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Goldman On Why A Second Stimulus Is Merely Months Away
Tyler Durden
Zero
Hedge
Friday, Nov 13th, 2009
Earlier today, Goldman came out with a harbinger
piece on why a second stimulus announcement is essentially a
formality. The administration has already promptly forgotten
the lessons from the recent elections which were a failure for
the Democrats, and a resounding vote against incremental deficit
spending. The people spoke, and they will have no more of it.
Alas, Obama is now stuck: any action he does to create jobs
and to rope consumers back into the clearance sale stores, will
be met with increased political disapproval and risk of a major
failure at both the mid-term and next presidential elections.
Yet, courtesy of his economic think tank, he can not leave the
status quo as the current situation leaves the economy on an
untenable course of 12%+ unemployment. In this case the lesser
of two evils is moot as both have the same likelihood of making
the "change you can believe in" campaign one for the
history books prematurely.
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Two More Signs that Additional Fiscal Support Is Coming
Since Congress enacted the American Recovery and Reinvestment
Act (ARRA) in February, there has been intermittent discussion
of a “second stimulus bill” (never mind the fact
that ARRA was in fact the second bill; the first one was enacted
in 2008). However, officials who raised the possibility of additional
stimulus always quickly backtracked or made clear that they
were not actually proposing additional fiscal support. This
has begun to change. We point to two particular statements in
the last few days:
1. Senate Majority Leader Reid (D-NV) was quoted in The Hill
newspaper (a Capitol Hill-focused publication) yesterday indicating
that the Senate will consider a “jobs bill” in early
2010. It’s not clear what such a bill might include, or
how large it might be.
2. President Obama announced this morning that the White House
would convene a "job creation forum" in December.
While the event clearly serves a public relations purpose, the
scheduling of such a high profile event implies there probably
will be some new proposals to go along with it.
This may be the set up for yet another round of springtime
stimulus in 2010, to be crafted in December and considered by
the Congress in its second session early next year. Interestingly,
this is the same timetable we've seen in each of the last two
years-- policy formulated internally in December, debated publicly
in January, enacted in February. If we do see a replay late
this year and early next year, it seems likely to take a bit
longer, and meet more resistance than the last two stimulus
packages, which moved surprisingly quickly through the legislative
process due to broadly held bipartisan concerns over the state
of the economy.
As outlined in last Friday's weekly, we expect $250 billion
(bn) in further fiscal support over the next three years, including
$75bn in 2010. However, we have generally assumed that most
of this would come from extension of current law policies, as
opposed to new stimulus measures, for two reasons: (1) over
the last several months there has been little appetite for explicit
"stimulus," though there remains broad support for
certain targeted policies, like the homebuyer tax credit and
unemployment benefits just enacted into law (worth $45bn of
the expected $250bn); and (2) the prior stimulus package included
most of the obvious ways to stimulate the economy, so extending
them is a more natural next step than coming up with new provisions.
However, last week's employment report seems to have changed
sentiment in Washington (and last week's election certainly
played a role as well, insofar as it highlighted the electoral
challenges for congressional Democrats that were already evident
in public opinion polls). So while another explicit "jobs"
bill looked like a long shot a week ago, the notion seems to
have gained momentum since. While the path such a measure may
take over the next few months is highly uncertain, among the
(oversimplified) implications of a more explicit stimulus effort
early next year we see the following:
1. New measures would become easier to pass. If Congress actually
takes up a new stimulus package, it becomes somewhat easier
to enact new measures, rather than just extending unemployment
benefits or some of the other things under consideration. A
hiring tax credit, lending incentives, and some way to provide
additional timely benefits to consumers in 2010 appear to be
front of mind for staff trying to present options to their members
of Congress, though there don't seem to be many concrete ideas
at this point.
2. Fiscal assistance to state governments and infrastructure
spending becomes more realistic. We have penciled into our estimates
$25bn in additional fiscal aid to state governments in 2011
and around $30 billion in additional infrastructure spending
over 2010-2011. Doing these on a stand-alone basis is harder
than, say, extending the homebuyer tax credit or unemployment
benefits, because there aren't as many direct beneficiaries
(who vote). Passage of an explicit stimulus jobs bill would
raise the odds of more action in this area, particularly with
regard to state fiscal assistance.
3. Additional tax relief for consumers becomes feasible, if
not likely. An unresolved question has been what Democratic
leaders might do to directly help consumers (i.e., voters) next
year, prior to the election. So far, the main items discussed
have been (1) extended unemployment benefits (incl. health subsidies),
(2) another $250 payment to seniors in early 2010. There has
been surprisingly little discussion so far of additional tax
relief to put money into consumers' pockets, but it is easier
to see something like this getting added to a "jobs"
package.
4. The rest of the agenda shifts. In the campaign of 2008,
the major items on the agenda were healthcare and energy/environment.
Both sides of the aisle now realize that if Congress can influence
the election at all, it will be through (1) fiscal policy and
(2) financial reform. The other issues – the pending health
bill, and even more so climate change – may no longer
be seen as "must pass" legislation. In the case of
health reform, so much time has been invested in it, and in
explaining the dire consequences of not passing it, that it
is unlikely to be abandoned, but it seems more likely than ever
to be scaled back. In the case of energy/environmental legislation,
the odds increase further that any legislation enacted in 2010
will focus more on subsidies and renewables and less on increasing
the cost of carbon emissions.
5. Increased focus on laying down markers on medium term fiscal
restraint. To the extent we actually see a major new push on
stimulus; we will probably see additional efforts to show a
credible path to fiscal consolidation over the medium term.
Note, for instance, that today's announcement of a "jobs
summit" coincided with the leak of plans for “setting
aside a chunk [of unspent TARP funds] for debt reduction,”
according to today’s Wall Street Journal. (This is mainly
cosmetic, as TARP funds that have not been spent have also not
yet raised the level of debt, though they could do so in the
future.) Of course, it also coincided with Treasury's report
on the October budget deficit, which showed a $176bn shortfall
to begin the new fiscal year.
"When the people find they can vote themselves
money, that will herald the end of the republic."
- Fall Of The Republic - Buy
the DVD here
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