Washington Comes Alive Past Last Minute; Fiscal Cliff Averted... for Now; Wall Street Rejoices

Well, Money Daily was right. There was no fiscal cliff deal by midnight, December 31, 2012, but, those wily congress-critters once again outfoxed everyone by playing past the deadline and passing a bill that was, by and large, a deal, though it certainly didn't address any long-term issues, nor did it include any meaningful spending cuts.

Congress and the president - now back in Hawaii, playing golf, presumably - made sure that all the handouts would continue being handed out, extending unemployment benefits and keeping the Bush tax cuts in place for individuals earning less than $400,000 per year ($450,000 for couples), while raising the tax on those making more than that from 35% to 39.6%, which is a pretty big bite.

The "deal" also raised capital gains taxes from 15% to 20%, but only on those earning more than $400,000, a bit of relief for the 99% gang.

Scoring by the Congressional Budget Office and others put the cost of this deal at an increase of some $4 trillion to be added to the national debt over the next ten years. Nice job, boys.

Everybody's taxes will go up, however, because the deal did not extend the 2% tax holiday on Social Security payroll deductions, which was cut from 6.2% to 4.2% last year and will go back up to 6.2% this year. So, if you make $1000 a week, the feds will be taking an extra $20 out of every paycheck.

Foreclosures and short sales will continue to prosper in 2013, as the deal extended the 2007 Mortgage Forgiveness Debt Relief Act, which allows homeowners who experience a debt reduction through mortgage principal forgiveness or a short sale are exempt from being taxed on the forgiven amount.

Yippie! Our "Free houses for everyone!" motto lives on.

Wall Street was enthralled by the deal, sending stocks rocketing to their biggest gains of the year (Money Daily expects this will be the largest one-day gain for stocks in 2013, so bookmark this page now!).

The major indices made back all of the losses they took in the final ten trading days of 2012, and then some in just the first trading day of the new year.

At issue is how long the rally will last, whether this is just a one-day wonder or whether stocks can still remain the darlings of investors with 4th quarter earnings season on the horizon and the new congress (and same old president) having to deal with sequestration, deficit reduction and a debt limit increase within 60 days.

Since, according to Treasury Secretary Tim Geithner, we've already exceeded the debt limit, the feds will be borrowing from government pension funds to fund the government in the interim. A huge fight is ensured in February, as congress, if the latest fiasco offers any clue, won't want to deal with these issues until late in the game.

For now, though, roll with it. The Federal Reserve has the government's back, standing at the ready to print billions more in greenbacks at the hint of any troublesome developments.

Along with equities, expect everything else to keep getting pricier because there's really no easy way out of the monetary fix we're in. Next week, when life returns somewhat to normal, the angst will reemerge.

BTW: Money Daily was actually correct in predicting that everybody's taxes would go up under any kind of deal. They did. Check your paycheck in coming weeks for proof.

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