It appears that in the aftermath of the recent update of Obama's job approval polls which as we reported just hit an all time low, the market has formally priced in a 50%+ probability that the president will be limited to just one-term. According to the latest InTrade odds, Obama's chance of being reelected in 2012 is now at its all time low, or 48.5% after soaring to a high of 70% back in May in the aftermath of the Bin Laden death at sea. This result however is far from conclusive: InTrade 2012 presidential odds for Rick Perry have risen, but only to 18.5%, Palin is at 5.5%, and Ron Paul's chances are at 3.2% (Bachmann is at 2.5%). So there certainly is some arbitrage to be made there.
So with an Obama reelection no longer priced in by the market as a more than likely event, we wonder what is next up the administration's sleeve to pull itself by its bootstraps out of the current popularity slump: QE3 may or may not come, but by the time election 2012 rolls around, Bernanke will need to have launched QE4 and 5, in order to simply keep the market where it is. And, obviously, any short-term boost to Obama's popularity courtesy of exterminating most wanted terrorist #1 is now in the past, without any clear public enemies on the horizon. Which leaves the next fallback plan: declare war on a country that is on the receiving end of a media propaganda onslaught. Luckily, there are many of those. Furthermore, to refute those who claim war weariness will certainly set in well before the next election, keep in mind that as Benny Geys showed in "Wars, Presidents and Popularity: The Political Cost(s) of War Re-Examined", in times of major economic contraction, socially adverse effects from war spending are at their weakest. Who said again that no crisis should go to waste? Now that the lost economic game shifts to the geopolitical landscape as a final continuity recourse, below we present one of the better recent analyses on war weariness and political costs of warmongering, courtesy of Geys: a required read for anyone interested in the future of US foreign policy.