NEW YORK - At the height of uncertainty four years ago about who would emerge from that contested election to become president of the United States, this column confidently advised financial market participants not to worry too much about the outcome, but instead focus on traditional market-influencing factors.
In November 2000, it seemed reasonable to assert that neither candidate’s economic agenda so differed from the other as to constitute a fundamental issue for markets.
After the 2000 election was settled, the presidency would recede ‘‘to its customary secondary role in the consciousness of U.S. financial markets,’’ that column said.
Things have changed.
Back then, markets were ascendant and the hard facts of inflation, corporate earnings, employment levels and the like seemed the only meaningful fodder for determining the direction of prices. Capitalism appeared triumphant.
That November 2000 column also opined that a bigger influence on U.S. equity markets in the first half of 2001 would be ‘‘the interest rate policy adopted by the (Alan) Greenspan-led Federal Reserve’’ rather than the proposals of whomever became president.
Greenspan and company have, all told, had another pretty good four years steering the U.S. economy through a mild recession and a sluggish recovery, all the while keeping inflation from becoming a problem. In fact, the Fed’s most difficult battle was with disinflation, with a controversial nod to the small, unrealized danger of deflation.
The larger point is that the terrorist attacks of Sept. 11, 2001, made the identity and policies of the U.S. president a much more compelling issue for financial markets. Personal and institutional safety, along with the sizable human and economic costs of battling terrorism, became market realities.
Forget the trend that saw a declining role for national governments in a global economy. War and the prospect of terrorism are important considerations for global investors.
Despite the cataclysmic events during President George W. Bush’s first term, from the terrorist attacks on Sept. 11 to wars in Afghanistan and Iraq, financial markets to a remarkable degree have been able to continue to concentrate on traditional fundamentals.
But the fundamentals themselves are being influenced more heavily by government policies.
The economic consequences of U.S. foreign and domestic decisions have been quietly piling up. And it’s unlikely they can be kept on the shelf for Bush’s second term.
Essentially, the United States finds itself with gaping budget and current account deficits that have been called unsustainable for so long that those who trumpet their dangers have attained the same status as the boy who cried wolf.
But at some point, the wolf keeps his appointments. The steady decline we’ve seen in the dollar might well be the first substantial market consequence of those deficits.
The decline has been orderly and has acted as a logical economic stabilizer. But guarantees don’t exist that things will continue that way.
At some point, especially if the costs of the Iraq war and reconstruction continue to surge, interest rate markets will have to take greater account of the huge budget deficits being piled up by the United States.
The sanguine predictions of 2000 are certainly from a different era.