JP Morgan: "Fiscal Policy Will Cut Our 2.7% 2012 GDP Forecast To Sub 1%"

Tyler Durden's picture

Sorry Hatzius, you snooze you lose. Your position as the most anticipatory, if far-less than credible (courtesy of your horrible December 2010 call) econo-forecaster on Wall Street has just been relinquished to JPMorgan's Michael Feroli who has been eating your breakfast for the past two quarters. Feroli, who yesterday warned that NFP could come in well short of the firm's forecast 45,000 on Friday (to be followed by his colleague telling Bloomberg TV a negative print is quite possible), has just fired the first shot not at merely 2011 GDP, but 2012. As a reminder, Jamie Dimon's firm had previously expected a 2.7% rate of economic growth next year. Well, it may be time to cut that to sub-1%! Quote Feroli: "All in all, by our estimates federal fiscal policy will subtract around 1-3/4%-points from GDP growth next year. Given that GDP growth has been 1.6% over the past four quarters when fiscal policy has been much less of a drag, this doesn't bode well for next year. There are elements of uncertainty in our 1-3/4%-point drag estimate, and the largest such uncertainty is probably political, as some measure could get extended. Respecting that uncertainty, it does appear that fiscal policy poses a downside challenge to our projection for 2.7% GDP growth in 2012." That's right: Jamie Dimon is right now on the phone with Bernanke screaming at the bald Princeton historian that his chief economist anticipates sub 1% GDP in 2012 unless the Fed starts printing. And printing it shall start. Remember: FOMC - August 9. Set your calendars.

Full note:

Subsequent to yesterday's short note on the debt deal we have since received the CBO's score of the budget package. That deal cut future deficits through two avenues: already-decided caps on discretionary outlays, and yet-to-be-determined spending cuts and revenue increases recommended by the yet-to-be-formed Select Committee on Deficit Reduction. The CBO only scored the first of these two measures. As far as near-term implications, CBO foresees in 2012 a $21 billion reduction in outlays relative to the March baseline. Assuming an output multiplier of 1.0 -- which would be at the low end of the range of econometric estimates -- this implies about 0.14%-point less GDP growth next year.


Regarding the cuts that CBO didn't score, one of two things can happen: either the Committee successfully finds $1.5 trillion in deficit savings over ten years, or they are unsuccessful and sequestration automatically reduces spending by $1.2 trillion evenly over ten years beginning next October, with the onset of fiscal year 2013. In the former case, if we assume the cuts ramp up slowly, as is the case with the discretionary caps, then this might add about another $20 billion of fiscal tightening in the coming year. If the latter, we would also see spending decline by a similar amount, though all back-loaded in the last quarter of 2012. As such, regardless of how the Committee fares, it appears that a first rough estimate is that the total tightening implied by the recent legislation would subtract about 0.3%-point from GDP growth next year.


This drag may appear fairly small, but it is on top of the substantial tightening that was already in place prior to the passage of the debt deal. Most of that fiscal tightening comes about through the automatic expiration of temporary stimulus measures. The table below details those measures, the largest of which is the one-year 2%-point payroll tax holiday, which expires next January. Other large programs that are scheduled to expire or phase out are emergency unemployment benefits, accelerated depreciation, increased transfers to the states, and much of the remaining spending associated with the 2009 Recovery Act. All in all, by our estimates federal fiscal policy will subtract around 1-3/4%-points from GDP growth next year. Given that GDP growth has been 1.6% over the past four quarters when fiscal policy has been much less of a drag, this doesn't bode well for next year. There are elements of uncertainty in our 1-3/4%-point drag estimate, and the largest such uncertainty is probably political, as some measure could get extended. Respecting that uncertainty, it does appear that fiscal policy poses a downside challenge to our projection for 2.7% GDP growth in 2012.

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wang's picture
wang (not verified) Aug 2, 2011 2:03 PM

All in all, by our estimates federal fiscal policy will subtract around 1-3/4%-points from GDP growth next year


but I thought the Boener/Obama sell out had no 'real' cuts in it


(edit) I forgot Jamie and Obama have a thing going, but that would never influence one of JD's economists

bigdumbnugly's picture

and i'd have to say michael feroli was in turn scooped centuries ago by a few ancient mayans.

Michael's picture

This is sector warfare. Private sector vs public sector.

The public sector will never suffer the pain of layoffs as the private sector does. And why should they?

I just thank god the complete and total economic collapse trajectory has not been altered.

I need to have the amount, of catastrophic economic destruction in it's final phase, maximized for my own entertainment thrills down the road. Got It?

I sure hope the Bernank starts QE3 soon.

rocker's picture

"666"  Remember that number. S&P is going back to it thanks to Senate Republican Leader McConnell. 

McConnell just shut down the whole stock market economy. Oh well, it is not the real economy anyway.  That part is even worse now.

Toma Haja's picture

Which sector would you put the TBTF banks?  The debt ceiling increase, puny jobs reports, ongoing market collapse, PIIGS, consumer numbers, ISM are just pieces of the puzzle all coming together to reveal the Big QE3 Picture.  Which is just another step in the Really Big Picture of ObamaBankCare.  Wouldn't a sound and prosperous private sector support a strong public sector and stronger banks in the long run? Is that so hard for our "Elites" to comprehend?  Is economic collapse the Really Really Big Picture?

To paraphrase that New Orleans NFL coach (sorry, senior moment) "Growth?! Growth!? Are you kidding me? Growth?!!"

hambone's picture

DA Doooooh -

1:14p Obama eyes payroll tax-cut extension beyond 2011

Here comes our hero to blow budget deficits for 2012 (remind me, is that an election year?) out of the water.  There will be no cuts, there will be extensions to the spending.  Always budget cuts for the mid term outlook, record deficits for the short term...

GOLDS RESPONSE - $1,653.00

The Shootist's picture

And remember this, -GATA Gold conference, London, August 4th-... I like that meeting better.

NumNutt's picture

Wow, starting to look like 2012 is going to suck ass, guess I better start over feeding my dog, fatten him up, just to make sure the family has something to eat next year.......

Yen Cross's picture

  You  are on the / DOGS/ Menu...!

NumNutt's picture

 You dog people are funny. You want a good read? Try the unedited Lewis and Clark diaries. They ate a lot of dog meat, and actually started to like it towards the end, oh and the Indians also pretty much only kept dogs for that purpose. Oh and FYI it was a sarcastic joke...

mt paul's picture

sub 1 %

might be wishful thinking .....

sub 0 %

more than likely ....


boat lift long


Rodent Freikorps's picture

Don't a lot of the molds and fungi that grow on corpses put out green shoots?

Caviar Emptor's picture

Yeah but the explosive growth in rotisserie leagues and smart phone games will more than compensate and pull GDP growth back to industrial revolution levels. Booyah! 

Yen Cross's picture

  I like those REPO charts Tyler.



Caviar Emptor's picture

JPM: Long Prozac 

Cognitive Dissonance's picture

So..................when is Jackson Hole?

Yen Cross's picture

  Warren and his /   READING RAILROAD.... <

mt paul's picture

sub zero...



hedge bytches

jesusonline's picture

It was already less than 1% for the 1st half of 2011. Hatzius has been consistently wrong about stuff cause of smoking too much shit.

lieutenantjohnchard's picture

i like the part where you say gold trades at $1647.16.

The Shootist's picture

Whoa, $1648.8 -looks like it had a nice little pop.

tony bonn's picture

the marginal productivity of debt is now negative....the usa economy has contracted continuously since 2000....every additional dollar of debt will accelerate economic contraction.

Dreadker's picture

This is clearly unacceptable... How are the robots supposed to jump the DOW back over 12k with all this negativity around??  And not to mention the incoming Dagong downgrade they promised last week... sometime after market close no doubt... Gotta capitalize on the US market being closed while asia continues the sell off...

Ah... every day my shiny preciouses in my safe look more shiny and more precious.... ;-)

papaswamp's picture

Geeez if he is calling 1% we had better think -2%.

Tense INDIAN's picture

and suppose no QE3 announcement on 9th aug...then.........

John Law Lives's picture

That SOB Chairsatan had better not endorse a formal QE3 program next week.  QE1 and QE2 didn't work, and there is no reason to believe QE3 will work.

The Great Chairsatan = Enemy of freedom!

Internet Tough Guy's picture

Gold 1650. Where is Momo, that coward? General Jim is waiting for an apology.

malek's picture

I was too slow :-)
Salute to Jim Sinclair!

lieutenantjohnchard's picture

in his next post he'll be saying something along the lines of: "as i predicted gold did hit my $1650 target before summer was out, and gentleman jim sinclair and i are gonna celebrate together."

Shock and Aweful's picture

Right on Queue Jaime...well done. 

And Ben is pleased with JPM's performance I might add.


Man....these fuckers ARE predictable...aren't they?

Now that Jaime is screaming and crying that we are heading back into recession (without using that nasty little word)...there will be NO STOPPING Ben now....he has been greenlighted  (actually...Jaime probably called him and told him to quite being a pussy and start the presses)

Afterall...Jaime Dimon and JPM ARE the NY Fed... and what they ask for - /demand...they will get.

This is perfect....see, August 9th is coming up qucik...and by then, the S&P should be sub 1200.  This will give cover to even the most hawkish fed governor . . .who will be begging the bernank for some more liquidity.

Equities are the last piece of the puzzle that needed to be aligned...Once we get a nice sustained drop in equities... it will be smooth sailing all the way to QE land. 

Things are gonna get real interesting real soon . . . me thinks there anyyone  out there who still thinks that all of the events of the last 1-2 months have not been pre-configured and coordinated?   Anyone????



lieutenantjohnchard's picture

there is so much gamesmanship going on with the numbers it's hard to take anything serious, other than the shiny. still, it's nice to see them backtrack.

Paul S.'s picture

They can print all they want and nothing is going to happen to the upside.  GDP was .4% in Q1 when the effects of QE2 should have been most apparent.  Stick a fork in this bitch. 

PulauHantu29's picture

Who were the BIG LOSERS resulting from QE1 and QE2?

Savers and Retirees says Forbes:

"Monetary stimulus is supposed to bolster the economy by encouraging borrowing, investment, and spending. But there is also a downside, which has largely been ignored. By lowering interest rates to historically unprecedented levels, the Fed's policy has deprived savers of interest income they normally would have earned on savings accounts, certificates of deposit, money market funds, short- and long-term Treasury and municipal bonds, and interest-sensitive variable annuities, held mainly by retirees."

"Even by our most conservative estimate, which only looks at the $9.9 trillion in assets most directly affected by depressed Treasury yields, the income losses are huge."

"With the additional jobs that might have been created by higher interest income levels at this mid-point estimate, the unemployment rate could have fallen to 6.8%. Output could have grown more than twice as fast as it has, and the economy would be well on its way to a vigorous recovery, rather than struggling as it is."

full thought-provoking story at Forbes:

Version 7's picture

Off topic for a complete joke:

" Murdoch shaving foam attack: 'Jonnie Marbles' jailed "

Commander Cody's picture

With prior QEs ineffective at bringing the US out of depression, what will be the rationale for more QEs?

Critical Path's picture

Jump in unemployment to follow.  Recall a negative YoY change in GDP?  "Yeah... now this is happenin"

Rockfish's picture

DOW -204

Nasd -59

SP -25

FoieGras's picture

Welcome to the Japan scenario. Where are all those guys this won't happen here in the US??? Where is all the "We're not Japan" guys??? The 10y is clearly forecasting a long period of pain, unemployment, low inflation and basically close to zero new growth.

Rodent Freikorps's picture

Not a problem.

Let's just attack another nation and piss away a few trillion in a failed attempt to rebuild them into a western style democracy even if they are nothing but a un-salvageable barbaric shithole.

That is just all win.

OutLookingIn's picture

QE (quantitative easing) is now a politico periah for an economic phrase. To use it in any financial setting is to commit political suicide. It will now be called... lets see; so many to choose from... Hmmm...

Panafrican Funktron Robot's picture

Rate Protection Facility.  Basically the same bond flip scheme to keep treasuries and equities hoppin'.  Most people honestly don't give a shit, which is sad, but that's the reality of our situation.  They may back pocket Ron Paul's "light the t-bills/bonds on fire" idea as a way to shore up room to reload as needed.  If the overall idea is to devalue regardless, that's probably a more convenient way to avoid the whole tea party/debt ceiling inconvenience.

JR's picture

But, oh hey, reading the top bullet points on Murdoch’s MarketWatch today, the savvy investor needs to make note of one of the critical developments following the smoothing of the debt crisis waters: “Obama calls for measures to create jobs”!

Praetorian Guard's picture

I hear Johnny Cash singing!!!!!!!!!!  

WallStreet is a burning thing
And it makes a fiery ring
Bound by your wild desire
WallStreet fell into a ring of fire

WallStreet fell into a burning ring of fire
WallStreet went DOWn, DOWn, DOWn
And the flames went higher

WallStreet fell into a burning ring of fire
WallStreet went DOWn, DOWn, DOWn
And the flames got higher
And it burns, ooh it burns

Saxxon's picture

Well, I just lost July.  Kudos to those who stayed short.

Panafrican Funktron Robot's picture

Call ratio backspread if you're feeling bullish next time.  Great ass coverage.

Praetorian Guard's picture

Jesus, did anyone learn econ in college or public school. I was talking to a co-worker about housing and how we are at the end of phase 1 for 3 phases. So we are talking and I brought up higher interest rates which mean CHEAPER homes, he says no, higher interest rates mean MORE EXPENSIVE HOME PRICES and home values would soar UP, UP, UP. I'm like WTF?? If interest rates go up, and no one, or very few have 20% to put down, as the rumor for banks is next year, the vast majority are f@cked... not to mention higher unemployment, over 4 million homes hitting foreclosure status at the end of this year, and several million 99 weekers getting dumped... How does Amerika function these days?

firefighter302's picture

The failure of massive government thru "Central planning" was assured by Obama and the lefties.  Socialism has run thru the democratic Party From FDR to Carter to Obama.  (And Bush also abandoned conservative fiscal principles.) More debt, more spending and more promises of an entitled Utopia.  And the result on the economy now seems apparent and unavoidable.

Here's the PM's response to Central planning and fiat madness since the last Presidential election.

Obama Presidency Gold $850 - $1600.

Obama presidency Silver $12 - $40.

As Tyler has shown thru charts, the debt and metals have a coorilation in movement over many years.  I expect fully, for it to continue.

johnnymustardseed's picture

Subtract the deficit spending for the last 10 years from GDP and we were probably negative