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Dow Up 300 Points After ‘Fiscal Cliff’ Deal

Memo Pad Politics

Dow Up 300 Points After ‘Fiscal Cliff’ Deal


In the first day of trading after the House passed the Senate bill resolving — at least temporarily — the so-called “fiscal cliff,” the Dow added 308.41 points on Wednesday, for a 2.35% gain.

Wall Street never seemed to take the threat of going over the “cliff” too seriously. In mid-November, respected market-watcher Ben White of Politico said “It’s already over.” He said the kabuki theatre would play out but a deal with rates rising on top earners was on the way. The Dow immediately rallied.

Throughout December the market veered up and down in the days after Speaker Boehner’s “Plan B” failed, but it never fell too far below the floor of 13,000.

Wall Street’s cool reaction to this debate starkly contrasts the nosedive it took during the breakdown of talks regarding the debt limit in the summer of 2011. Then the Dow lost six months of gains in just over a week of trading days.

The debt limit will be reached again sometime in March, just after the sequestration of automatic cuts to defense, Medicare and other crucial programs was rescheduled to go into effect as part of the “cliff” deal. The sequestration, the debt limit and a continuing resolution to fund the government for the next year are being called a series of new cliffs that promise even more contention than we saw in December.

The president promises that any deal to resolve the sequestration must include balance, with tax increases on those who can afford to pay. But with 99 percent of the Bush tax cuts now permanent, it isn’t clear where the new revenues would come from. The cuts that have been discussed — including “chained CPI,” which cuts the growth of Social Security benefits and raising the Medicare age — are extremely unpopular with Democrats. Defense cuts are equally disdained by the right.

Discretionary spending is near a 40-year low. The growth in government spending is almost entirely tied to the costs of a struggling economy and the flood of Baby Boomers retiring. Any cuts will be be painful and unpopular.

So as much as the markets liked the resolution of the “fiscal cliff,” which made the capital gains and estate tax cuts permanent, much rockier days appear to be ahead.

Photo credit: Matthew Knott via Flickr.com


  1. Mort Alcoil January 2, 2013

    Another step in the right direction for the USA and the Dow; another repudiation and a slap in the face for the belligerent and intellectually bereft Republican party.

    1. S-3 January 3, 2013

      Almost… I still say violent revolt/replacement of the GOP is a more effective solution.

  2. Dominick Vila January 3, 2013

    The markets reaction to the compromise that averted the fiscal cliff is not surprising. Without the compromise the economy would have, very likely, gone into recession. Consumer confidence and spending would have plummeted. Private sector investment would have dried up, and unemployment would have gone up dramatically.
    Much is being said about the CBO estimate that our deficits will go up by $4T as a result of the compromise, what the GOP does not want to elaborate on is that the CBO estimate is based on the fact that had the Bush tax cuts expired for everyone government revenues would have gone up by $4T. Since both parties were determined to keep middle class taxes at current levels to avoid impacting the economy and stimulate growth, deficit spending will continue, at least until the economy is on solid ground and we have full employment. The latter will increase revenues through taxation and will reduce spending as a result of lower unemployment benefits.
    I think it is also important to point out that the compromise has several provisions to help industry which, at least in theory, should result in lower unemployment.
    Hopefully the new Congress will have the courage to find ways to reduce spending without impacting the economy, social programs, our national security and standard of living.
    Sadly, the House has not yet authorized the hurricane Sandy relief bill, even though the $150M to provide relief for those affected by the tsunami that destroyed fisheries in Alaska, and the $40M to repair Guantanamo facilities damaged by hurricane force winds are no longer in the bill. Why?
    Even worse, the House blocked the Violence Against Women Act. Why?


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