And with a deal to prevent most tax increases while putting off the really hard stuff, globalmarketsarethrowinga partyto celebrate the most recent demonstration of Winston Churchill's maxim that Americans can be counted on to do the right thing, after they have exhausted all other possibilities.
Investors kicked off the new year with a powerful global stock rally as Congress struck a last-minute agreement on the deficit, removing a key overhang for the markets. The Dow Jones Industrial Average shot up 222 points, or 1.7%, to 13326, for a second consecutive session of triple-digit gains. The blue-chip Dow had rallied 166 points, or 1.3%, on New Year's Eve, to close out a year of solid returns.
Here's how we know it's serious:
By delaying spending cuts and blocking a large part of set tax increases, Washington staved off a major hit on economic growth. As expected, the deal came as a relief, hitting safe-haven Treasurys bonds as appetite for financial risk soared.
Of course, staving off another recession isn't enough for everybody, notably the 156 Republican congressmen and senators, 19 Democratic congressmen and senators, and "some executives," the latter of whom bemoan a lost opportunity to reach a larger deficit-reduction package that could have shifted the focus of many corporations away from Washington's fiscal dithering.
Other executives, notably of the hedge fund and private equity variety, will simply keep their grinning mouths shut and continue to swim in their millions of dollars in annual income capital gains.
Now, there will be some rich lawyers and dentists who are paying higher taxes while the far richer hedge fund and private equity moguls the lawyers and dentists work for will experience less of a tax hit. Nobody will cry for the hip surgeon who is being taxed more, but there are no hip surgeons on the Forbes 400 list of richest Americans. There are, however, 31 hedge fund managers on the Forbes 400, representing 8% of the nation’s wealthiest individuals. There are another dozen or so private equity guys on the list, too.
And while our advertisers know that no one making less than $450,000 per household reads this fine blog, we thought you'd like to know that most other people's taxes are going up, too.
The Tax Policy Center, a nonpartisan Washington research group, estimates that 77 percent of American households will face higher federal taxes in 2013 under the agreement negotiated between President Barack Obama and Senate Republicans….
Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center's analysis. Households making between $50,000 and $75,000 will face an average tax increase of $822.
Broad Rally to Celebrate Cliff Deal [WSJ]
U.S. Stocks Rally as Lawmakers Pass Budget Agreement [Bloomberg]
Europe stocks rally on U.S. budget deal [MarketWatch]
Hong Kong Shares Hit 19-Month High [WSJ]
Gold Gains, Silver Surges [WSJ]
Crude Leaps Above $93 [WSJ]
Cliff Loser: Treasurys [WSJ]
Grading the Fiscal Cliff Deal: Terrible but Could Be Worse [Cato Institute]
Senate Passes Fiscal Cliff Deal at 2 a.m. [Slate]
3 more fiscal cliffs loom [CNNMoney]
On the Left, Seeing Obama Giving Away Too Much, Again [NYT]
Lines of Resistance on Fiscal Deal [NYT]
Some Executives Hoped for Broader Reach [WSJ]
The Big Fiscal Cliff Deal Winners: Hedge Fund and Private Equity Moguls [Forbes]
Despite 'Cliff' Deal's Cuts, Your Taxes Are Going Up [AP via CNBC]