I have distain for politics and politicians, but they are market moving forces these days so we need to assess their policies’ impact on the market. Every candidate has said they would immediately fire Bernanke. They reason- the money printing machine is causing uncontrollable inflation. The disregard of facts like PPI, CPI, and most recently the Empire State’s input/output prices is worrisome. All these indicators point towards the likelihood that we are still fighting a deflationary period. The populist sentiment around phantom inflation has become a plank for the Republican platform. The absolute worst outcome from the 2012 elections would be for Bernanke and Geithner to be replaced by a new Fed Chair and Secretary that don’t have any experience from the 2008 financial crisis.

If we get a Volker-like Fed Chairman then we will be less prepared for any financial shock in the future. We may even get premature tightening in a worst-case scenario. If only the candidates would read their history books, as Bernanke has done, they would see the major errors politicians made in the 1930’s were fiscal austerity and monetary restraint. Our debt has already forced us to repeat one of those mistakes on the fiscal side. We are dangerously close to repeating the monetary mistakes of the 1930’s given the Presidents’ approval rating and the inferred outcome of the 2012 elections.

The banks have been a disaster for over a year. I don’t see any end to the decline until we find out who our president will be. Any lift is ephemeral until we know Bernanke will not be replaced by a new Volker.