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So With QE2 Now Dead Until 2011, What Fiscal Stimulus Measures Lie In Store?
Today's NFP number means QE is now firmly off the table until 2011: monetary stimulus is stuck with QE lite for at least 3-4 months. Incidentally, this was the big catalyst that everyone was looking for to go all in on stocks. And with the economy still deteriorating, the only option is fiscal stimulus, but don't call it a stimulus as that costs political brownie points. So what are the options that Obama has before him? Goldman's Alec Phillips highlights the options which can be summarized as: a hiring credit, a payroll tax cut, a small business tax cut, bonus depreciation, and an extension of the Build America Bond program. His full thoughts below.
Speculation that the administration may propose further fiscal measures continues to increase. An article in today’s Wall St. Journal suggests that the White House is compiling a list of fiscal policy options to support the economy. This comes on the heels of discussions the White House said the president had last week with advisors to explore “next steps,” and his statement on Monday that his economic team “is hard at work in identifying additional measures” that he would be addressing these proposals “in further detail in the days and weeks to come.”
As we noted last week, the opportunity for fiscal policy to provide more support is limited by political constraints (see “Could Fiscal Policy Do More? US Daily, August 26, 2010). But that doesn’t mean that the administration won’t propose additional measures. If the president decides to propose additional measures, it is likely that he would chose to do so next week following what is likely to be a weak payroll report on Friday (we expect private sector payrolls to be flat, and overall payrolls to decline by 125,000) and a few days ahead of the start of the last congressional work period prior to the election.
The main decision the administration and congressional Democrats must make is whether to propose additional spending on investment projects or to focus on various forms of tax incentives. The middle ground that could be taken is to focus on policies that are implemented through the tax code, but that incentivize hiring, investment, or some other behavior. Among the options that seem most likely to be considered:
A hiring credit: Congress enacted a credit in March 2010 that exempts employers from the 6.2% paying Social Security payroll tax on newly hired employees through the end of the year, and provides an additional $1,000 for employees retained for 52 weeks or longer. The cost of this credit is reasonably modest (the Treasury expects hires thus far will reduce payroll taxes by about $6 billion) and it could be expanded. The most effective expansion would likely be to simply lengthen the period that payroll taxes are waived, so that employers have somewhat longer term certainty regarding their labor costs. Previous congressional proposals included an income tax credit (rather than a payroll tax exemption) of several thousand dollars for a new hire, which has the advantage of simplicity but would tend to focus the incentive effects mainly in the lowest-paying parts of the labor force.
Payroll tax cut: Like the hiring credit, a payroll tax credit already exists under current law. The 2009 Recovery Act lowered tax liabilities for individuals with incomes under $100,000 by roughly $400 per person, for a total of $60bn in annual tax savings. The administration proposed extending the Making Work Pay (MWP) credit, as it is known, it in its FY2011 budget, but there has been relatively little discussion of extending it, perhaps because many taxpayers never realized they received it in the first place. If the administration makes a proposal in this area, the most obvious would be to expand or modify the existing MWP credit, potentially by simply raising the threshold at which the Social Security payroll tax starts to be applied.
Small business tax cut: Policymakers continue to focus on the challenges facing small businesses, so efforts in this area seem likely. First, the small business bill that is currently pending on the Senate floor should pass by mid-September. As a reminder, this would provide modest tax relief for small firms (roughly $7 billion over ten years) and would provide up to $30 billion in capital to banks to backstop small business lending. The most obvious option would be to increase the threshold for small business expensing, from $250,000 currently to a much higher figure—potentially in the millions—and make firms with greater amounts of investment eligible (the incentive currently phases out for firms with investment greater than $800,000). A less likely option would be some type of broader tax relief for small business. This would neutralize any concern that the expiration of tax rates on higher incomes will hit small businesses, but would have a lower bang for the buck if it does not incentivize hiring or investment.
Bonus depreciation: The administration has already proposed 50% bonus depreciation for 2010, following its expiration at the end of 2009, and this may be enacted as part of the pending small business legislation. To the extent that the administration wants to do something new in this area, it is possible that they could simply raise the percentage that may be expensed in the first year.
Infrastructure: The president has clearly identified this as a priority in recent comments, and already has proposals on the table to address infrastructure investment: extension of the Build America Bond (BAB) program, but at a slightly reduced subsidy rate, and a national infrastructure bank that would subsidize private investment in large-scale infrastructure projects that meet certain criteria, including through issuance of government guaranteed debt. Renewable energy incentives may also appear on a potential list of policy options, though we aren’t aware of any specific proposals in this area beyond further expansion of tax incentives.
One thing that appears less likely to be on the president’s list is the extension of the upper income tax cuts. While a compromise on the upper income-focused portions of the expiring 2001/2003 tax cuts may be necessary in order to extend the rest of the expiring tax cuts—not to mention to enact any new stimulus measures—such a proposal still seems unlikely to come from the Obama administration. Administration officials have downplayed the effectiveness of an extension of tax cuts for upper income over the last several days, with outgoing CEA Chair Christina Romer indicating as recently as this afternoon that the long term fiscal cost that creditors might extrapolate from a short term extension would be significant compared with the minor effect on consumption that an extension would have. But while the administration doesn’t appear to be considering a surprise endorsement of upper income tax cuts, it is nevertheless possible that congressional Democrats might opt to support it, in order to ease passage of the low- and middle-income extensions.
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JPM is screwing gold harder than a black girl in a thong at a redneck garden party
Gotta assume it's payback time with what Goldilocks (rumored party) did to 'em around last options expiration.
T'is a beauty to behold, the gnarling and gnashing, the mating of male wildebeests.
um, guys, not so much....days of old, they could take this down twenty bucks in a heart beat. today they are fighting for every dollar....
looks like the peasantry is waking up and buying...
the days of piggybacking on the JPM theft are over....
they took it down 10 though didn't they?
I thought it was natural though, because the market turned a corner
It's over. Last month options expiration was 3 dudes blowing a curly blower and then passing out behind the couch. This one was 2 dudes yelling woot and going unconcious. Gold takedowns don't hardly exist any more.
um, guys, not so much....days of old, they could take this down twenty bucks in a heart beat. today they are fighting for every dollar....
looks like the peasantry is waking up and buying...
the days of piggybacking on the JPM theft are over....
I hope so. Gold and Silver look very strong.
Remember, the latest trick was to pull all bids at once in collusion with each other and watch the price go poof. Perhaps the average Joe screaming at the CFTC halted this.
Of course we aren't flies on the wall so this will only be obvious in hindsight.
All part of the plan.
Edit @ 11:40, Not all plans work...
Sir, your vivid eloquence humbles me!
Not funny, not smart. You are an asshole.
not funny if you're the one with the thong :)
I hate tight ass people like you who always need to trash every joke even if it might be a bit coloured.
It only means your a racist you know. If your self esteem is right, you would be able to laugh with it. Nomater if it's a coloured joke.
I think any joke about any religion, colour, race or whatever is allowed. It's people like you that should be shot because you're the kind that starts wars for even a "unproper" bumper sticker.
Tight ass mother fucker!
ps: If your black, add: Tight Black ass mother fucker!
ps2: If your white, add: Tight White ass mother fucker!
ps3: If your Yellow: go see a doctor, that can't be good :)
Yeah, great, whatever.
You've got to stop typing comments while you are excited. Seems you've got a bigger hard-on over this than you got that time your boyfriend was chosen to marshall the gay mardi gras.
Either that or you really are a linguistically challenged, bone-headed doofus who failed second grade spelling class.
Oh boy, you must have a broom stuck up your ass.
Gold down -9 right now? Big fukin deal. And BTW for everyones bull celebration, DOWs barely up 100. What a bunch of idiots.
yeah well right now that "wild mountain honey" seems to be "givin' as good as she gets" and leavin' poor JP with an ever growing need for more.
Now THAT is funny and smart.
I am a gold bug but this could be natural market action.
No wonder you got junked. Please use the term "Appalachian American" when referring to those of the redneck persuasion.
So the solution is to HIRE people to BUILD STUFF and/or PROVIDE SERVICES for consumers who have NO MONEY?
Sounds like a U.S. Goobermint plan to me.
America, America, God shit his grapes on thee..
obama and ben have to live with their lies; if things are so "good" and improving, cant sell QE
LINKED IN LARRY
http://williambanzai7.blogspot.com/2010/09/larry-summers-linkedin-profil...
+ lots
Now that is truly funny
Looks like we gapping up right over the 150-day on all the major stock indexes:
Looks like another "Dash for Trash" run into the elections.
Expect the absolute worst sectors to run the fastest:
- homebuilders
- mortgage insurers
- specialty retail
- hotels, cruise lines, etc.
if it lasts more than a half hour......the chinese warned about currency depreciation.....stimulus is now dead....which is what everyone expected would give the banks another round of free money to play with....
so, without free money and without more money to steal from the peasants, who is going to be bidding up the stocks?
other than Ben?
I dont get it, hype more free money, then lie about jobs, so now no free money to the banks and they just cling by fingernails expecting retail to jump in? It wont happen!
As idiotic Helicopter Ben and Timmay may be, they know that it is impossible to maintain the assets at their current evaluations as long as the only growth is the printing press. They want equity liquidation to shove off their worthless UST in a panic. Congress and O will come begging to the Fed "Save us, save us!!" and that is exactly what they will do with helicopters printing into the banks.
Prepare for mass asset liquidation over the next few months!
where have you been, you are missed.
All I Ever Really Needed to Know I Learned in Zero Hedge
"The trend is your friend"
Can you make your point without this clutter.........your point "ha ha you got caught short and the market is running".........point made now stfu........oh don't take it personal blah blah blah........just stating fact
i love it when girls talk dirty
Interesting, volume has an inverse relationship to the price.
^Now that is trash
Had the administration embraced deflation instead of trying to fight it, the contraction that they postponed by 'stimulating' and 'bailing out' us out of would have completed by now. All they did was realocate, malinvest, creat moral hazard and ultimately destabalize the economy even further. Worse still, they continue to think they're doing the right thing. Indeed, this is the definition of insanity.
If by "completed" you mean defaulted on national debt, killed the dollar, and ruined the civilized world, then yes...
Those slim jims are f'ing up your taste buds. FYI, Medicine is not supposed to taste good.
I dunno, it just kind of reminds me of the people that blow past me on the road, only to be stuck in a traffic jam 1 minute ahead... why be in a hurry to slow down? I'm not sure an immediate collapse is any more preferable to a collapse a few years later. Either way, nonperforming assets are going to be liquidated and we'll be in the same shape for regrowth...
I agree it would have been the moral thing to do... and we can still make that decision... but, in the end, I'm really not sure it matters too much.
The only thing I have any reservations about is the longevity of can kicking and whether it allows a consolidation of power so strong it endures credit collapse. I realize this is largely impossible in a credit collapse of our proportions, but it's an off chance that I do not want any part of...
MESHUGGE
http://williambanzai7.blogspot.com/2010/09/meshugge.html
Some blog said the other day that the dynamic has changed, at least on the current leg up, Large buyers are waiting for small dips to buy gold and silver. Silver just punched JPM back. Pass the popcorn.
Silver is king. Industrial use assures depletion. Cheap price assures more liquidity if you were to actually conduct purchases with your hard metals. And, of course, Gold does not kill vampires.
September 2, 2010
"If administration officials can agree on a policy path, it is not clear that it would be approved in the current environment on Capitol Hill. And even if Congress did approve new measures to bolster the economy, they would probably come too late to make a difference in the lives of recession-weary voters before the midterms.
"Substantively, there is nothing they could do between now and Election Day that would have any measurable effect on the economy. Nothing," said the Brookings Institution's William Galston, who was a domestic-policy adviser to President Bill Clinton."
http://tinyurl.com/24smaso
You know, let's pause a moment.
Everybody's expecting today's speech to be filled with highly detailes, specific, well thought out economic measures focused solely on boosting economic growth, all of which entail some tax related relief, specifically for businesses.
When's the last time that we heard his Majesty (not that he isn't eloquent, my God, he's an exceptional speaker) Publicly Concede Tax Relief to Business and or give a detailed, coherent economic presentation?
More likely another round of princely Hope and Promised Land? More political pablum? In any case, what can he really do, alone without a torturous legislative battle, pre-elections? Mayhaps increase the confusion? Hmmmmm? Mayhaps a short term bullish response today, soon to be realized that there still are not healthy, prosperous, upbeat consumers out there?
....and lessons on how to properly smoke and enjoy Hopium.
Knuckles I think its all CRAP and it will implode suddenly right on all their heads!
I may be in the minority, but I hate Obama's speaking style. The way he clips off the last word of every sentence like it's the last word he will say. The stupid anecdotes he always brings up about some working class stiff from Allentown, PA trying to start up a wind turbing company. I've reached the point 18 months into his administration where he's reached GWB levels where I can't listen to him anymore
I don't mind his style, but there is no substance behind the words. It's just noise to me.
I thoroughly enjoyed visiting Rome again. It's comforting to know that, soon enough, TPTB will make sure that I can get it all right here and not fuss with all that travel.
unfortunately drywall, chipboard, and engineered hardword don't age as gracefully marble and granite - the ruins of our civilization will look more like a garbage dump
Aint that the truth. My father, one of those old time master carpenters, once said modern building materials are designed for installation by less skilled workers. New materials and innovation allow employment of less skilled workers (cheaper) to put up a house in less time. Everytime I drill into water damaged chipboard, I think of him saying that.
The only given in stimulus land is the continuing give-away of free money to banksters to ensure the large bonuses so that it can trickle down.
After Q.E 2.0 Lite, 'Stimulus Lite', what else in store ??
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/02/AR201009...
It warms my heart that ZH is such a fan of GS research. I know most of the GIR publishing analysts; they are smart, hard working and do their best at making insightful calls. It really is nice that they are appreciated here on ZH.
I sometimes get the impression that TD is a GS plant.
TD is not his real name of course.
Since May there is a pattern developing on DOW where we are touching the upper and lower Bollinger bands with every swing...
We are into the 6th swing now and target by the manipulators looks to be set at 10600-10700 levels..
May be this is the only way left for the banks to show profits now...
Lets us see till what time this goes..
I get the feeling that a large deal has been made, well above the ranks of Presidents and Prime Ministers. The peons will learn the details in due course, but for now Mr. Market is our only indicator.
The philosophical issue is that the current US administration is fighting the depression instead of treating it as a part of the economic cycle and working with it. Ultimately, the US government is working against it's own people if it's trying to get them to consume with resources they don't own ie., more debt. There was a reason savers were rewarded in the past. Have we forgotten why?
President Obama and his administration fear a repeat of the 1930's - racism, division, strife, radical politics, etc... How little faith your politicians have in you the electorate. I think americans left to their own devices will get along just fine. In other words I call Bull Shit on the fundamental premise of a depression being inherently bad. It is bad for some. Those that made poor decisions.
So, let's mitigate the worst of the pain, make sure nobody starves to death and get on with life and the economy because all this delaying is much worse than the actual impact of just letting the economy decide what it wants to do.
There will be no QE2.0. nor QE lite. There might appear to be, but that will be just an illusion. What we're going to see now is more accurately described as economic triage... and not for the welfare of the nation, but for the continuing power of the current governing elite.
DC has just about given up on jumpstarting the economy in the near term. What they will do instead is protect themselves the best they can. By "themselves" I don't mean Ds or Rs, I mean the overall regime of Rule by Technocrats that arose in the post-GD/ post-WWII years.
The one thing they must maintain is the allegiance of the core... they absolutely must guarantee the paychecks and pensions of the members of the governing elite. They absolutely must sustain the privileged status of the financial sector, college profs and adminstration, government workers, and the "C" level staff of big business. That is the core of the status quo; those are the people who thrive in this rigged system. They cannot afford for their core to become dis-spirited; they cannot afford the core to begin questioning the whole thing... if these elites cannot even guarantee their own individual prosperity, why should it continue to exists?
We saw the first (and easiest) example of that today with the jobs report and its CGI birth/death numbers. They can lie like that for while, and it may buy them a little time. Any lies can be quietly unlied after November.
The second thing they will do is continue propping important assets. Not for the benefit of society as a whole, but to maintain the pensions, paychecks, and net worth of the few. Stocks and housing will be manipulated upward, ironically bond rates will be kept low (to pretend they can be repaid instead of defaulted), and stimulus will be state government-centric (like infrastructure) Even direct aid to individuals will be sacrificed in order to fund state budgets (teachers vs, food stamps, etc...) 'cause after all, where are the poor and unemployed going to turn except for big government?
They will view the coming electoral bloodbath as bad, but sadly unavoidable. They will concentrate on undercutting any major structural changes the newcomers might want to implement; they'll allow them to play budget games for a few years, but they know the new guys will be sufficiently coopted soon enough.
In summary it'll be like the old days of the Soviet Union; the government will protect the Party first and the Party will then protect the government. Take care of your own. Economic triage.
DOW chart update:
http://stockmarket618.wordpress.com
I don't really see any large fiscal actions given that ARRA is in the sweet spot, see:
http://www.recovery.gov/Pages/home.aspx
Actually, I cannot understand the problems with allocating the remaining funds. ARRA allocations have somehow slowed down over the past 4 months. Does anyone know why?
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After the elections the focus will probably be on the Bush tax cuts.
If "officially" we go into negative GDP territory, given the amounts of money spent on stimulus, all credibility will be lost from both the Admin and FED. The once stable symbiotic relationship will just degrade into finger pointing.
It will be interesting to see who places blame, and how extending failed policies will be justified. It should be good for a few laughs.
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It will be interesting to see when the politicians realize that the solutions are not political. By inaction they will wait for crisis, and then look surprised. This is our political legacy. A disservice to the people. The theft of a nation.
Mark Beck
QE II dead? How are they going to pump this market until November without it?
Prediction - The equities will finally crash before November.
Why? -
BTW - what a surprise that at about 8:30 as NFP is released, gold and silver take a big hit. If Andrew Mcguire day trades, I hope he made a few bucks ... quickly, because this time, both gold and especially silver came roaring back.
Stimulus implemented by the gubbament does not help working class dogs, those middle class americans who pay the monthly mortgage on time and other debts. The people who have PRIVATE SECTOR JOBS are getting punished for doing the right thing. Tarp rewarded evil doer bankers, and fat politicians, loan modifications supposedly benefited the liar lone crowd, who can't pay the bills. A loan modification should be presented to working class dogs like me to avoid the expense of refinance of mortgage. The game is fixed to punish workers and reward scum.
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Mis-fire.