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The government remains divided with the Republicans keeping the House and the Democrats strengthening modestly their Senate majority.

The new Senate will be more liberal than the old one. Joe Donnelly of Indiana and Angus King of Maine (nominally an independent) replace Republicans. As the New York Times puts it, “Tim Kaine of Virginia is more liberal than Jim Webb, the Democrat who retired, just as Tammy Baldwin of Wisconsin and Chris Murphy of Connecticut are more liberal than Herb Kohl and Joe Lieberman.

Elizabeth Warren of Massachusetts will be one of the strongest voices in support of Mr. Obama’s policies.” But I do not believe the result will be gridlock, at least with respect to the fiscal cliff. Obama is in a much stronger negotiating position now than he was during the debt-ceiling debacle in the summer of 2011 as Congressional approval ratings are at near-record lows and taxes will increase automatically without a single vote from the Tea Party. A compromise, that includes tax increases and spending cuts, will be reached because it must be reached to avert a return to recession and a Moody’s downgrade. No one wants those eventualities, especially the Tea Partiers who must face another election in two short years. The so-called Grover Norquist Taxpayer Protection Pledges (to never increase taxes) notwithstanding, the Republicans will agree to increase tax rates for the wealthy in exchange for compromise from the Democrats to temper the rise in dividend and capital gains tax rates (to perhaps 20% each), to cut corporate tax rates and limit the rise in estate taxes, possibly extend the payroll tax cuts, and reduce substantially the sequester cuts in defense spending. However the mix of measures will shake out, a balanced and credible fiscal plan for sustainable and measured deficit reduction will be forthcoming, averting recession and downgrade.

Indeed, the next four years are going to be a gift to the next president—regardless of who had won—just as the past four years was a nightmare. The U.S. is on the rebound and growth could well accelerate to the 3%-range by 2014 thanks to the one missing link in the tepid recovery—housing. Household formation is returning to normal and pent-up demand for housing and related goods is huge. Home sales are rising and inventories of unsold homes are low. Thanks to the plunge in house prices and the lowest mortgage rates in a generation, housing is more affordable now than any time in the past forty years. In the states hardest hit by the housing collapse, such as Florida, Arizona and Nevada, prices are rising as money pours in from Canada as well as Europe and South America. Construction activity is starting to pick up and banks are more willing to make loans now that they have raised $300 billion in fresh capital. The Federal Reserve will continue its open-ended quantitative easing and mortgage rates will fall further. Auto sales and production will remain very strong, boosted in part by the devastating destruction of Super Storm Sandy. Retail sales are accelerating as household net worth is rising relative to income. Consumer confidence is up and business confidence will improve once the dust settles on the fiscal cliff.

Obama will temper his anti-business rhetoric and job growth will accelerate. The President will be more aggressive in taking actions that do not require Congressional approval and turn his attention to tax reform, climate change, immigration and energy independence. Infrastructure spending will rise. The shale revolution is boosting growth and changing the energy landscape. The U.S. is more competitive in manufacturing and as the global recovery emerges, the trade deficit will shrink further. A decade of war is coming to an end. To be sure, all is not rosy. The polity is deeply divided and many risks remain. The economy is vulnerable to over-zealous fiscal drag, the European debt crisis, a hard landing in China, the Iranian nuclear threat and all the volatility, uncertainty, complexity and ambiguity that will be a constant in this VUCA world. Obama has hopefully learned that he must reach across the aisle. He will assemble a Cabinet once again that will include some rivals. Romney as Secretary of Business—who knows?