The Fed Will Make Sure Obama Wins in 2012: Strategist

As we approach next year's presidential elections, the chances of President Barack Obama being ousted by a rival from either side of the political divide are low, according to Thanos Papasavvas, the head of currency management at Investec Asset Management.

Barack Obama
Barack Obama

“History is very much on the side of the incumbent President and unless we have a double-dip recession with a significant increase in unemployment I don’t believe Obama will lose 2012,” Papasavvas said in an interview with CNBC on Thursday.

“On the economic side, any signs of a deteriorating economic environment will see the Fed enacting QE3 (the third round of quantitative easing, or creating money) and hence indirectly reducing the probability of the economy derailing Obama,” Papasavvas added.

With the Republicans divided and no major rival yet to emerge, Papasavvas believes the American right wing will keep its powder dry for 2016 when four years of fiscal austerity will play into their hands.

“With no credible Republican heavyweight to face Obama, even those who have indicated their intent to run like Mitt Romney are unlikely to burn significant political or actual capital for 2012 preferring instead to wait for the 2016 election,” said Papasavvas.

Strong Dollar Policy?

John Snow, the US treasury Secretary during George W. Bush’s first term as president, spent a lot of time talking up his strong dollar credentials.

The problem for Snow was that no one believed a word he said as he stood by and allowed the period of benign neglect in which the dollar remained weak as the US economy recovered from September 11 and the collapse of the dotcom bubble.

Now Tim Geithner is spending a lot of time talking up his strong dollar credentials and the market is beginning to think the current US Treasury Secretary is beginning to sound an awful lot like Snow during the first term of the Bush administration.

“The market has been interpreting the Geithner comments on the dollar at face value, this is now changing as the evidence of a weaker dollar makes people skeptical about rhetoric,” Papasavvas said.

“What Tim Geithner actually means is that he wants to protect the purchasing power of Americans, not intervene to make the dollar rise against foreign currencies,” he added.

“It must be remembered that the US is a domestically-biased economy. The big costs like healthcare are not exposed to a weak dollar. What Geithner is trying to do is stop domestic inflation that will be felt by the average American,” he added.