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Congressional Impasse Could Stymie Economic Recovery

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What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you can do.

The cold, hard facts
The New York Times is reporting that 3 million people could lose their unemployment pay by Jan. 1 if Congress doesn't pass a bill to extend benefits. Also in the bill is language to extend the payroll-tax cut, also set to expire on Jan. 1.

Some context
Passed by an overwhelming, bipartisan majority in the Senate, the bill seemed such a lock in the House of Representatives that majority leader Harry Reid sent Senate members home on their holiday break. To everyone's surprise, however, the House voted the measure down, largely along party lines.

What's next
With millions set to lose their unemployment benefits on Jan. 1, and millions more set to see their paychecks decrease as the payroll-tax cut also expires on Jan. 1, it's not inconceivable to think that the oh-so-fragile recovery the country seems to be experiencing could come to a halt.

Unemployment benefits are a back-door method of economic stimulus. So is the payroll-tax cut. Money that's not leaving, or money that flows back to, the federal government is money that's not circulating through the economy and boosting growth. Look for big, consumer-facing companies -- companies that depend on extra spending money in people's pockets -- to potentially take the biggest hits, e.g., Starbucks (Nasdaq: SBUX  ) , McDonald's (NYSE: MCD  ) , Ford (NYSE: F  ) , Apple, and Amazon.com.

In the meantime, keep your fingers crossed for a congressional Christmas miracle.

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Fool contributor John Grgurich loves the smell of newsprint in the morning, but he owns no shares of any of the companies mentioned in this column. The Motley Fool owns shares of Starbucks, Ford, Apple, and Amazon.com. Motley Fool newsletter services have recommended buying shares of McDonald's, Apple, Amazon.com, Starbucks, and Ford and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a scintillating disclosure policy.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 21, 2011, at 11:54 PM, MichaelDSimms wrote:

    If our economy depends on unemployment payments in order to grow. We have some serious issues. I hardly think the unemployed are buying Starbucks coffee, Fords or Apple products, or that matter going on buying spree's at Amazon, they may perhaps be eating at McDonald's. Get real.

  • Report this Comment On December 22, 2011, at 9:53 AM, TMFGrgurich wrote:

    I agree that we need more than unemployment wages and a 2% tax cut to stimulate the economy, but every little bit helps right now.

    This recovery, if it really is one, is terribly fragile. And if it's not the money itself making a difference, it's the consumer confidence that comes with knowing you have the benefits to rely on, or that extra $100 in your pocket every month.

    Thanks for the comment. Happy holidays.

  • Report this Comment On December 22, 2011, at 2:52 PM, GordonsGecko wrote:

    Pray tell us all... what HAS congress done this year that has actually helped any kind of recovery? Seems to me that all they do is point fingers and blame in an effort to make themselves look the lesser of two abominable evils.

    The two party "system" is nothing more than a ponzi scheme to defraud the American people of their wealth, their health and their dignity.

    Until the dirty money is removed from D.C., there is truly no real incentive for politicians to do ANYTHING that is in the best interest of the public...unless that something is needed to get re-elected and keep the gravy train rolling.

    What will 2011 be remembered for politically?

    1. The way that politicians lobbied and used the debt ceiling as a bargaining tool instead of working together for the common good of the people and the economy.

    2. The not-so-subtle way in which the OWS people were essentially and eventually quieted. Their freedom of speech and expression were stripped right before our eyes. They may have been unorganized and leaderless, but their hearts were in the right place. They should have been in DC and not Wall Street, but at least they spoke up. They KNEW and shouted how the system is rigged... only to be silenced by the very government that is supposed to protect their rights. An utter atrocity if you truly understand what really happened.

    3. Yet another game of political grab-ass between Rep's and Dem's...each trying to see who will blink first and playing games so that they can "blame" the other side for the mess come election time. It's not about unemployment benefits or SS tax relief. It's about getting elected, stupid.

    There is nothing Foolish about how our government continues to fail the American public. All I see are a bunch of fools....who can't see that eventually you can only push the crowd around for so long.

    The day of reckoning is coming...and it won't be pretty. Don't rely on the government to save you. Save yourselves. Educate yourselves. Live below your means. Invest as much as you can. Invest wisely.

    Stay Foolish.

  • Report this Comment On December 22, 2011, at 2:59 PM, whereaminow wrote:

    Well if the Toilet Paper of Record says it, the opposite must be true.

    I'm so glad I don't look to the State to care for me from cradle to grave. It must be so incredibly demeaning to have an overlord who quibbles over the pennies he will return to you from the dollars he has previously stolen. It must be even worse once you consider that the functionaries making these decisions would very likely lose an intelligence contest with a monkey.

    That's your overlord. How did you let this happen?

    David

  • Report this Comment On December 22, 2011, at 3:07 PM, GordonsGecko wrote:

    Drunk monkeys at that....

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