Goldman On Why A Second Stimulus Is Merely Months Away

Tyler Durden's picture

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.


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.

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Altan311's picture

A jobs bill after they kick the snot out of this market sounds about right. What's the good of all these new TBTF resolution authorities if you can't use em?

anynonmous's picture


TD  - I assume the above is a copy of the Goldman letter, do you have a link to it or PDF?



berlinjames02's picture

I was surprised by the 'jobs forum' bit too. I thought Biden had already formed the "Jobs Task Force", and it was his #1 priority after the election- or something to that effect.

I suppose these are the side effects of incompetents in power. (To be 'fair and balanced', I doubt McCain or Palin would have been any better.)

mule65's picture

One-n-done for Obama Claus.  Hope is a failure.

Master Bates's picture

I hope we get some jobs, personally.  Being unemployed really sucks.

It would have been nice if the original 787B went for jobs instead of in Goldman's pocket.

Anonymous's picture

You will not be getting jobs. The stimulus money goes to failing states, the FDIC, Freddie&Fannie, and Puff Daddy's Feed the Kids program cuz Michelle be approvin' yo, and the
Reverend Jessie say's:
Ahh, eeanie meanie a'minie mo, Puff Daddy's program be fo sho.

chumbawamba's picture

+Fried Chicken mutha fucka.

I am Chumbawamba.

Anonymous's picture

That is what's wrong.

Even those most devastated are merely posting here about hot it 'really sucks', and 'it would have been nice'...

Where's the outrage? The anger? The violence? The Protests in front of 85 Broad?

I don't feel your pain, but I have been unemployed in the long ago, and I recall I was a hell of lot more outspoken
and insane at the injustice of the situation.

You and other 20% need to take up a much stronger attitude
hopefully accompanied by some with a militia's view to government.

MinnesotaNice's picture

I wouldn't get my hopes up.  The last stimulus allowed us to create "busy work" resurfacing a lot of roads in our country... and if that is your line of work then you might be in luck... because with a second stimulus I am quite sure the remainder of our roads will be resurfaced in Summer 2010. 

WaterWings's picture

Get a teaching certificate and move to Chicagoland.

Harbourcity's picture

"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."

Drop in the bucket unless it's all going to California. 


A Man without Qualities's picture

Is it a second stimulus or a bailout for the Muni and CRE markets, which are the next things to fall? 

mrhonkytonk1948's picture

Why is it always "roads and bridges"?  Of course they need refurbishment, but how many boomers can drive a D-9?  If they want to [re-]create well-paying jobs, why not automate more of the government and require that it be done by US IT professionals?   OK, smirk and mutter under your breath about Smoot-Hawley if you must, but brazillions (sorry, an old Bush administration mathematical term referring to "many") of US IT jobs have been absolutely decimated by overseas sourcing.  Oh, baby...stimulate me.

Anonymous's picture

"why not automate more of the government and require that it be done by US IT professionals?"


alexmat's picture

" why not automate more of the government and require that it be done by US IT professionals?"




Anonymous's picture

computers, like guns, can be misused. This does not mean that all application of computing is bad. To wit, without them, we would not even be having this conversation.

Anonymous's picture

Fascinating link. The author's conclusion assumes that bureaucracies cannot be eliminated, and will automatically grow to consume a certain share of GDP. The human race is doomed if we allow that assumption to remain operative, because not only are the old bureaucracies growing like weeds, but we are creating new ones at an increasing rate.

SWRichmond's picture

Because a great many of the unemployed are construction; while admitting there are too many right now, ballooned by the phony home construction boom, they are normally useful people who actually make things.  Code can be written by a trained monkey in a grass hut with an internet connection.

HelluvaEngineer's picture

That same hut dweller can also build you a road or a bridge.  The quality will be about the same as the code they write.

cougar_w's picture

At least here in Cali, construction job moneys that don't go into the pockets of rich developers go to hire low-wage immigrant labor. Most of that money is then sent overseas.

The US middle-class is SO extinct.

walküre's picture

You are making a great point.

There's too much government that is too involved and too busy creating new ways to CREATE MORE GOVERNMENT.

No goverment official is ever going to reduce the size of government.

It's us vs. them. Either you're government or you're not. If you're government, you're trying to line up jobs for your friends and family and of course appear to be busy all the time so you don't run out of work.

50% of all government on every level is redundant. Period.

America wouldn't have a tax funding problem if 50% of all staff would get canned, 50% of all buildings be closed and 50% of all government vehicles stopped moving.

Automation has reduced the workforce in every other sector of the economy. Government keeps growing despite automation. Go figure.

Harbourcity's picture

Didn't I watch this movie already?  Don't remember it being all that great either.  Except for the part with the woodchipper...

Anonymous's picture

Yes, we have seen this movie. It was a two-decade epic called "Japan."

But, of course, all characters and events portrayed there are fictional and unrelated to anything having to do with our present circumstances.

Unscarred's picture

I finally found "Hope" that we can all take comfort in...

Anonymous's picture

GS are not in the game of guesswork.

buzzsaw99's picture

Yes, but if you listen to their public announcements you are still left in the dark as to true/false, ulterior motives, manipulations, whatever. GS owns the gubmint but they don't divulge anything useful to the general public.

Anonymous's picture


Anonymous's picture

GS is good at rescuing kittens.

Anonymous's picture

Yes. Them's good eatin'.

JuicyTheAnimal's picture

.....and then?


yeah but...then what?

Cognitive Dissonance's picture

Forgot incremental deficit spending, what about incremental failure?

Careless Whisper's picture

Does anyone even believe what GoldmanSachs says?

Anonymous's picture

You bet. The Bamster, Geithner, Bernanke, all those clued in so they know which way to 'bet' on a sure thing.

Stimulus is timed to 2010 election, to favor the current motley crew tugging on the levers of power for their benefit.

WaterWings's picture

You can believe the opposite of what they say after multiple layers of reverse psychology. If I were explaining it to an 8 year-old I'd say, "I know that you know that I know that you know that you know that I know."

koaj's picture

goldman does the lord's work. dont question them

they went long 5k call options on intrade on stimulus passage by march 2010

20yearRevolution's picture

Blankfein didn't really believe he was doing God's work.  He is just setting up for tax exempt status for the First church of Goldman...imagine the savings!

Daedal's picture

Tax Credits? 40,000 Troops to Afganistan? Looks like the only campaign promises Obama is keeping are those of McCain.

SWRichmond's picture

How about that.  Kind of makes you wonder, doesn't it?  Does it really matter who we vote for within the phony left-right paradigm? 

Anonymous's picture

If you have to wonder then you haven't been paying attention.

Anonymous's picture

Even the Caesars knew, two millennia ago, the danger of bringing a hardened army home to a restive populace. Hence the Forever War.

cougar_w's picture

... and the concept was updated to conform with modern reality in "1984"

Anonymous's picture

When are people going to get that there is only 1 party...the GS party.

Miles Kendig's picture

The crumbs of the corrupt.

cougar_w's picture

Very true.

But I'm left wondering: If the US economy is 70% driven by consumption patterns, and if those patterns are tied to a healthy middle-class willing to assume huge personal debts, but the middle-class are being ruthlessly parasitized into large scale failure -- then what will the corrupt have to feed on after the middle-class are gone?

Each other? I mean I'm open to that idea, a fair characterization of the European Middle Ages would have been "The rich first ate the poor and then they ate each other." But if I can picture that then surely others can as well and will seek to avoid that outcome.

Right? I mean, don't they have a Plan B once the middle-class is extinct? Won't that be the second half of the Obama administration -- building walls to isolate and preserve the elites? That and set up crude farming communes so the poor can grub out a meager existence and provide local-grown food for the twice-daily celebratory banquettes of the rich. Oh hey I bet there will be stimulus funds for that.


Anonymous's picture

Once a spender is in over his head on debt, there is no stopping him because default if the only option. So too with the USA. Now trillions do not shock anyone and the new normal is ever increasing debt and more and more Benny fiat money. Why doesn't the Fed just ask for the Fed governors pictures to be on our currency? Bernanke could be on a new $1,000 bill because when this is over, you will need many of these in your pocket and no fake copper pennies.

The path to fiscal ruin can be surprisingly fast. Change we can believe in has become change we can't believe. If the Chinese are upset about our fiscal policy, why isn't our Congress?

cougar_w's picture

[why isn't our Congress]

The first congress-critter to blink and say "no more spending to prop up the economy" will be the first out the door. Nobody wants to be the one seen as heralding the collpase of the voting middle-class. So they'll keep right on spending -- and getting elected -- while our Rome burns to ashes.

It's an end game. All the rules have changed. Everyone is edging warily toward the exits but talking up a good story so as not to look like a coward, while still being well-positioned for the run to the roof and the waiting choppers that will carry the lucky few to waiting estates in the Cayman Islands.


Winisk's picture

Chretien, a former Prime Minister of Canada, came into power with the campaign slogans of "Jobs. Jobs. Jobs." and "Putting our fiscal house in order." awhile back.  Seems like this will be the rallying cry for the next round of elections. More stimulus will be on the way. The first bought the positive GDP's, or jobless recoveries. Politicians can probably sell the delusion that more stimulus will bring the jobs back. It won't of course. An economy that is consumer driven is a non-growth strategy.