A perfect storm for stimulus and shares
Illustration: Rocco Fazzari.
It's an awful thing to say, but the economist in me was almost cheering for superstorm Sandy as it ravaged the US east coast. Frankly, the US economy needed, uh, a headwind. It could even solve the political deadlock over the budget deficit, which Tuesday's elections probably won't.
Although it will immediately lop one-third off GDP growth, which is running at barely 2 per cent to begin with, the reconstruction effort will be a huge boost in subsequent quarters, as our own experience of the Queensland floods proved.
Condolences to Sandy's victims, but this has to be good for the global economy, and to sharemarkets.
While Wall Street has had a magnificent run for almost four years, it's been flagging lately. The US profit-reporting season is proving to be the worst in three years, not that it amounts to a natural disaster yet.
A housing recovery is finally under way, which will create more jobs and boost spending, but left to its own devices, it wouldn't have trickled through to the rest of the economy - let alone be felt globally - for ages.
So the main prop for Wall Street has been the printing of more US dollars, a low exchange rate, and near-zero interest rates. These have been great for share and commodity prices but, unfortunately, not much else.
Even Wall Street's surge after more note printing in September was subsequently blown off course.
Then Sandy storms in.
The repair job will be a huge economic stimulus - shoulder to the grindstone rather than the printing press is just what the US needs to get kick started. But hang on, the extra public spending will also bring even more debt, which is just what the world doesn't need.
Ah, that brings me to the debt-ceiling imbroglio, culminating in the ''fiscal cliff'', as the Federal Reserve's Ben Bernanke - and now everyone else - calls the catastrophic combination of tax rises and spending cuts next year.
Every American taxpayer will pay more tax from January 1 - the top rate rises from 35 per cent to 39.6 per cent - and government spending will be slashed by 9 per cent. This had been mandated by Congress but the legislature is hopelessly divided about how to avoid going over the edge, which would cause a recession, since the obvious compromise of moving the start date is all too hard.
But after the hardship caused by Sandy, I'd say Congress will be more conciliatory. Considering that all the local authorities are strapped for cash or broke, the economic stimulus from federal aid will generate more tax revenue, which has more chance of reducing the deficit than a recession.
So maybe the outcome of the presidential election won't really matter, except Wall Street always does better under the Democrats, even though it votes Republican.
Follow David Potts on Twitter @moneypotts.