Finance and Politics: Economic impulse
The global financial system is currently experiencing an unprecedented level of instability such as fiscal and monetary imbalances due to the Covid-19 pandemic which invokes all sorts of risks to public, private, institutional and individual finances. While global monetary authorities are busy fighting the impact of Covid-19, the US election exacerbates the financial pandemic, as evident in dropping global investments and a huge sell-off in equity markets across the globe. Investors and financial asset managers from Asia to Europe witness volatility of considerable proportions, albeit short-termed and only due to the recent uncertainties surrounding the outcome of the presidential election, and the concern which party will control the Senate and the House of Representatives. The prospect of Joe Biden as president and a Republican-controlled Senate was a heart-trickling moment for American investors. Positive and negative expectations rested on either a blue wave or the Democrats losing both the presidency and the control of the Senate.
The implications of the two possible scenarios have been different for the political and economic allies of the US and the wider global community. Similarly, the impact of the election’s outcome was not a level play for the investors. At US national level, a Biden presidency would have meant significant changes in the monetary and fiscal policies. We may not have to look further than to the expected changes pronounced by the incoming chair of the Federal Reserve, Janet Yellen. Based on the record left by the Obama administration, one could make an accurate conjecture about the upcoming changes. The US system is well-acquainted with short-term changes in policies after every election period. However, making adjustments to the monetary and fiscal policies affecting foreign countries is not that easy. For the majority of the developing or emerging economies, fiscal imbalance is a normal phenomenon, even without a major election or a raging global pandemic. Considering these and other factors, we can determine the economic and political influence America exerts on the global financial and economic systems elsewhere. The spillover of the US election and the Covid-19 crisis has a measurable effect on the European economies and the central banks (see Elliott 2020).
References: Elliott, L. (2020). Stock markets soar as City traders anticipate Joe Biden win: Markets rally across Asia and Europe as analysts expect Democrats to triumph. The Guardian. Retrieved November 4, 2020,
https://www.theguardian.com/business/2020/nov/03/stock-markets-soar-as-city-traders-anticipate-joe-biden-win
Asst. Prof. Dr. Lukman A. OLOROGUN
