In April of this year in a piece I wrote titled How to Beat Obama I said, "...regardless of how I feel and what I write about Obama—I think he is the odds-on favorite to win.”

In that piece I argued for a no punches pulled, no holds barred assault on Obama. It’s no secret that Obama uses negativity as a tactic, he knows that it incites passion and “sells” to the electorate. I went on to say, “Obama and his supporters will attack Romney on a personal level. Romney and his supporters need to fight fire with fire and focus on Obama’s inability to effectively deal with any of our economic problems. Make it painfully clear that this ineptitude will lead to a new debt crisis, monetary crisis, a new recession, and higher unemployment…We’re told the best offense is a good defense, but in this election, the best offense is an even better offense.”

And look what happened. Obama went on the offensive the minute Romney was nominated. Just for starters he launched a 10 million dollar campaign against Bain Capital, portraying Romney as an evil and uncaring capitalist. He then told minorities that Romney wanted to take away their right to vote through new ID requirements; told women that the republicans were waging “a war” against them; and told seniors that Paul Ryan would throw granny off the cliff. Obama rallied the Latino vote by describing Romney as anti-immigration. And what did Romney say about that? He referred to his plan as "self-deportation,” while Obama offered the “Dream” Act. No surprise that Romney lost the Latino vote by the largest margin ever.

To regain the Latino vote the Republican Party must come to grips with the fact that we need immigrants and that most immigrants are hard working individuals. Of all the homeless begging on street corners, what percentage are from south of the border? I’ve never seen one. From what I know about their culture, they would find it humiliating to ask for a handout. Theirs is a culture of hard work and supporting their families. Why should we take issue with people coming to this country to work? We need solid workers to fill positions as mechanics, agriculture workers, housekeepers, etc., and we should be grateful to those who do such work.

So long as we withhold free government services and welfare to non-citizens, there will be sufficient incentive for immigrants to pursue legitimate citizenship and become taxpayers. And should they choose not to, they won’t be a burden to Americans while they are here. Republicans have to admit for once and for all that working illegally is not a felony. Working is a peaceful and productive endeavor, and the hard work of immigrants is something nearly every industry in the U.S. benefits from.

The Republican Party needs to become more tolerant period. If they want to gain back the confidence of women and the youth in this country they simply cannot take it upon themselves to tell other people what they must do and what they mustn’t. Gay marriage, abortion, drug use; these are all very personal matters. Only if individuals use force against others to accomplish their goals should it become a government matter. Isn’t that after all supposed to be an essential premise republicans hold dear?

We will forever disagree with one another about these issues. Even more reason to sever social issues from politics and party platforms once and for all. Michelle Bachman lost her seat in congress because she is intolerant of other’s way of life. Now hers is changed forever. Republicans will never win another election unless they allow women to make their own choice about having children, gays to enter into a relationship that is legally equal to that of men and woman, and individuals to use drugs as long as they are of legal age and commit no physical violence against others.

Prosecuting victimless crimes has got to end. It is expensive and it is not for government to make choices and decisions for people. Government’s role is to prevent the use of force against others and to protect individual’s rights and property. A party that seeks to impose its values on others is a party doomed to fail. The republicans of the future need to move towards becoming libertarian fiscal conservatives who respect personal freedom and choice, while demanding fiscal responsibility from their government. If they do not, republicans will become extinct as a major political party.

Believe it or not, the Tea Party represents the beginning of this new consensus. It was formed as a movement for fiscal responsibility and smaller and less intrusive government. It takes no side on personal issues yet is made up of individuals from all sides of the social spectrum. The Tea Party could very well evolve into the party of the future drawing from the vast center of both democrats and republicans in the years to come. That is pure speculation on my part, and for now the election has been decided and is history.

So where do we go from here? I still go on record with my view that the so-called "fiscal cliff" is an illusion. The cliff being referred to consists of across the board tax increases and spending cuts that amount to over a trillion dollars a year. Many assume that such a shock will send this fragile economy into recession. Some even encourage it. Paul Krugman and some liberals on the left encourage it on political grounds, libertarians, and some conservatives on the right, argue that the falling over the cliff will reduce the deficit and set us onto a path to solvency. They could be right. But I don’t believe the population of this nation is willing to tolerate such pain, and that the odds are slight that we will allow ourselves to take that particular path unless the President of the United States leads us there. So far, there is no indication of that.

Obama wants to increase taxes on the rich as a balanced approach of solving our problem. But math is a stubborn thing. Math is neither conservative nor liberal. It is what it is. And if Obama got exactly what he wants in tax increases it would only raise maybe 100 billion per year, if that. What about the remaining 900 billion in deficits? If those continue we will no doubt see skyrocketing interest rates, a recession, record unemployment, and a fiscal and monetary collapse. The United States as we know it could no longer exist.

We must cut the deficit substantially, and to cut the deficit we must cut spending too. If we cut as much as we increase taxes, which would be a balanced approach, we’d still only reduce the deficit to 800 billion per year with no end in sight. Again, fiscal and monetary crisis would ensue. The only way to head off a crisis is to reform Medicare, Medicaid, and social security, which represents 70 trillion dollars of future unfunded liabilities. We also need to cut defense, and attack waste and redundancies within government in a serious way. We need to cut back the government to its historic share of GDP of about 20%, down from the bulge to 24% under Obama’s first 4 years. What I am talking about is understood by any that can still add and subtract. It is the only way toward the real fiscal reform needed to eventually solve our fiscal problems. Political compromise is not the solution--Solving the deficit and debt problem is.

All the heat and energy about tax increases is wasted breath. It won’t solve the fiscal crisis we're in or even come close. The proposed tax increases represent one half of one percent of the deficit. It will neither cut the deficit nor cause a recession if passed.  It’s just too puny. Most likely a compromise will be made to raise revenues through closing or eliminating loopholes, deductions, and subsidies for the "rich.” Really this amounts to the same tax on the rich, but it won’t be called that by republicans. In exchange republicans will get their spending cuts. Fine, but that isn't going to be enough to solve the crisis, and the markets know it. Much more needs to be done.

The bottom line is we can avoid the fiscal cliff but we have yet to address the fiscal crisis which looms. The short-term is easily manageable, the long-term is not. Yet, the long term is getting closer every day.

To compound the problem, several key democrats have now openly stated that now that Obama has won re-election, we can begin to increase America’s "investment" in education, infrastructure, and clean energy. Where will that money come from? From new taxes on the rich and taxes on energy? If we spend the newly taxed money we get from the rich on new programs, what happens to the necessity of bringing down the deficit? No comment from the tax and spenders who refuse to do the necessary math. Somehow they want to spend the same money twice, once on reducing the deficit, and then again on increased government spending.

The problem is that the more we tax the less growth we will have. The less growth we experience the less revenue we will have to tax, and the higher the deficit. The only way off the merry-go-round is to cut tax rates and eliminate deductions by an equal amount to make the process revenue neutral and cut waste and abuse within government. That together with providing incentives for oil and gas would lead to greater growth and higher tax revenues. Then we need drastically reform Medicare, Medicaid, and social security to keep it from going broke.

But that was Romney’s plan! Yes, and it was rejected. So whatever happens, whatever deals are made, and whichever policies are implemented, all roads for now unfortunately lead to more economic stagnation. This “world of L” I’ve been describing in articles for the last 4 years will continue for as far as the eye can see. And that is the best case scenario.

Keep in mind that Obamacare takes effect beginning in 2013 and progressively takes hold each year thereafter. As 100,000 new retirees enroll in these entitlement programs per month, the amount of doctors and nurses will not increase—but regulation will. And don’t forget about Dodd-Frank with regulations so confusing they have taken over 4 years just to write. Imagine how complex and unintelligible they will be—and there will be hundreds of them--descending on businesses soon. And let’s not forget about the EPA who has been holding back on its new agenda of regulations. Count on them being both numerous and cumbersome, a plague on the coal, oil and the gas industry. All this on top of the already impossible to comply with regulations that have millions of businesses frozen in their tracks—not exactly a prescription for businesses to go out and hire new workers.  In the last 90 days the Obama Administration has posted over 6,000 regulations on its regulation.gov web site. The thousands of new regulations and rules that makeup Obamacare, Dodd-Frank, and the EPA are like a regulation tsunami about to hit with nothing congress can do about it.

Obama has indeed won, and he’s gained the power to enforce his desire to transform America into something else. The only thing that stands in his way is the House of Representatives. So look for presidential edicts to be used where legislation cannot. We are in for a rocky four years.  I will keep those of you that want more specific information on how this will affect you, the economy and the markets appraised of the situation in my market update on an almost daily basis. Things from this point are going to get interesting, to say the least.

Paul Nathan
Paulnathan.biz