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Kimberly Amadeo

How Obama "Flipped the Script"

By January 24, 2013

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Barack Obama's Inaugural Speech showed elements of how the President has flipped the script on major issues. In so doing, he has taken over many of the traditional Republican positions. The result is that there is less gridlock in Washington. Yesterday, the House approved an extension of the debt ceiling until May. This is a different Congress than the one that refused to raise the debt ceiling in 2011, nearly forcing the U.S. into default. A smoother process in Washington is good for a business community that craves risk reduction.

Here's exactly how Obama flipped the script on four important issues:

Debt ceiling - In July 2011, Congress said that only way to reduce spending was to keep the debt ceiling at its (then) current level. Obama flipped the script this year by stating that Congress must raise the ceiling to pay for spending they've already authorized. He's reminding Congress that there is a budget process already in place, and they are parties to that process.  (Source: Washington Post, Obama Seeks to Flip the Script on the Debt Ceiling Debate, January 15, 2013)

Fiscal cliff - All Bush tax cuts were extended in 2010 because Democrats were seen as holding hostage the middle class tax cuts to raise them for the wealthy. Obama flipped the script by saying Republicans were holding hostage the tax cuts for 98% of Americans to keep them for the wealthiest 2%.

Founding Fathers - Tea Party Republicans are traditionally seen as the keepers of the Constitution. Obama flipped the script in his Inaugural Speech by repeating and ultimately owning the introductory phrase from the Declaration of Independence. He used "We the People" to include women, blacks, gays and those who are "temporarily on hard times." This also flips the script on entitlement reform. He said he won't balance the budget on the backs of those who defended freedom in WWII by reducing Medicare benefits. He also said temporary unemployment benefits don't make Americans slothful, but instead gives them a boost to become innovative contributors to society.

Defense spending - The old script is that Democrats are weak on defense. Obama flipped the script by spending more than any other President in history. In addition, he got bin Laden. He's also increased spending on veteran benefits. He is now in position to wind down defense spending. As he mentioned in the Inaugural speech, he will focus on increasing alliances vs waging war, and on modernization vs "cannons and bayonets." (See 2012 Presidential Debate Summary)

What It Means to You

First and foremost, it means that political gridlock will not be keeping economic growth in limbo. Business leaders are now able to get about the business of business, without having to plan for uncertainty over tax rates, interest rates and regulation. The playing field is more stable, which allows companies to focus on marketing and profitability. As earnings improve, your stock portfolio will continue to grow over the next year.

Most important, it means the job market will continue to improve. Corporations have been holding around $1 trillion dollars in cash, waiting for the uncertainty to clear. Now that it has, expect them to slowly but surely start hiring again.

Finally, keeping the tax break on mortgage interest will support the fledgling housing market recovery.

Has the debt ceiling debate helped or hurt America? Share your opinion in What Do You Think About the Debt Ceiling Debate?

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