There are two things that are categorically false about today's election. First, it's not an atypically important election. Unlike in 1788, there isn't a question about whether the winner will abdicate peaceably once a successor is elected. The selection won't trigger a civil war as it did in 1860. And we're not in the middle of a potentially existential world war as we were twice in the 20th century.
Second, this isn't an atypically partisan election either. Extreme partisanship is when one candidate pays a slanderous muckraker to claim that his opponent is a mentally unsound hermaphrodite, as Jefferson's partisans claimed of Adams in 1800 -- to be fair, Adams' camp responded by saying that if Jefferson were elected, then murder, robbery, rape, adultery, and incest would sweep the land. Or when a sitting vice president kills a former Treasury secretary in a duel, as Aaron Burr did to Alexander Hamilton in 1804. Or when half the country abdicates from the union following an inauguration, as the South did following Lincoln's election.
But despite these things, and regardless of who you're voting for, it is important, and it does matter to investors. In a wildly popular article, my colleague Morgan Housel recently noted that: "In general, presidents get too much credit for the economy when things are good, and too much blame when things are poor." Yet it can't be denied that presidents exercise massive tangential influence through the selection of the Federal Reserve Chairman. And the Fed Chairman, in turn, does have a direct influence over both the markets and the fundamental economy.
Had Volcker not done what he did in the early 1980s, we may still be combating double-digit inflation. Had Greenspan not spearheaded the repulsion of derivatives regulation, in all likelihood, the housing bubble wouldn't have inflated to the extent it did. And had Bernanke not worked hand-in-hand with Paulson in the waning days of former President Bush's second term, there's no telling where we'd be today. Thus, even though the oval office is admittedly once removed from the hub of economic power, it shouldn't be forgotten that it is only once removed.
The current election is no exception. While Mitt Romney has stated that he wouldn't reappoint Ben Bernanke as Chairman of the Fed, it's presumed that President Obama would -- or if Bernanke chose not to stand for reappointment as is widely expected, then President Obama would appoint a theoretically sympathetic successor.
For better or for worse, the impact of a change at the Fed's helm would be twofold. First, it seems safe to say that the ongoing quantitative easing programs would be abandoned in favor of a more hawkish position on inflation. And second, though related to the first, this would presumably drive long-term interest rates up, potentially stalling the still-incipient recovery in the housing market though increasing profits at banks like Bank of America (BAC -1.74%) and New York Community Bank (NYCB -2.61%), and mREITs like Annaly Capital Management (NLY -0.21%), American Capital Agency (AGNC -1.87%), and Chimera Investment Corp. (CIM -1.44%).
At the end of the day, it's a trade-off. Nevertheless, I think it's worthwhile to note that neither candidate will be in a position to singlehandedly break the economy or ignite a much-needed economic renaissance. For this, it's best to look to Congress. Let me know how that goes.
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