There is one scenario in particular that stands out as the worst in the US presidential election.
On November 3, the American people will decide who will be the 46th president of the United States. Chief economist Harald Magnus Andreassen in SpareBank 1 Markets is in no doubt about what is worst for the stock market when Americans go to the polls.
– The worst case scenario is a controversial election, where it says how to count votes in some states and it ends in a legal process.
– It is not very probable, but it is also not entirely unthinkable, even though it was more probable three months ago, Andreassen says to Nettavisen Økonomi.
In the polls, Joe Biden is clearly leading Trump, and he is far ahead of what Hilary Clinton did before the 2016 election. chances of victory for Biden.
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But Andreassen believes there is still a significant risk of a controversial election in today’s politicized USA. The biggest uncertainty is whether the Republicans will accept an election defeat, and that the right wing will stop counting and prevent votes from being counted.
– The worst case scenario is that the Republican majority in the Supreme Court accepts that the count will end, so that Trump has won, Andreassen says. He fears that such a political decision could trigger a major social unrest and, in the worst case, civil war-like conditions.
If we get a divided Supreme Court along party lines, Andreassen believes it is difficult to see how American society can calm down. It can end in violence and large demonstrations.
– But if there is a clear winner in the election, that’s fine. Many people are happy with the tax breaks for the rich and companies and fewer regulations, but there will also be lower standards for employees.
– Those who hope for Biden, gather more about support measures to get the economy up, with large public investments.
Andreassen says that a lot will depend on who gets the majority in the Senate. There could be a complete rift if Biden becomes president, while the Republicans retain power in the Senate.
– Then the system will be put to the test, and it will be difficult to make a decision because the Senate can block many decisions. A political system that does not make too many decisions can be good, because then fewer stupid decisions are made. But right now, the decisions should be made fast enough due to the corona crisis, says the chief economist.
A contentious issue is the approval of postal votes, which have a completely different position and reputation than in Norway. So far, more than ten million Americans have voted in advance, and there will be more. Andreassen says that postal votes in the USA have a long and strange history.
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– Trump has realized that these votes involve election fraud, but it has never been proven. There are many states that only have postal votes, but it creates a challenge now that new states will offer postal votes without having proper systems. They have messed with the lists, Andreassen says.
Trump has said that postal voting is a definition of electoral fraud, but no one supports him on that.
– Many have researched election fraud in the US, but there has been no election fraud. On the other hand, many have been prevented from voting, Andreassen points out.
And as if that’s not enough, Trump installed a good acquaintance and donor as head of the Post Office to prevent voters from casting their ballots.
This happened by not allocating enough money to prevent the capacity to handle advance votes, which Andreassen believes is “remarkable”.
– There are several Democrats who vote by mail, and Trump has been open about that if everyone who can vote gets a vote, then we lose. In Norway, we have the National Register so that you can vote easily, and we do not think of this as a problem, he says.
– The Republicans, on the other hand, have a long tradition of preventing people who do not want to vote for them from voting. The Council of Europe has said that the United States does not have a system for keeping people in order.
History shows that it is especially immigrants, minorities and young people who use advance voting, and they traditionally vote for the Democrats.
– There is a lot of chaos around advance votes being used by Republicans to keep voting down, and they have been open about it. They even place their own people in front of the polls who look ugly on you and act rowdy if they think you are voting for the Democrats.
Andreassen says that you think it is not possible, but it says something about the level of conflict in the United States. The conflicts date back to the time of slavery and are much larger and deeper than what we are used to in Norway.
There is thus a greater probability that the Democrats will accept an election defeat if they are convinced that the advance votes have been counted properly.
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– No Democrat has said anything about this, but in the 2000 election between George Bush and Al Gore, the Supreme Court stopped counting the votes. Then the Democrats accepted George Bush, despite the fact that the outcome was still debatable, Andreassen says, and continues:
– If the Supreme Court intervenes now and stops the vote count, I think the Democrats will be cursed. A US Supreme Court with intervening political dividing lines will be a “python” for the markets
Andreassen will nevertheless not exaggerate the long-term effects of an election chaos. He points out that the United States has been through all sorts of events, such as the Cuba crisis, wars and 9/11. The latter had a certain impact, but Andreassen does not think an election chaos will affect the economy in the long term.
– No, an uncertainty does not have to affect the stock market, it takes an awful lot to shock investors. In terms of the market, the corona pandemic is more important, he says.
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The economy decides
The chief economist therefore does not believe who wins the election will be decisive for the stock market, he believes we should not exaggerate. Spectacular events get a lot of attention, but you will not find them in the long course graphs. The decisive factor in the long run is whether the economy is doing well or not.
– What can happen in the currency and interest rate markets?
– I guess a conflict can pull down long-term interest rates, as can a split between the president and Congress. If Biden wins, the long ones can rise. Then there will be more fiscal stimuli to begin with, and perhaps the dollar will strengthen, Andreassen predicts.
In the professional betting market, you can bet on who will win from the two candidates, and here the outcome is more uncertain than what the best statisticians have come to. If you bet your money on Biden, you get 1.5 times the bet again. This gives a probability weight around 65-35, a good deal lower than the statisticians’ 87-13.
Outside the United States, Andreassen says that most people think Trump is not good for the world community. Under the current president, the United States has withdrawn from all cooperation agreements with other countries. Andreassen points out that isolationism is not good for the world community.
– His fight against China is much misunderstood, but it increases the level of conflict. It is better with a joint action for how we should behave than to have a sheriff who shoots around with the gun, the chief economist symbolizes,
Andreassen has little sense for individual countries that will solve all problems, something he characterizes as
– Now we talk more about politics, but I think it is good for the world community with a different president than Trump. Getting the United States back to the climate agreement is good news, it reduces the risk of a trade war. Biden is probably not interested in escalating the conflict with China, the chief economist predicts.
He believes the big American technology companies have a lot to lose on the risk of a regionalized internet. Overall, Biden is better suited to calming the risk of a technology conflict, and he is more traditional and rational.
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Not in doubt
– If I had owned FANG shares (Facebook, Amazon, Netflix or Google, editor’s note), I have no doubt who I would have chosen by Biden and Trump. We do not know what framework conditions we will get under Trump, while Biden is boring and harmless.
– How would you sum up the US economic development during the four years with Trump?
– He has contributed to the economic recovery having lasted, but unemployment has fallen less than it did under Obama. Some of the upswing may be due to deregulation, but I do not think these have been so important, Andreassen answers.
And growth in the United States during the period has not been particularly stronger than in other countries. In addition, Trump promised in 2016 to repay the US government debt within eight years. He is nowhere near delivering on that, on the contrary, there has been a debt build-up towards the end of a boom.
– The total deficit in the public sector amounts to as much as 7.5 per cent of the gross domestic product, value creation. I would characterize this as a “mega deficit”, where demand is maintained artificially, says an unimpressed chief economist.
Andreassen believes that no matter who had been president of the United States during these four years, things had gone well financially.
– But the Democrats had held back more in fiscal policy and done more to get rid of the deficit. I also think that the stock market has improved. History shows that the stock market is rising more among Democrats than among Republicans, and public finances are getting better, he sums up.
One question is how Norway with our small, open economy will notice any difference. Do we get any contagion effects on the krone and interest rates?
– I do not really think so, says Andreassen, but nuances:
– The traditional view is that Norway is a small country that is served by order in the world community and laws and regulations that the large countries respect. It helps that we are sheltered under the EU, but I think all in all it is good to have a president who is involved in making rational decisions.