Welcome to the Worst Election Outcome for the Global Economy

As of early morning, Nov. 4, the presidential betting market is back where it was 24 hours ago. As was true before the polls closed and the counting began, as of 7 a.m. on Nov.4 , Joe Biden is being given a 60 percent chance of victory.

But there is winning and there is winning. What the decision-makers and the markets that drive the world economy were hoping for was an outcome that promised a new and coherent response to America’s coronavirus crisis. They wanted a road map for America’s answers to long-term questions such as infrastructure and climate change. To deliver this, what is needed is a large-scale fiscal program to revive the parts of the U.S. economy that the Federal Reserve cannot reach. This does not mean that big money in America uniformly backed the Biden/Harris ticket, or that the business elite had discovered an enthusiasm for a progressive agenda on education finance, childcare, or health. But compared to Donald Trump, the prospect of a Democratic clean sweep did at least offer a coherent answer to America’s predicament. The polls themselves were a factor. It is hard to bet against the kind of margin they assigned to a Biden victory.

Then, around 9.30 p.m. Eastern Time on the night of Nov. 3, it became clear that the blue wave was a fantasy. Biden may eke out a victory. But even if he does, he will not be carried into the White House on a political high tide. The United States remains profoundly divided. By prematurely claiming victory, Trump has already cast doubt on the legitimacy of the outcome.

This is the worst-case scenario. The most likely result is divided control of the White House and Congress (with Republicans maintaining control of the Senate), paralysis in fiscal policy, and continued reliance on the Fed as the main backstop not just of the U.S. economy but of the entire global economy. That is a recipe for lopsided financial bubbles that increase the risk of future financial instability and benefit the wealthy minority who own financial assets. As for the economic damage done by coronavirus, the best bet remains a vaccine.

It was a sign of the times that as the storyline shifted, money went in two directions: into Treasuries, driving prices up and yields down, and into NASDAQ futures. As the American impasse threatens to deepen, those are moves toward safety—and away from real and sustainable recovery.