The Fiscal Cliff tax deal is not anything for Congress or America to be proud of. Much has been written about how little it accomplishes in terms of spending cuts (2 weeks worth of government expenditures) and about it’s lack of meaning in the context of our structural debt and liability issues (we’ve solved less than nothing, pop the blueberry Ciroc).
But what’s notable is what didn’t happen…the planes didn’t drop out of the sky when the calendar rolled over. The buildings didn’t crumble into the sea and a 1% or so GDP drag, while not thrilling, is far from a game-changer this year.
In the meantime, the investor class is pleased that they’re not going to tax the shit out of dividends or capital gains – both of which now top out at 23.8% factoring in the Obamacare surcharge.
Futures are up massively on the news as so many asset managers who had gone to cash now must leave the Cliff cellars they’d built in their backyards and do some buying. This despite the fact that February and March will bring us the sequestration battles and the real cliff fight – over the debt ceiling that started all this last year. Investors have chosen to ignore this for now.
But that’s not the good news.
The good news is that the predictability of rich white people in times of crisis can still be relied upon. Rich white people can always be counted on to do the most important thing for themselves when their backs are finally against the wall – preserve the status quo.
That is what they did in Europe last year – just as I told you they would last summer:
But here’s the part where I help you. Because while I have no special expertise or experience in forecasting the vicissitudes of core European diplomacy and socioeconomic policy, I do know white people. And I know wealthy white people, in particular. And wealthy white people, American or otherwise, can always be counted on to compromise at the last moment so as to preserve the status quo. And that compromise will typically involve whichever option is the least painful, even if it means that more work must be done in the future (the proverbial can-kick)…
And so eventually, no matter how scary the headlines become or how volatile markets become in the short-term, you can expect a compromise that the wealthy and powerful elites (read: the markets) can live with. You can set your Swiss watch by it. Keep this in the back of your mind when the bullshit artists come on TV or puke their newsletters into your inbox.
In Washington DC this week, as in Brussels last fall, the rich white people protected the franchise. It’s all well and good to debate whether or not tax rates should go from 35% to 39% but only up to a point. When the status quo becomes threatened by this debate, that’s when compromise occurs – not out of any sort of Kumbaya magnanimity, but because this has always ever been about survival of the ruling overclass.
When has it ever not been?
Going forward, use this heuristic as your map during future crises and watch how simply you can skip the show biz along the way and come right to the conclusion. No one except me will ever say this in public, but the big guys who stayed long throughout the rolling crisis avalanche of the past few years understand this instinctively and from vast experience thanks to their encounters with rich white guys in the wild.
The good news is, it still works. The predictability of wealthy white people is still intact.