Daily Commentary by Larry Baer: And so now the crowing begins.
As you are probably
aware, the so called "fiscal cliff" has been averted by a last second
Congressional effort to reach an agreement finally succeeded in a rare New
Year's Day vote.
Lawmakers will now
begin the process of blitzing the media with talk about the benefits of the
deal, the cut in taxes for the majority of Americans, the reduction in the
budget deficit and the fact that Congressional power brokers were able to
cobble together a bipartisan agreement to fix America's
debt problems.
Unfortunately for
all of us, the agreement reached does none of those things. In fact all
Americans are going to be paying higher taxes through their paychecks in 2013
and beyond because Congress allowed the payroll tax cut that President Obama
shepherded into existence in 2010 to lapse. The reversion in the payroll
tax exemption will take $1,000 a year out the pocket of a citizen making
$50,000 a year -- $600 a year of out the paycheck of someone making
$30,000. For each wage or salary earner they will find their annual pay
envelope short an amount equal to a mortgage payment, a car payment, nearly a
year's worth of cell phone bills, or a month or two worth of groceries.
In addition, the much bally-hooed Bush era tax cuts for middle income
Americans was extend for only 60 months - so we will revisit this whole
middle-class tax issue again in 2018.
It is definitely worth
noting that not one thing was resolved in this recent agreement with respects
of addressing spending cuts of any sort. This critical issue has been pushed
off for two months. The deadline for avoiding the automatic
implementation of $600 billion of government spending cuts coincides with the
moment the US
will hit its spending limit. The result: the new fiscal cliff will
have even higher stakes; the next two months will be filled with more
Congressional wrangling with failure to achieve an agreement likely to have
even greater potential to create a major economic spasm.
Global financiers of
our national debt don't really take much interest in our domestic tax policy -
but they will react in a mortgage interest rate unfriendly manner if Congress
becomes so dysfunctional in their effort to address our debt limit issue that
global credit rating agencies find it necessary to once again downgrade our
national sovereign debt.
To be fair, the
current agreement is not a complete disaster; the best thing it does is extend
unemployment benefits for millions of Americans and revokes an automatic $900,000 pay hike for members
of Congress.
Expect market
volatility, in terms of both stock prices and mortgage interest rates, to be
much higher over the first three months of 2013 than either value indicator was
during the last six months of 2012. Heads up.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
