I try to avoid being political on this site or at least be apolitical. For example I did not endorse either United States presidential candidate. However, government and politics has so permeated nearly every aspect of our lives in the United States it is impossible to discuss finances and the economy without being at least somewhat political.
Voting outcomes in key swing states are left unknown. But there are a limited number of outcomes with respect to who controls the government. If one party controls the house, senate and presidency, that party (or team) has the opportunity to make sweeping changes to the legal and regulatory framework of the country, with some check on what they can do enforced by the judicial branch/supreme court.
The current balance of power in the United States house of representatives is 232 blues to 197 reds with one libertarian and five vacancies.
Although the results are not finalized we know the blue team will retain control of the house of representatives with something like 227 members (218 are required for a party to control the house). Net the red team will have picked up some seats. Some of the elections are still in counting limbo but those numbers will not change by more than 2-3 seats. So until the next election cycle in 2022 the blue team is guaranteed to continue to control the house.
The current United States senate party division breaks down at 53 red, 45 blue, and 2 independents aligned with the blue team. In other words effectively 53 red 47 blue.
Current senate race results show 48 red and 47 blue. Current forecast predict a 49-49 split with one toss up and one runoff. 51 seats are required to have control of the senate. In the event a vote in the senate is tied, the vice president is the deciding vote. So if the senate does come down to be a 50-50 split, whichever party controls the White House will also control the senate.
Of course there is also the presidency which is up for grabs. I’m inclined to believe that Biden will be declared the next president, regardless of who was actually elected because I think the blues are probably better at “counting” votes. But Trump could still win. Either way this leaves just a few possible scenarios for control of the government.
Remember, if the senate is 50-50 splite, which is possible, control of the senate would go with the team with people in the White House.
Scenario 1: Trump Presidency with Red Team Control of the Senate
In this case there will continue to be a lot of gridlock. There will be a small(er) stimulus bill and some legislation but for the most part not a lot will change. This is the scenario we’ve been in for the past 2 years. Trump could still pull off a victory if he wins Georgia and then if lawsuits could uncover enough voter fraud to turn the right combination of Michigan, Wisconsin and Pennsylvania back to him. It isn’t looking good for Trump but it is also possible that Arizona or Nevada, if they ever finish counting votes, could go to Trump.
Scenario 2: Trump Presidency with Blue Team Control of the Senate
I think this would result in even more gridlock. Congress would not have enough votes to override presidential vetos because that requires a 2/3 vote in both houses. So there would be a lot of back and forth of the blue controlled congress blaming and vilifying Trump and vice versa.
Scenario 3: Biden Presidency with Red Team Control of the Senate
In this scenario Biden is president (at least ceremonially) and Harris is VP. The red team would need to have at least 51 seats. I think this is the most likely scenario but it is by no means certain. Even though at this time I think Biden will be declared president (or if you’re feeling romantic elected) Trump could still pull off some type of upset.
In the senate, to get to 51, the red team would need to win Alaska (seems likely), and one of the Georgia seats (which also seems likely). Then, they would need to win the Georgia run-off on January 5 of 2021, which seems possible.
Note: Explanation of the Georgia run-off can be found here.
North Carolina is being called as a tossup or advantage red team (depending on the source), the red team candidate is currently in the lead by over 96,000 votes with 97% reporting.
If NC does go to the red team candidate and both Georgia seats do as well the red team could get to a 52-48 majority in the Senate.
I think there would be moderate gridlock because Biden was a senator for many, many years and has relationships with the senators and I think the red team senators are much more likely to compromise and go along with the blues. Not only that, but the blues would only need one or maybe two reds to come over to their side and then Vice President Harris could vote to break ties.
Scenario 4: Biden Presidency with Blue Team Control of the Senate
I think this is the second most likely scenario. Again we’re assuming a Biden/Harris administration. Biden would be president but I’m not sure who would be the de facto president in this case.
Blue team would need to win Arizona (seems likely), North Carolina (which is listed as leaning that way). These two would get them to 49, then they’d need to win the Georgia seat (which is listed as a toss-up, although the red is up by over 90,000 votes). This would get them to 50, plus Vice President Harris gets 51. They could also win the Georgia run off election which would get them to 51 even without Harris.
In this scenario the blue team would have the power to implement lots of changes. They could implement the green new deal, raise taxes, increase regulations, expand the affordable care act, provide medicare for all, restrict gun ownership and anything else really. They would probably be limited only by their fear of voter backlash in the next congressional election cycle.
A blue government might be limited in some instances by the supposedly conservative Supreme Court (which is 5-4, since Roberts tends to side with the liberal Justices). However, they could try to implement their plan to stack the supreme court and appoint as many new justices as needed to prevent having their laws struck down as unconstitutional. I don’t know enough about this to have an opinion if they would be successful or not.
What it all might mean
If what I estimate to be the most likely scenario does indeed come to pass the US will face a Biden presidency with a blue controlled house and red controlled senate.
The president has a lot of control over foreign policy. Doubtless the US will be cozier with China and Iran and markets don’t seem to like trade wars, so that would be positive for stocks. However, when there were trade wars, the Federal Reserve has stepped in to be accommodative and the markets love stimulus.
Although purportedly neutral, the president appoints the head of the Federal Reserve and in my opinion (despite protestations of neutrality) the Federal Reserve will do what the president wants for the most part.
While bad for the economy, artificially set rates are great for presidents because they goose asset prices and the stock market is used as a proxy for how the economy is doing.
I doubt there will be a stock market crash, as fiscal stimulus will be used to prop up asset prices. I do expect deficits to continue to grow unchecked and I think gold and the right foreign stocks will do well.
Worst Case Scenario
With a Biden presidency and blue team ruled congress a lot of socialist policies will be implemented. Higher taxes, a stricter COVID-19 response, wealth redistribution and increased government regulation. I think this will be negative for the economy with the middle and lower classes hurting the most. Alternative energy companies and select industries would do well in the US, but gold and foreign stocks would also benefit.
Very interesting analysis John. The market likes gridlock. I agree if the blues take the senate it “Katie bar the door!”