The market, which to say the least has not been kind to 401Ks lately, rallied during Tuesday's morning session, with the Dow up 270 points to 9,591 at mid-day.

What's driving it? Is this an Obama rally or a relief rally?

Economist Peter Dawson, who took his daughter Laurie to the voting booth Tuesday morning for "a cool, local civic lesson," tends to side with the latter.

"Given the economic, fiscal and, let's face it, financial system challenges facing the nation, and the intensity of the presidential campaign, my sense is that the market and nation are probably just happy the campaign season is over," Dawson said. "The market knows that one way or another, we will have a new chief executive in place, which means decisions will be made to tackle those problems and the market may be getting out in front of that."

Economist Richard Felson agreed with Dawson but argued that the expected performance of U.S. Sen. Barack Obama, D-Illinois may also be playing a role.

Democrats, both hopeful and likely to gain seats in Tuesday's U.S. election, are facing growing calls to pass a large fiscal stimulus package to help the economy avert a major recession.

Economists Martin Feldstein and Larry Hatheway, the latter chief economist at UBS AG (NYSE: UBS), say a large fiscal stimulus is needed to prevent a deep recession, Bloomberg News reported Tuesday. Feldstein wants a $300 billion package; Roubini said the package may have to be as large as $400 billion.

Also. NYU's 'Dr. Doom' Prof. Nouriel Roubini said that that without a large stimulus package, the U.S. recession could last as long as 18-24 months, with unemployment soaring above 9%.

Economist David H. Wang agreed that a large fiscal stimulus is needed, given current trends in consumer spending and business investment. "There is a major crater that has to be filled here. The consumer is in retrenchment mode, and business spending is pulling back. Trade activity is showing signs of sluggishness. Without a fiscal stimulus, macroeconomic conditions will continue to deteriorate," Wang said.

It's been said that the grace that Joe DiMaggio, The Yankee Clipper, exhibited was so encompassing that he seemed to move before the crack of the bat, to be perfectly positioned for an outfield catch. And of course hockey's Wayne Gretzky's greatness stemmed in large part from his uncanny ability to always skate to where the puck would be, not to where it was. There are advantages to being one step ahead of the game.

JP Morgan Chase's decision to modify the terms of $70 billion in mortgages, represents as much a political calculation as an economic one, so says economist Richard Felson.

"One can interpret the action as JP Morgan thinking two steps ahead," Felson said. "From a strictly economic standpoint, it looks premature and costly. From a political standpoint, however, it looks quite prudent." JP Morgan's (NYSE: JPM) shares fell 97 cents to $40.85 in Monday morning trading.

That's because Democrats in Tuesday's U.S. election are likely to rack-up seat gains in the House and Senate. U.S. Sen. Barack Obama, D-Illinois, also leads U.S. Sen. John McCain, R-Arizona, in the U.S. Presidential race. Felson said the small chance that Democrats could achieve large majorities in the House and Senate may have prompted JP Morgan "to leave before the crack of bat," from a mortgage issue standpoint.

Most major polls have U.S. Sen. Barack Obama, D-Illinois, leading U.S. Sen. John McCain, R-Arizona, in the contest for U.S. president. And, if the election were held today, instead of on Tuesday, November 4, Election Day, Obama would register a decisive victory in the all-important electoral college, as well as in the popular vote.

As of late Friday, NPR.org's survey of polls had the electoral vote at Obama, 291, McCain 163. Four battleground states are still in play: Ohio, where Obama lead by 5%; Florida, Obama by 3.5%; Indiana, McCain by 1.7%; and Missouri, McCain by about 0.5%. Concerning the national vote, on Friday, Gallup.com's daily tracking poll had Obama leading McCain, 52% to 41%.

Still, as most political aides will tell you, "the only poll that really counts is the one on Election Day, Tuesday, November 4." In other words, polls can err; that's why they have a margin of error, typically +/- 2%.

Polls only recently have become more accurate. Some notable poll mistakes include the 1980 U.S. presidential election, when some polls had incumbent President Jimmy Carter, a Democrat slightly ahead of the challenger, then Gov. Ronald Reagan, a Republican. Reagan, of course won the 1980 election in a landslide.

Pres. Truman had the last laugh on pollers

But the biggest polling error in a presidential election has to be the 1948 election between President Harry S. Truman, a Democrat, and challenger Gov. Thomas E. Dewey, a Republican.

The polls predicted that Dewey would win by a large margin. They were wrong: Truman won a decisive victory, 303-189, in the electoral college.

What's the post-2008 U.S. Presidential Election dollar outlook and the dollar strategy?

Well, more than likely, the dollar's fate will be largely determined by macroeconomic factors, as well as by fiscal and monetary policy, along with the overall risk appetite/risk aversion climate that hinges on the status of the global financial crisis.

As any economist or currency trader will tell you, that's a full plate of variables, which only underscores the complexity (and difficulty) in determining the direction of currencies.

Nov. 4 election will help determine dollar's fate

Still, fiscal policy plays an important role, and with the aforementioned in mind, look for the following dollar pattern depending on the Tuesday, November 4 Election Day outcome: If U.S. Sen. Barack Obama, D-Illinois, wins, the dollar is likely to strengthen, long-term. If U.S. Sen. John McCain, R-Arizona, wins, the dollar is likely to weaken, long-term.

Currency Trader Eric Simpkins outlined the Obama scenario. Although U.S. budget deficits will initially be high as an Obama presidency begins, an Obama win implies a Democratic Party majority in the U.S. Congress, which will make it easier for Obama to raise taxes on upper income groups, basically those Americans earning more than $250,000 per year.

"Obama's tax increase will cut the U.S. budget deficit and get the revenue and spending lines heading in the right direction, together, which will cause the dollar to rise," Simpkins said. "The U.S. recession will mitigate this somewhat, but that economic negative will be offset by the fact that Europe and other regions will be in recession, too, and will likely recover later, putting pressure on those currencies."

Stock, oil and related futures provide valuable clues for investors/readers concerning where these market / commodities are headed.

With the above as background, Intrade.com's futures for the 2008 U.S. presidential election currently predict a decisive victory for U.S. Sen. Barack Obama, D-Illinois, over U.S. Sen. John McCain, R-Arizona.

InTrade's Realtime Electoral Vote Predictor is projecting an electoral college vote total of: Obama 364, McCain, 174. A candidate needs 270 electoral votes to win the presidency.

Futures for Obama win are high

Futures on an Obama win are at 86.4. The 86.4 level means that the market predicts there is an 86.4% chance of this event happening. All Intrade markets trade between 0 and 100.

Futures on a McCain win are at 14.4, signaling that the market believes there's a 14.4% of McCain winning the election.

Have you decided who to vote for in the 2008 U.S. Presidential election?

If you're like most Americans, you have. By this date, two weeks or so before the election, at least 90% and in some elections 95% of you know who you're going to vote for, political science research tells us.

Historically, at this stage of the campaign, the only people who have not determined which candidate they'll vote for are those adults who tend to not vote regularly: they'll often even pass up voting in a presidential election.

2008 campaign: most negative ever?

One benefit, if you've decided who to vote for U.S. Sen. Barack Obama, D-Illinois, or U.S. Sen. John McCain, R-Arizona, is that you don't have to watch any more campaign coverage or campaign ads (if you can avoid them).

True, it must seem like this presidential campaign has been the most negative ever, but if the truth be told, it's no more negative than the one in 2004, or in 1960, and certainly not more negative than the one in 1928. In 1928, the insults and smear tactics used against Democratic Party nominee N.Y. Governor Al Smith, would set the standard for gross and outrageous campaign tactics.

Falling stock market; massive credit market stress; bankers reluctant to lend; bank defaults; companies cutting back investment / plant expansions; large budget deficit; large trade deficit; falling currency; stagnant economy; rising unemployment; high cost of food, energy; and a large portion of the public stating that the nation is on the wrong track, economically.

If you think the U.S. economy is presently mimicking that of a third-world country in the 1970s, you're right.

The United States, after nearly a decade of policy errors and business / consumer mistakes, is in its worst condition economically since the stagflation-plagued 1970s, but with credit market problems that dwarf that era's financing challenges.

In a time like this, when new, negative data points occur almost daily, it's difficult to pinpoint when the turning point will occur. But one may occur in as little as four weeks. Are there economists out there who are doubling as soothsayers? No, it's merely the U.S. Presidential and Congressional election, so says economist Richard Felson.

The first order of the day is financial market stabilization. If the U.S. House of Representatives goes along with the U.S. Senate and approves the rescue bill, that's step one toward financial market stability, Felson said. Add ons / companion public programs will further bolster lender and corporate confidence that the credit markets are not going to go the way of the Edsel, he said.

The nation's two candidates for U.S. president met Friday in Mississippi in their first debate, with both candidates scoring points, but with neither candidate registering a decisive "knock out blow."

The debate played out pretty much along scripted lines -- something campaign operatives were no-doubt delighted to see. In modern, televised debates, the goal is not so much to win as to avoid losing; a serious gaff can set a campaign back, whereas a victory, even a decided one, rarely moves a candidate up in the polls more than a percentage point or two.

Republican Party nominee U.S. Sen. John McCain, R-Arizona, effectively demonstrated his experience in and knowledge of foreign policy, underscoring the need to win the war in Iraq. McCain believes the United States now has taken the upper hand in Iraq -- if he doesn't believe the nation is winning the war outright -- and does not see defeat as an option.

Democratic Party nominee U.S. Barack Obama, D-Illinois, effectively demonstrated that electing him president would represent a decided break from the policies of the Bush Administration, and he underscored the need for the United States to rebuild both its economy at home and standing/reputation with its allies abroad and throughout the world.

Perhaps the most compelling dimension of the debate was the fact that despite discussing the financial crisis currently gripping the nation, neither candidate said he would make any adjustments to his platform/agenda in light of the decidedly more-challenging fiscal environment. Sen. McCain did not say he would forgo his goal to cut income and business taxes. Sen. Obama did not say he would curtail goals to increase spending on education, infrastructure, and basic research/technology.

Political science teaches us that, historically, the first U.S. Presidential debate is the most important debate during the presidential campaign, mainly because it's the most-watched debate of the three presidential debates and one vice presidential debate.

That would have been the case this year, as well, given the closeness of the race, and the increase in political interest/participation by American citizens in several segments of the electorate this election cycle.

Financial crisis alters debate backdrop

However, the debates have been displaced in importance by the crisis facing the financial system and the U.S. Congress' and President's efforts to reach an agreement on a plan that will end the crisis and shore-up severely-stressed credit, bond, stock, and currency markets.

The upcoming debate now looks like a side-show, a momentary diversion, before the nation returns to the work of trying to avoid a re-emergence of the barter system in two thousand and eight, Anno Domini.

Could the financial crisis result in the United States losing its status as the world's financial superpower?

Indeed it could, Germany's Finance Minister Peter Steinbrueck told MarketWatch.com.

"The United States will lose its status as the superpower of the global financial system, not abruptly, but it will erode," Steinbrueck said, MarketWatch.com reported. "The global financial system will become more multi-polar."

However, Steinbrueck clarified his statement in subsequent remarks to FT.com. "When we look back 10 years from now, we will see 2008 as a fundamental rupture. I am not saying the dollar will lose its reserve currency status, but it will become relative," Steinbrueck told FT.com. Further, Steinbrueck repeated Germany's refusal to allocate public funds to acquire distressed/bad assets, arguing that the crisis is mainly hitting the United States.

The U.S.: a decade of descent

Economist Richard Felson concurred with Steinbrueck's analysis for the most part, but added that the U.S.'s decline, more accurately described as "a descent," is not irreversible.

"Globalization has played a role, but much of the U.S.'s descent in the past decade stems for policy mistakes, basically policies that didn't and don't work. The nation cut taxes before it went to war, creating a large budget deficit. A lack of a forward-looking energy policy helped balloon the trade deficit. And inadequate investment in infrastructure, education, and basic research is depressing economic growth below what it should be," Felson said. "The latter resulted in far fewer jobs begin created in the decade than what's required, leading to all sorts of problems, including the housing sector's implosion. The result has been a weaker U.S. economy with more structural problems, and an inability to project economic power. Meanwhile, the economic power of China, Russia, India, and Brazil has increased. I don't think that's what policy makers intended at the start of the decade, but that's been the result."

Historically, the vote for U.S. president hinges on three factors: a voter's party identification, the voter's attitude toward the candidate, and 'a most important issue.' (See: Campbell, Converse, Miller and Stokes, The American Voter.)

Some voters cite two or three most important issues, but most have only one. One such issue that has repeatedly shown up in survey research dating back to 1952 as a factor affecting vote is the U.S. economy.

In general the rule is that if the U.S. economy is doing well, the party in power -- the party occupying the White House -- is re-elected.

If the economy is doing poorly, the party in power is voted out of office. In other words, if the economy isn't doing well, the American people "throw the rascals out," as my Ph.D. advisor, Professor Sarah Morehouse, UConn professor emeritus of political science, used to say.

The U.S. President as manager of the economy

It matters not if the president caused the damage. On many occasions the president rarely is entirely at fault, but it doesn't matter -- the president is still held accountable for the economy's performance. If the economy's strong, the president gets the credit; if the economy's in poor condition -- the blame.

Although it may seem like it's been going on for a long time, the sprint called the U.S. presidential campaign has just started.

Maybe you just wish the race was over by now?

True, given the near-continual political coverage of the primaries and general election campaign on 24-hour, cable broadcast news networks MSNBC (NYSE: GE), CNN (NYSE: TWX), and Fox News (NYSE: NWS), it probably seems like the campaigns have been going on since the dawn of recorded history.

But, really, the political calculus becomes substantive after Labor Day, primarily because the polls are more telling. The summer polls are less-predictive/less-reliable because, in a nutshell, Americans have vacations and summer leisure activities on their minds.

The Gallup Poll

U.S. Senator John McCain, R-Arizona, has pushed ahead of U.S. Senator Barack Obama, D-Illinois, 49%-44%, in the Gallup tracking poll, as of interviews conducted through September 8. There are several, accurate polls one can monitor, but the recommendation here is to follow Gallup, given the organization's strong performance record in survey research.

Look for McCain's percentage to fall and Obama's percentage to rise as the 'bounce' that McCain received stemming from the Republican National Convention fades. Almost all candidates get a 'bounce,' or an increase in voter support, coming out of their party's nominating convention. But know also that at least a portion of this bounce typically disappears in a week or two. The conventions are largely four-day advertorials for the candidates and they tend to sway selected voters, but only temporarily. As the convention hype fades, voters look at the candidates more-critically, which accounts for the dip in support.

However, if McCain's bounce doesn't disappear before September 26, or if his support continues to increase, then most likely some other factor is at work, boosting the Republican U.S. Senator. And given her newness to the campaign and the national political stage, it's most likely Vice Presidential Nominee Gov. Sarah Palin, R-Alaska. But don't draw any conclusions about Palin yet: let's see what the Gallup Poll looks like in a week or so before forming any conclusions about her impact.

"A billion here, a billion there, and pretty soon you're talking about real money."

To paraphrase the late Senator Everett Dirksen (R-Illinois), if a couple billion is real money, what's $400 billion amount to? Fiscal trouble for the United States, says an economist.

The U.S. federal budget deficit will double this year, to $407 billion, from $161 billion last year, the Congressional Budget Office announced Tuesday, in its revised baseline projection report (pdf).

The CBO said a weakening economy, spending for the Iraq and Afghanistan Wars and the War on Terror, higher entitlement spending, and a slowing growth rate in federal receipts are among the factors that will push the deficit to 3% of GDP this fiscal year, which ends September 30.

The deficit will rise to $438 billion next year, fiscal 2009, remain roughly at that level, $431 billion, in fiscal 2010, before tapering to $325 billion in fiscal 2011.

The CBO also expects U.S. GDP to grow just 1.5% in 2008 and slow to 1.1% in 2009.

Economist Glen Langan said the multiple $400 billion deficits are bad enough, but they could rise considerably, if the U.S. Treasury's bailout of Fannie Mae and Freddie Mac does not go well. "If the housing market does not stabilize in the year ahead, Treasury could end up spending tens of billions more per year," Langan said. "Nearly all of that cost would be born by the taxpayer, which means the deficit will increase."

One issue likely to influence voters' choice for U.S. president in November is the U.S. economy.

The Iraq War/War on Terror, and other issues, such as health care concerns, are likely to be factors as well, but look for concern about the economy to be paramount. Of course, political science teaches us that party identification and voters' attitude toward each candidate will also help determine the vote for president.

(In a nutshell, the political science theory that best predicts vote is PI + ATC + MSI = Vote. Or, Party Identification + Attitude Toward the Candidate + Most Salient Issues = Vote. But more on that, some other time.)

Further, regarding the U.S. economy, there's been considerable coverage regarding its health -- sometimes too much -- but not as much clarity. So, without further ado, some "givens" or clarity about the U.S. economy.

• U.S. GDP: The U.S. economy is experiencing anemic growth, but technically, it is not in a recession. Unemployment is trending up -- now at 6.1% -- put is still relatively low, compared to unemployment levels in previous economic slowdowns. [Note: The above is not to slight anyone who has lost his/her job; each job lost is a serious problem/concern for the person involved.]
• Median income: The median U.S. family income is down. In 2006 the median U.S. family income, adjusted for inflation, was $58,407, according to the most recent U.S. Census Bureau data, down from $59,398 in 2000. Since the economic slowdown started in October 2007, it's possible, but not likely, that median family income rose in 2008, but more than likely it fell. Moreover, it probably fell during that time period, for most families.