By Carl BR Johnson
With talks of a “fiscal cliff” looming in the wake of U.S. President Barack Obama’s re-election, many Calgarians are left wondering how American policy will affect the future of their city.
Financial markets around the world reacted swiftly to Obama’s victory Nov. 6, with the Dow Jones stock index alone taking a substantial dip of more than 300 points.
Frank Atkins, associate professor of economics at the University of Calgary, said in an interview that markets reacted negatively to Obama’s win because, “generally speaking, business people don’t like him.”
“Business people are naturally more pro-Republican because traditionally, Republicans are advocates of lower taxes, and are more concerned with creating business-friendly environments.”
According to Forbes Magazine, the fiscal cliff can be characterized as, “a financial one-two punch to the American economy,” due to occur at the end of this year.
The first “punch” will be the Bush-era tax cuts scheduled for expiration on Dec. 31 of this year, after which taxes will go up substantially for most Americans.
The second “punch” is the temporary two per cent reduction in payroll taxes that the Obama administration pushed through Congress so that Americans would have a bit more money to spend in the U.S.’s massive consumer-driven economy.
This payroll reduction is also set to expire on Dec. 31.
Added together, these two factors will have the potential to create a massive and unpredictable financial drop in consumer spending that the American economy may not be able to survive.
“If the Americans’ fiscal cliff causes the U.S. economy to go into another, bigger recession, Canada will be dragged down with it,” said Atkins.
Ald. Gael MacLeod, says that Calgary-based TransCanada’s Keystone XL Pipeline project is a major concern for her and she wonders whether the Obama administration will go forward with its completion.
“I certainly think that the pipeline will have a lot to do with how it (Obama’s win) will affect our economy,” she said.
“But there are a lot of other ‘wildcards’ that will come into play especially with these new technologies like ‘fracking’, which will allow the Americans greater self-reliance on natural gas and will subsequently cause less dependence on Alberta’s oil.”
Fracking involves the injection of highly pressurized chemically treated water into deep shale formations at pressures of more than 9,000 PSI to widen existing cracks allowing hydrocarbons, namely natural gas, to flow freely to the surface via pipeline and well-site construction.
Fracking and recent advancements in horizontal drilling, which allows vertical well drilling paths to turn at certain depths and drill for more than a mile sideways, creates unprecedented access to immense shale-locked natural gas reserves.
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If the Obama administration pushes ahead with what he considers a green energy source, natural gas, then the U.S. will become a major energy producer instead of just the world’s largest energy consumer.
“What will happen is, if Obama pursues this technology, the U.S. will not be as dependent on Alberta’s oil, thus Calgary, a major centre for Alberta’s oil future, will experience a major hit,” said MacLeod.