Thursday, January 3, 2013
Stock Market Turbo Drive
Once there was news of a Cliff Deal, the stock market shifted into Turbo Drive, running up the Average by double digits, on the promise of... what, exactly?
The "news" has been all agog about "certainty." LOL.
"Knowing what the tax rates will be" was all it took for the Market to fluff itself up and dance a little, it seems. If that's the case, why wasn't something done sooner? After all, everyone wants to see their stocks fluffed and dancing, don't we? High prices for stocks mean that our Retirement Funds have recovered, don't they? High prices for stocks mean that all is right with the world, regardless of whether God's in His Heaven, né?
Of course the certainty that most households are facing is that their take home pay will be ratcheted down by 2%, starting now thanks to the expiration of the Payroll Tax Holiday.
Initially as I scanned the "news" about the Deal, there was no recognition of this factor at all; it was as if the effects of the Deal were entirely a matter of the handful of people who would be experiencing higher income tax rates. Then, slowly, the millions who would continue to receive extended unemployment benefits were included in the mix (note: they pay income taxes but not payroll taxes).
Then yesterday, of a sudden and as if it were the dawn, there was some chatter on the "news" and in the blogosphere about that fact that "everyone's" take home pay would be lower by 2% -- well, up to the SS cap of $113,000 or so. This was, so the narrative aborning said, the result of the expiration of the Payroll Tax Holiday, and while nobody said anything about it during the Cliff Negotiations, it was well-known that the Holiday was only temporary and would certainly be expiring at some point. That point came. You see.
Consequently, most households will experience a diminution in their take home pay, the median being around $1,000 this year, the maximum being around $2,300. Per worker. For someone in the upper income brackets, that's a hardly noticeable hit.
For someone just getting by, it could be devastating.
Many "news" reports tried to make light of it, as if reducing household incomes further in this economy is going to have either no effect on the overall economy or will somehow make things better by enforcing thrift, don't you know. There was the cheery morning story that you could always go out and get a part time job to make up the shortfall. Ha ha. Right. There are no jobs, remember?
The commentariat which had been largely silent about it divided along predictable lines. The clearest division was the notion that so long as "I've got mine" (ie: continued low income tax rates, unemployment benefits, or what have you), the effect on you doesn't matter a whit, and you should have known this was going to happen anyway, too bad so sad.
Against this was posed the part of the commentariat that can do arithmetic and who pointed out that cutting household disposable income by 2% (even if it is to shore up Social Security, which is a whole other battle field) in this economy is an austerity measure that will have severe consequences to households in the short term and will do nothing to shore up the SS system over the long term, because as an austerity measure, it does nothing to improve the employment picture, in fact makes it worse by further tamping down demand.
"But but but but Social Security! You want to save Social Security, don't you!" Yes, well...
You can't "save" Social Security in this economy by further reducing the amount of money households have to spend; it's insane. It doesn't work.
Reducing household spendable income by 2% doesn't shore up Social Security; in fact it reduces Social Security finances by limiting or even reversing job growth due to the fact that households have less to spend and so demand is reduced. Job growth is what maintains Social Security's financial well-being, and Our Rulers have been doing everything they can to ensure that job growth is minimized and that salaries and benefits are reduced during this Perpetual Recession.
The whole struggle over the Chained CPI to figure Social Security (and other) benefits is a backdoor means of reducing Social Security benefits, which has additional negative effects on job growth and demand.
It's a vicious cycle that we've been going round and round on for years.
The economic effects of reducing household income while burdening them with ever greater levels of debt are plain to see. Yet because the stock market is in turbo drive, only a few seem to notice, and they can be easily dismissed as spoil-sports and cranks.
The White House, we're told, decided not to fight to further extend the Payroll Tax Holiday, and decided it wasn't worth the struggle to find some other form of replacement. The White House decided that reducing most household's disposable income by 2% was a small price to pay for raising the top income tax rate to 39.6% -- which will have the effect of reducing some top earner household's disposable income by something less than 1%. It's a bargain, innit?
We can expect more of this kind of thing as the various economic crises and cliffs baked in to this year's budget and economic struggles are reached.
The American People are going to get even poorer while the High and the Mighty get even richer.
That's the Real Deal, no matter how high stock prices climb.