Barack Obama and Mitt Romney are seen passing eachother head to head
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There have been lower and meaner presidential election campaigns: Richard Nixon’s “amnesty, abortion and acid” jibe against George McGovern in 1972 comes to mind. Even so, this was a gruelling and ill-tempered contest

President Barack Obama faces an immediate test of leadership, not merely to overcome the divisions between Democrats and Republicans that have largely paralysed Washington. The greater challenge is how to rekindle a spirit of can-do optimism in a nation beaten down by the global financial crisis.

“What America needs right now is confidence,” says a Wall Street CEO, “all the ingredients are in place for a recovery but we need predictability and strong executive leadership.”

This year’s election will be remembered largely as a referendum on economic management, if not an entire philosophy of government. Having inherited an economy in meltdown, Mr Obama spurned regressive tax cuts and deregulation and resorted to government borrowing and state intervention on a level not seen since the 1930s. Like Franklin Roosevelt, Mr Obama sought to save capitalism from itself.

Four years on, house prices have stopped falling and the US consumer is spending again. But despite a 13.6 per cent year-to-date rise in the S&P stock market index, the feel-good factor is missing and business is holding back on investment. By some calculations, US corporations have $1.7tn of cash on their balance sheets waiting to be spent.

Many blame the corporate investment strike on the “fiscal cliff”, the medium-term US budget crisis. Without a resolution by January 1, automatic spending cuts and tax increases will take place that could plunge the US back into recession.

“The problem is that the US is growing at only 1½ to 2 per cent,” said the chief executive of a major US bank. “We’re not used to this grind. We need a change in the growth pattern, creating jobs in construction and retraining workers.”

What makes investors doubly nervous is the combination of the “fiscal cliff” and a return of Europe’s sovereign debt crisis, triggered by an upsurge in borrowing costs for Spain and Italy.

In the post-election lame-duck session of Congress, the stand-off between Democrats and Republicans risks replaying the crisis of summer 2011. At that time, Congress delayed raising the debt ceiling and the US was stripped of its coveted triple A rating, seemingly the guarantee of its superpower status.

Mr Obama, cool and cerebral compared to his predecessor George W. Bush, found it nigh impossible to break down the Republican wall of opposition on Capitol Hill. His groundbreaking bill on healthcare reform passed without a single GOP vote.

His hope is that a second term will “break the fever” of opposition.Yet Mr Obama lacked the seductive power of a Bill Clinton or the towering authority of a Lyndon Johnson. His cold logic won few close friends on Capitol Hill, where congressmen and senators are more susceptible to the politics of the pork barrel, a healthy dose of flattery and a good Cuban cigar.

On foreign affairs, the agenda is no less pressing or daunting. At some point over the next four years, the president will have to make a fateful choice over how to deal with Iran’s ambitions to build a nuclear bomb. Western intelligence estimates Tehran is at least a year away from building a weapon, and any attempt to manufacture a weapon would be detectable.

This implies an opportunity for diplomatic negotiations, economic sanctions and/or preparation for a US-led military strike against Iranian installations in 2013-14. Mr Obama (who blinked first on the extension of Israeli settlements on the West Bank) forced his nemesis Benjamin Netanyahu to blink on threats to take unilateral military action ahead of the 2012 election.

Intelligence insiders are betting on some form of diplomatic overture from the next administration to test the Supreme Leader Ayatollah Khamenei’s intentions in 2013, especially given that firebrand President Mahmoud Ahmadi-Nejad is due to step down next year.

Elsewhere in the Middle East, the next president must deal with the unfolding drama of the Arab Spring. And then there is China. In Mr Obama’s first term the US belatedly executed a pivot toward Asia, partly to counter Beijing’s rising power, if not exactly to replicate the “containment” strategy successfully pursued against Soviet Russia.

Rising nationalism coupled with territorial disputes in the South China sea are the immediate threat; but the next administration will also be worried about the decline of Japan, squeezed like a nut in a nutcracker between low-cost China and the ruthless competitive might of South Korea.

Twenty-four years ago, as the Cold War drew to a close, James A. Baker, the canny Treasury secretary and future secretary of state, coined the phrase “economic insecurity” as the signature tune of George H.W. Bush’s campaign. In fact, Mr Bush’s presidency was dominated by national security.

In the next four years, barring an unforeseen external crisis, Americans are likely to be preoccupied by economic insecurity as they struggle to maintain their pre-eminence in a global economy where advanced knowledge is widespread and low-cost labour readily available.

Yet the US is, in many respects, in far better shape than Europe. Thanks to the Bush and Obama administrations, it has recapitalised its banking system. The shale gas revolution is dramatically lowering energy costs and ushering in a manufacturing renaissance. To the south, low-cost Mexico is increasingly competitive vis a vis China; to the north lies energy-rich Canada. “I am incredibly bullish on America,” concludes the Wall Street CEO.

And so, after the heat of the campaign, both victor and defeated might remember that no solutions are perfect but no challenge inherently insurmountable in the next four years for the US, still the most powerful nation on earth.

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