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Economic Update for the Week of 01/04/2013

Congress was unable to agree on the fiscal cliff until AFTER the new year. The short version is that taxes went up for high income tax payers with a return of the 39.6% tax bracket, the 2% payroll tax holiday ended, and the federal estate tax exemption was set at $5,000,000 with spousal portability indexed for inflation. Meanwhile the sequestered spending cuts, entitlement spending, and next debt ceiling issue remains unresolved. It seems to be we are going to have to deal with several upcoming "fiscal cliffs" of different types.

Recent minutes from the latest Fed meeting showed a growing concern that the actions of the Fed may be having negative effects. Why it has taken these people this long to come to such a revelation is a mystery. The comments from The Fed are what sent stocks, bonds, and gold into a tailspin on Thursday which adds weight to the reality that this market has been artificially inflated by a bunch of unelected bankers in hopes that higher assets prices would help the economy. Well they haven't. Sure the markets are up and 401k plans seemed to have mostly recovered, but now what? What happens when the stimulus is no longer continued and starts to wear off? Meanwhile as I continue to say, with all the massive stimulus, where is the growth? The economy isn't growing any faster than normal, so what happens when the stimulus ends? What happens when the effects of having 2% less in paychecks of average Americans with the expiration of the payroll tax cut is felt in the stores? The possibilities are not encouraging.

The private sector adds 155,000 jobs and the unemployment rate remains steady at 7.8%. Week after week we see the same lackluster numbers. So can we grow our way out of the problems we face? So far the answer is no. The reason; we're still dealing with the after effects of a debt fueled bubble and the beginning of a demographic spending downturn that will take many more years to work through.

What's happening in Europe? All has seemed quite lately but not all is well. The Eurozone is in recession, Spain has begun raiding it's Social Security fund to pay for Spanish Government bonds, and Germany has been slowing. Expect Europe to cycle back in the news and cause market volatility in the not too distant future. 

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