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Busch: Brown Victory=Obama Change

The victory in Massachusetts for Republican Scott Brown over Democrat Martha Coakley is seen by political strategists as a repudiation of the current health care legislation and the policies of the Obama administration.

The Washington Post writes, "Republican Scott Brown's win in a liberal state will do more than vastly complicate Obama's bid to overhaul the U.S. health care system. It will send his party into a painful re-examination of voters' anger and desires ahead of the November elections for Congress, governorships and state legislatures."

Yesterday, I wrote about the ways that Democrats could still pass the bill if Brown won.

Today at least one Democrat is already stating that a vote should be delayed.

"In many ways the campaign in Massachusetts became a referendum not only on health care reform but also on the openness and integrity of our government process," said Sen. James Webb, D-Va.

Scott Brown
AP
Scott Brown

He urged that "we suspend further votes on health care legislation until Sen.-elect Brown is seated." (WaPo)

Clearly, this is a game changer from many aspects and should confirm my prediction that in 2010 President Barrack Obama will morph into President Bill Clinton.

On foreign policy, this is already occurring as the 30,000 troops to Afghanistan attests. Also, the shift on homeland security and the focus back on terrorism due to the Xmas day bombing attempt, the Fort Hood attack, and the suicide bombing of the CIA operatives. Lastly, the demonstrations in Iran. All have pulled the President towards a more hawkish position.

The election last night will also bring about further change.

The trial balloons on the budget are already filling the air. There has been one last week about extending the Bush tax cuts from 2010 to 2012. There has been one this week on freezing government spending budgets. OMB has asked agencies to plan for three different spending plans and one has a 5% reduction across the board. Finally today, there is a deal to create a fiscal commission and a pay-as-you-go budget enforcement bill. This deal would allow Congress to pass an increase in the debt ceiling while addressing the long term deficit problems.

Unfortunately, there is great consternation over what a commission would ultimately recommend. Cato and others warn that the likely outcome would be mainly higher taxes and not lower spending. This is not a Republican nor a Democrat issue alone as both parties have dramatically increased spending when they have been in charge of Congress and the White House. As Laffer, Moore, and Tanous wrote in "The End of Prosperity", "If Congress had just held spending to the level of inflation and even taking into account the extra $200 billion annual cost for the war in Iraq, there would have been a $100 billion surplus in 2007 rather than a $162 billion deficit." Funny how small those numbers look now in an era of $1.4 trillion budget deficits.

The point is that Brown's victory is a game changer for the Senate's 60-40 split, but there are more important changes coming. Expect a centrist Obama to focus on the deficit and creating jobs during his January 27th State of the Union address and his upcoming budget.

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Andrew B. Busch is Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.