Lame duck administration gives big business Republicans two years of relative freedom from external interference. Most of the real money is already hunting someone who can go toe to toe with Hillary Clinton in 2016.
Follow the money over the last six years and you can watch the hedge fund billionaires who initially embraced Barack Obama pull away from “change” and settle for the status quo.
Donations to the Democrats tapered off in 2012, then turned actively negative last month as Wall Street backed Republicans with record fervor.
Now that the GOP has the upper hand in Congress, the gap between the White House and the rest of Washington seems too wide for anything but gridlock to rule until 2016 shuffles the cards again.
On the surface, that’s a victory for free market advocates who love it when the government is too distracted with internal bickering to get in anyone’s way.
But the next two years may not be a picnic after all.
You break the consensus, you buy it
For one thing, an isolated president can be a dangerous creature. We haven’t seen an administration so tightly wrapped in its own inertia since Carter, but to find one so completely divorced from the legislative process you have to go back to Nixon.
Even the surviving Democrats on the Hill have seen that standing too close to Obama can be fatal to their own reelection campaigns.
With Wall Street money flowing to the other side at a record rate of something like $2 for every $1 the Democrats get, Nancy Pelosi, Harry Reid and other stalwarts of the party are now on the defensive.
They’re lame ducks too. While they can avoid antagonizing the markets, they don’t really have much to offer to get the donations going their way again.
And that basically backs Obama into a corner for the remainder of his term. He can play golf for the next two years or he can actively block whatever bills make it to his desk.
Until now, it looked like he was going down in history for vetoing less legislation than any president since James Garfield, who died in office after only six months.
To repeal a law, you need to make a new one, which is vulnerable to White House veto unless a lot of members of Congress cross party lines.
Unless dozens of Democrats back down on key issues like Obamacare and the Treasury credit ceiling, nothing is going to get done in either direction. And because most of the centrists were culled last month, partisan walls are higher than ever.
We may be in for two years of bills moving through Congress, stalling in the White House and then repeating the cycle again and again. Nothing gets done. Nothing gets repealed.
Government by patchwork
Meanwhile, too much gridlock can actually be a bad thing.
The central engines that power the federal government have been running on year-to-year patches for so long that even under normal conditions delays have started skirting the edge of disaster.
The tax code runs on the patch system. The budget is the biggest patch of all. And now that the Treasury’s ability to borrow is almost exhausted, we’re going to need another patch there too in the next four months.
The Treasury debt ceiling starts to crack again in March. By August, it gets serious. Anybody who has been watching the market for any length of time remembers that the last two times ideological grandstanding got in the way of a fix, global markets crashed.
Wall Street may have what can euphemistically be described as a healthy mistrust for heavier regulation, but nobody wants to court another market meltdown.
Over the next eight months, Republican backers who know their way around a balance sheet need to remind their Tea Party colleagues that ideology is a very expensive luxury when the financial system is on the line.
If Obama gets a borrowing bill he’s willing to sign, advisors and credit rating agencies alike can breathe a little easier until there’s another president in the White House.
But any tough talk about welcoming a default puts us right back where we were in August 2011 and October 2013 – two of the most serious market corrections in recent memory.
Personally, I hope they can work together and we can get a bit of a relief from macro angst this summer. Pragmatism on both sides is exactly what everyone seriously engaged in the markets wants.
Who will blink first if the process breaks down? Obama has even less to lose this time around, while the Republican leadership needs to justify the money Wall Street invested in them over the last election cycle.
Hillary in the wings
Either way, any blame will feed into the looming 2016 campaign rhetoric, which is where the rubber hits the road.
As undeclared front runner among the Democrats, Hilary Clinton is in the unusual position of having to manage both her own reputation and her predecessor.
She doesn’t always work well with Obama and his people. Back in 2008, the two of them essentially split the hedge fund support before Clinton dropped out and all the donations moved toward Obama.
We know that George Soros, Warren Buffett and other linchpins of the populist billionaire club are already writing checks, but to really make a convincing run at the White House, Clinton needs to run against both the Republicans and Obama’s legacy.
For her purposes, the best thing Obama can do is hit the golf course, quietly keep vetoing bills and give the Tea Party enough rope to screw up.
Meanwhile Clinton can set herself up as a new kind of Democrat, a Washington insider eager to make deals and do the dirty work of keeping the government running with a minimum of friction.
Should Obama decide to go down like a caged lion instead of a lame duck, she’s got trouble. Suddenly the Democrats become the people getting in the way of government, the party of the problem.
Her friends on Wall Street happen to hate problems. Change is good. Innovation is great. But the gears have to be turning smoothly before the next president can reasonably suggest anything remotely radical.
So the weaker Obama lets himself look over the next two years, the stronger Clinton’s image can get as she looks toward 2016. She’s running against him, too.
And since the White House is the biggest risk factor in next year’s debt ceiling fight, many fund managers now find themselves in an awkward position: an easy borrowing fix should presage a calmer market, but it comes at the cost of raising Hilary’s chances to finally be president on her own terms.
For those who love her, it’s a win/win scenario. Otherwise, it’s a tough choice.
Meanwhile, let’s see how the new Republican Congress shapes up. A little realism in Washington is always welcome, especially when it’s been in relatively short supply.