, particularly those that are vitally important to all Americans, are implemented through the proper legislative process. This includes the traditional exchange between the President and both houses of Congress that includes elected Democrats and Republicans. And it is the responsibility of the President of the United States to take a leadership role in this regard instead of leaning on divisive rhetoric. While it is clear that some in the Republican congress are particularly difficult to engage in negotiation, if the President is able to offer real compromise, he has the reasonable potential to win over bipartisan support to give the sense that he truly represents all Americans, not just the 51% that voted for him in November.
A more productive bipartisan approach in Washington is critically important, for if the President becomes inclined on invoking executive action to bypass Congress, it runs the risk of increasingly alienating the Republicans that he will still need to work with for at least the next two years in an environment where the threat of crisis still festers broadly under the surface of global markets. Already, many financial market participants believe that the political process in Washington DC has become dysfunctional on both sides of the aisle. But it is not at all outside of the realm of possibility that we could find ourselves on the brink of yet another financial crisis in the next few years, and it will only add to the sense of market instability if investors are already resigned to the fact that Washington is unable to work together effectively to enact any meaningful legislation if necessary.
In the meantime, the ongoing contentiousness in Washington will have its consequences. The stock market (SPY) promises to get rattled whenever we arrive at the next can kicking moment, the next of which looms in only a few weeks with the sequel to the debt ceiling debate in February and March. And the bond market (AGG) faces a growing risk from global investors and credit rating agencies that may finally conclude that the American political system is sufficiently dysfunctional that lending money elsewhere may be a better alternative. The one market that stands to benefit under such continuing uncertainty is the precious metals market, including gold (GLD) and silver (SLV). Investors are migrating to hard asset safety given the ongoing uncertainty and potential for crisis.
The time is long overdue for those in Washington to begin working together to arrive at solutions to our pressing problems. This includes dropping the divisive rhetoric on both sides of the aisle. And it also includes the President putting away the threats to resort to executive action. A more productive tone in Washington would go a long way in helping to resort confidence in the economy and financial markets.
This post is for information purposes only. There are risks involved with investing including loss of principal. Gerring Wealth Management (GWM) makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by GWM. There is no guarantee that the goals of the strategies discussed by GWM will be met.
Additional disclosure: I am long MDY, TIP and LQD among other positions for equity and fixed income exposure. I am also long the Central Fund of Canada (CEF) and the Central GoldTrust (GTU) as part of a precious metals allocation.