One part of the “fiscal cliff” deal that received little attention was the expiration of the middle class payroll tax cut. The tax increase occurred immediately and hit workers right in the paycheck.

While the lower classes may not drive the economy their spending does have influence:

A payroll tax increase of 2 percentage points has hit workers who have received their first paychecks of the year, and has many determining how they will cut back in 2013.

The tax increase came when Congress decided not to renew a temporary payroll tax reduction as part of the fiscal cliff negotiations at the end of December. The rate returned to 6.2% as a result.

While it is unlikely that the income tax increase on those making $450,000 will have any negative impact on the economy, the lower paychecks for the working class are likely to not only reduce consumer spending in the short term but shift the mindset of consumers towards more saving – a dangerous notion in a period of austerity and low growth.

Nearly a third of store managers say shoppers are cutting back on spending due to the payroll tax increase, according to a survey by retail industry research firm Merchant Forecast of 52 store managers in malls across the country. The survey was conducted the second weekend of the month and store managers based responses on foot traffic and sales figures, among other things.

And all this before there are further cuts to government spending and benefit programs. Austerity hasn’t worked in Europe and it won’t work here.

The budget battles in Congress have an interesting, if not wholly unexpected casualty, the Defense Department. Due to budget uncertainty DoD has been forced to slow down its notoriously extravagant contracting process:

Speaking to soldiers in Vicenza, Italy, last week, Defense Secretary Leon Panetta explained the Pentagon’s “burn rate” — the speed at which the department has been spending its cash — was based on the belief the Pentagon would eventually get a budget that resembled what it requested last February for the current fiscal year.

The longer Congress waits to resolve sequestration and pass a budget for 2013, the faultier that assumption seems, so the Pentagon is taking several steps to spend only the money it absolutely has to.

Might this finally force responsible budgeting at the Pentagon? Since 9/11 the Defense Industry has gone on an incredible binge with DoD happily shoveling money out in contracts. Now it seems that even the threat of cuts has lead to fiscal discipline in an institution that previously came up trillions short in an internal audit.

Ashton Carter, Deputy Defense Secretary, has set a cap of $500 million in spending on contracts before the contract must be reviewed by senior DoD staff. Not surprisingly, this new policy has lead to some gamesmanship.

On Dec. 29, the Air Force awarded Lockheed Martin a $1.9 billion contract for the Advanced Extremely High Frequency space vehicle, a new communications satellite.

Under Carter’s new guidance, this contract would have required review by Kendall, but according to Gen. William Shelton, head of Air Force Space Command, contracts of this size come along only a couple of times a year, at least for his command.

“We’ve got several that are just coincidentally $499 million,” Shelton joked with reporters at a breakfast in Washington on Thursday.

Nonetheless, the issue going forward is whether such phenomenal amounts of money should be spent for defense while austerity programs are launched against the poor and middle class. For the moment the Pentagon is keeping its budget in check.

Lloyd Blankfein

The farm belt has been facing one of the severest droughts in its history and recent forecasts conclude that the next 3 months are going to make a bad situation worse. The situation has deteriorated to the point where hundreds of counties are being labeled disaster areas due to drought:

The U.S. Agriculture Department cited drought and heat on Wednesday in designating 597 counties in 14 states as primary natural disaster areas…

Drought shriveled crops across the farm belt, leading to an expected rise in food prices in 2013, according to USDA. It also turned forests of the mountain West into tinder stands that exploded into wildfires over the summer, scorching millions of acres and destroying hundreds of homes.

Meanwhile back on Wall Street, Goldman Sachs has been harvesting mighty profits from food shortages:

Goldman Sachs made more than a quarter of a billion pounds last year by speculating on food staples, reigniting the controversy over banks profiting from the global food crisis…

Goldman made about $400m (£251m) in 2012 from investing its clients’ money in a range of “soft commodities”, from wheat and maize to coffee and sugar, according to an analysis for The Independent by the World Development Movement (WDM).

This contributed to the 68 per cent jump in profits for 2012 Goldman announced last week, allowing it to push up the average pay and bonus package of its bankers to £250,000.

Now that is a fun redistribution of wealth. Drive the price of food up and pay the profits in bonuses to yourself. Starvation as a business strategy.

Wall Street apologists would like to point out that speculators have always been allowed to do this so the focus of solving the global food crisis should be solely on climate change and new innovations in the agriculture industry. While there is no doubt that climate change is the principal cause of the drought – NOAA says seven of the last ten years were the hottest in history – the resulting food shortage has been more severe due to speculators. And contrary to popular opinion this practice was not always allowed.

Since deregulation allowed the creation of the commodity funds that allowed many speculators to invest in agriculture for the first time, institutions such as Goldman have channelled more than $200bn of cash into the area. This investment has coincided with a significant and sustained rise in global food prices.

It’s good to know that not everyone will be suffering from the consequences of climate change, in fact, Wall Street will prosper.

Photo by Asa Mahat | Fortune Live Media under Creative Commons license