Rosenberg On The Latest Helping Of "Smoke And Mirrors" From Obama

Tyler Durden's picture

If you feel like the market took one sniff at the much anticipated Obama, cue horns, bassoons and oboes, "American Jobs Act", and threw up all over this latest Keynesian abortion, you are not alone. Here is David Rosenberg explaining how, unlike Goldman which thought the plan is more than expected, is actually nothing more like a tiny flatulent wind in a feces-storm. He summarizes it best: " I'll put it to you this way. Assuming (i) that the House Republicans do not accept the Obama spending measures, and (ii) half of the tax relief goes into savings and debt reduction, then we are talking about the grand total of $35 billion of net new stimulus from this "jobs plan". That's principally because so much of it is merely extending what is already in the system. At an annual rate, that is a 0.2% boost to baseline GDP growth. In other words: much ado about nothin'. It doesn't even come close to offsetting the ongoing drag from the retrenchment at the state and local government levels." So anyone looking for an explanation why the market is down 4.3% since Thursday, here it is. And what is more disturbing, not even rumors of additional QE on top of the widely priced in Operation Twist, have had any impact. In other words, the time for another Hugh "I suggest you panic" Hendry soundbite is nigh.

From Gluskin Sheff's David Rosenberg


That is how we would describe the Obama "jobs plan". Much of it is merely rolling over existing tax relief passed in late 2010, such as payroll taxes for workers and extended jobless benefits.

I'll put it to you this way. Assuming (i) that the House Republicans do not accept the Obama spending measures, and (ii) half of the tax relief goes into savings and debt reduction, then we are talking about the grand total of $35 billion of net new stimulus from this "jobs plan". That's principally because so much of it is merely extending what is already in the system.

At an annual rate, that is a 0.2% boost to baseline GDP growth. In other words: much ado about nothin'. It doesn't even come close to offsetting the ongoing drag from the retrenchment at the state and local government levels.

The employment impact will also be negligible since labour costs were only cited by 6% as the primary concern among small businesses in the most recent National Federation of Independent Business (NFIB) survey. No wonder the equity futures barely responded after the speech ... this is a huge non-event.

It is incredible how many resources Wall Street and Bay Street economists are expending to research this initiative, especially since so much of it will never see the light of day. Then again, look at all that wasted time spent on Sunday conference calls the weekend after the U.S. credit downgrade, which was never ratified by Fitch or Moody's.

But the bottom line is that this "plan" isn't even much of a "re-election" plan either. It barely moves the needle. We may well be charitable about the assumption that half the tax relief gets spent. Look up the term "Ricardian Equivalence" — if people see this as the short-term gimmick that it is, basically raiding the Social Security fund, which everyone knows is going to have to get refilled, then very little of this relief is going to be spent.

In fact, because everyone was so focused on repairing the balance sheet back in the spring of 2008, of the Bush tax rebates that got everyone so excited about (which boosted disposable income at an epic 84% annual rate in May of that year) 17% was spent and 83% was either out in the cookie jar or used to pay down debt. The legacy of that policy move was to boost the personal savings rate temporarily, from 3.9% in April of 2008 to 6.1% as of June.

If, in fact, households behave as they did in the opening months of 2008, then in actuality we could be overstating the overall macro impact of this so-called stimulus plan. Again, assuming that the spending proposals are dead on arrival at the House floor, then all we are likely talking about in this scenario is a microscopic $12 billion add to GDP. In a $15 trillion economy, that can be considered nothing more than a rounding error.

Moreover, the entire tenor of last Thursday's speech was off base. When Mr. Obama rails at the "rich" (making $250K may mean you own the biggest mansion in Des Moines, but in New York City it may get you a parking spot in Tribeca) and "rich" oil companies, he misses the fact that over 50% of Americans don't pay taxes. This group does not include the "well off" either, no matter how the White House wants to define it. That's the issue — the middle class actually is very under-taxed relative to Canada and most other jurisdictions in the OECD. In fact, outside of Greece, the United States, for all its ingenuity, may well have the most inefficient tax structure in the world. It should be pulling in more in revenue, but when tax expenditures, or loopholes, cost the Treasury more than $1 trillion annually, something is definitely wrong.

Besides the fact that there is such a strong lobby group in the form of the National Association of Realtors, and that for some reason homeownership is considered more sacred than even mom's apple pie, how can mortgage interest deductibility AND tax-free capital gains on the same principal residence be justified. A subsidy for a place that you live in isn't an investment?

Nor does housing even add to the productive capital stock. It is, at its root, a consumption good. Why not give tax write-offs for SUVs and iPads while you're at it? The premise that homeowners make better citizens than renters was never adequately proven either, and in fact, the term "strategic defaults" was never a reference to apartment dwellers, come to think of it.

Here is what a drive towards sustainable economic growth should look like:

  • Make everyone pay a flat tax of 20% and get rid of the rest of the tax code.
  • Go back to the drawing board on Obamacare. It's a job killer.
  • Extend retirement age for social security.
  • Extend the age for eligibility on Medicare, and reduce Medicaid.
  • Take these savings and embark on a real energy infrastructure program: build massive wind and solar farms, and give massive incentives to gas producers to produce gas, change the fleet for truckers and buses all over to natural gas and switch a massive portion of electricity generation to gas turbines from coal fired.
  • Take revenues generated from a recovery and rebuild schools and give grants for re-education for construction workers to private firms who could do a better job than the government.

But the President, unfortunately, passed up the opportunity to do these things. As such, look for the economy to get worse. A hard-nosed Republican like Perry or Christie will get elected next year (at least the recession won't be totally wasted) and things will change for the better. Just like Reagan replacing Carter. The players have changed but the policy divergences have not.

In the meantime, the market will likely go down another 15-20% — that is on the premise of a recessionary bear market taking hold. And it could be worse if Europe falls apart. We are on the precipice right now; the situation is very fragile as it pertains to a Greek default in the near-term. The reality is that Germany holds the key to so much and here we have all the North American focus on the Dow and S&P 500 and yet the German DAX index has not recovered from early August lows —making new lows — as are the banks, which are down 50% this year. German investors know Europe better than U.S. investors; the latter still think we are going to
miraculously muddle through. Things will be fine in Europe and U.S. stocks are cheap — especially the banks!

But what is happening in the past two or three days is that the North American markets are succumbing to the events in the euro area — more so than by developments in the United States. The vagaries of globalization: 20-years ago, world equity markets had a 40% correlation with each other. Today that correlation is north of 80% (as we found out in 2008 when there was nowhere to hide and decoupling was confused for lags).

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spiral_eyes's picture

Obama is a failure because he doesn't understand what capitalism is. You can't have the government doing everything for everyone for ever. You can't have good businesses failing and bad businesses succeeding with bailouts. You have to get out of the way and let the market work. 

LetThemEatRand's picture

Obama is a failure, but it has nothing to do with not understanding capitalism or not taxing poor people enough.  It has to do with being a captive of an incredibly corrupt, crony capitalist system that has thrived and picked up steam since Reagan took the horns.    Real corporate tax rates are lower than they've been in a generation, but the large corporations and their apologists blame tax policy for the crisis.   Shall we put W back in office nad have him fix things with less regulation and lower taxes?  Worked great, didn't it.  Yes, Obama is a worthless tool, but going back to the tired old crony capitalism right wing agenda isn't going to help.

spiral_eyes's picture

W was the guy who initiated TARP. The biggest crony capitalist in American history... until Obama (and maybe Rick Perry)

There are fucking shitloads of better ways to improve the system than "going back to W".

Letting failed corporations fail would be the best start. And on Zero Hedge know we all know who the man who will do that is.

Ron Fucking Paul.

LetThemEatRand's picture

Right on.  I have a lot of issues with Ron Paul (he puts too much faith in the free market to keep corporate greed in check), but he's the best of the curent herd by far.   At least he will try to dismantle the military industrial complex and he'll try to end the Fed.  I'll accept the other aspects of his platform with which I don't agree, if he can accomplish those things.   That would be a huge move in the right direction.  I don't see anyone else with the smallest chance of winning the election who truly supports either idea (and I include Perry in this -- he talks a good game but he is status quo all the way).  

Temporalist's picture

Where is that Hugh Hendry?  I want to hear him tear into some Keynesian dolt again; that's real entertainment.

Spitzer's picture

WTI up .57 Brent down .57

Oil up with the dollar. Brent down with the Euro

global's picture

The fact that you call WTI "Oil" while calling Brent "Brent" is slightly less indicative that you know sweet fuck all about oil markets than the general moronicness of your comment.

Spitzer's picture

WTI up with the dollar, Brent down with the Euro.

Happy now ?

Sweet fuck all....that was a good one. Considering you are a fuckin idiot.

Yamaha's picture

No more solar panels and wind "fart" farms! Also, we don't have a commitment to educate the masses - maybe I'm the only poor clild that got a job and paid for my education!

molecool's picture

How do we get this on ZeroHedge?


Did Tomo Rape The Market - Part Deux


-1Delta's picture

dunno, but needs to be posted!

molecool's picture

Fuck me - > 2 years member here and I still don't know how to post articles...

fuu's picture

Tips: tips [ at ]

spiral_eyes's picture

I blogged about the reverse repo spike yesterday.

This is very frightening.

TPTB know something the market doesn't.

Warren Buffett will never take a bath again. 

-1Delta's picture

apparently TPTB knows something.. I mean the TOMO piece on evilspeculator apparently shows that it has bearish implications, but he points that the NY fed has no data that St. Louis does?

papaswamp's picture

"..actually nothing more like a tiny flatulent wind in a feces-storm. "


Damn it! I spilled my afternoon martini...fuck that hit me funny.

Missiondweller's picture

Its amazing that all Obama has to offer is another smaller stimulus modeled after the larger failed one. Simply stunning.

DefiantSurf's picture

Nobody fucks up this bad, there is a purpose here, a plan...

StychoKiller's picture

This is almost like Poe's law re:  "it is difficult or impossible to tell the difference between sincere extremism and an exaggerated parody of extremism."   Only here, it's difficult to tell the difference between total idiocy and subtle, malignancy!

X.inf.capt's picture

its simple...just have to keep this economy and dollar together another 14 months, he wouldnt want to be remembered as the last president of the U.S.A.....before the dark ages....

he does have his 'legacy' to protect...and nothing else!

DefiantSurf's picture

I think history will end up being kinder to Nixon & Carter than Obama, regardless of when the crash comes, he owns it now.


X.inf.capt's picture



p.s. love the avitar. i can face the coming dark ages, but im going to be one pissed off s.o.b. when the coffee runs out!

SheepDog-One's picture

14 months will never happen, its like starting in L.A. with an empty tank saying somehow they'll make it to NYC on fumes and drafting.

X.inf.capt's picture

i do believe you have a point there, sir!

Long-John-Silver's picture

Fail if you do, fail if you don't. It's like standing on the plank as the Boatswain's mate starts poking you in the ass with his sword. Do you just let him run you through for a quick and easy or walk off the end and play with the sharks for a few minutes.

Duffminster's picture

This plan is called a "jobs plan" and it should be noted the word "stimulus" once in the speech.   It is really mostly pure stimulus, pure trickled down (cut taxes) and so forth.  Stimulus won't work, austerity won't work.  There is no linear solution within the given paradigm and no non-linear solution within the current paradigm. 

Short of the government hiring 25 million government workers to stimulate job growth, nothing is going to work and while they can manipulate things to make them look better when they give a big speech (based on pure bull shit), they can raise margines, call their buddies at the bullion banks to hammer gold and whatever other mental and PR manipulatives than can introduce.  To me, its just a call to stock up on more gold and silver and prepare for blow back of 40 years of economic corruption and mismanagement in the post Nixon, gold default era.   Their only choice is currency devaluation, 20 year depression or mass social revolution.  I think the latter is more likely given the sheer gravity of stupidity, greed and fear we see in among the so called "elite."





pelican's picture

Looks like a huge war is coming to thin the herd.

Oh regional Indian's picture

Very nice over-view.

Panic is hard to do for TV folks though. And that coupling figure in the ned is surprisingly conservative.

The US sneezes and India catches a major cold. A strong dollar move up will see indian Equities CRUSHED, all FII (Foreign Institutional Investor) float, hot money, runs liek rats.


Indian Gold Masterpiece

longhardbull's picture

Hmmm... why not make manufacturing work in the US... That wouldn't solve anything...

tempo's picture

The 9/11 attack was critical, but the stunning implications of globalization in 2001 was hidden by the 9/11 attack. Because of the expansion of the internet worldwide in the early part of the decade, companies started outsourcing to undeveloped countries where labor rates were $5/day w/o health care, retirement or labor laws. The 9/11 attack justified a large war and creation of the housing bubble which hid the underlying problem of $5/day labor wages worldwide and outsourcing for about 5 years. Now the underlying problems of a worldwide labor glut combined with unfunded, unrealistic entitlement promises lead to a collaspe of the US housing/equity market and unsubstainable deficits. Smoke and mirrors will not work again. The US and the EU will eventually have to compete with China's $5/day labor rates. The alternative will be more wars.

James T. Kirk's picture

The only difference between the last jobs "plan" and this one is that the Obaminator is now acting angry. I wonder how they "cue" the "angry" behavior on the telepromptor. Maybe the letters are in red when he is supposed to get riled up?

Dumpster Fire's picture

Veto-proof majorities require little bombast.  This time it's about blame.

longhardbull's picture

No taxes on companies that manufacture.

Trade agreements

No minimum wage

Revise unemployment

Reduce Gov't intervention

Lock down the border, enact pay to citizenship

Aren't the answer to this mess pretty simple?

SheepDog-One's picture

Wow DOW spikes up over 100 points in 5 minutes, -180 to now only down -60....going for the +200 DOW close already? Someone is very desperate here...8 days till FOMC Ben tic toc tic toc!

RockyRacoon's picture

Why is anyone surprised or amazed?   Frankly, I could care less how much money the gov't throws around (or hides) just as long as the friggin banks don't get another dime.   I guess I've got bailout fatigue.   Tired of hearing about it and tired of "the people" not having any influence in this charade of a country.

SheepDog-One's picture

I'm only surprised that DC and Wall St hasnt been over run yet and burned down. All the 'rah rah flag waving 'better dead than red' I'm glad to be an american where at least I know Im free' yea where is everyone?

DefiantSurf's picture

the problem is that only 0.00001% of the population read ZH, the rest are watching MSM, and while they know something is just not right, they simply have no idea of the magnitude of what is really not right.


Dumpster Fire's picture

Dude this was opening week in the NFL.

Ponzi Unit's picture

Dumpster Fire, best avatar-username combo I've seen in a while. Kudos.

SheepDog-One's picture

WTF Im sitting here watching the DOW rise and fall over 100 points in minutes? Something is very wrong here, makes me nervous, and Im sick of being nervous all the time I say its time we start lopping off banker and politicians heads already!

mikmid's picture

If we are going to start lopping heads we need a very American method. The jihadists use swords, the french use guillotines, we need something novel like chainsaws. That's it, a banker chainsaw massacre and it could become a movie.

gwar5's picture

The only way for Obama to create jobs is to step down.


gwar5's picture

The only way for Obama to create jobs is to step down.


pelican's picture

I just hope it doesn't totally crash until next year when I withdraw the remainder of my 401k.

benb's picture

"...the plan is more than expected, is actually nothing more like a tiny flatulent wind in a feces-storm...." (Emphasis added)

I love poetry.



slewie the pi-rat's picture

rosie's 6 bullets are magnumZ!!!

collon88's picture

More worthless suggestions on fixing our economic problems.  I recently saw a GAO chart of projected US government spending in 2020.  Interest on US Debt is projected to be $901 Billion. Sustainable economic growth? For how long? 5 maybe 10 years? All Rosenberg's suggestions do is kick the debt grenade down the road. It's about debt, stupid! A monetary system based on debt always expands to its maximum potential and then collapses.  As others on this site have pointed out, it is a Ponzi scheme.  Tyler must have a sadistic streak to post the excretions of such an elitist squid.     

Ponzi Unit's picture

Bring on the Jubilee. Please note that item three cites Athenian debt slaves. We are all Greeks now!


Debt relief existed in a number of ancient societies:

  • Debt forgiveness is mentioned in the Book of Leviticus, in which God councils Moses to forgive debts in certain cases every Jubilee year – at the end of Shmita, the last year of the seven year agricultural cycle or a 49-year cycle, depending on interpretation.
  • This same theme was found in an ancient bilingual Hittite-Hurrian text entitled "The Song of Debt Release".[1]
  • Debt forgiveness was also found in Ancient Athens, where in the 6th century BCE, the lawmaker Solon instituted a set of laws called seisachtheia, which canceled all debts and retroactively canceled previous debts that had caused slavery and serfdom, freeing debt slaves and debt serfs.
  • In addition, the Qur'an (the Muslim scripture) supports debt forgiveness unable to pay as an act of charity and remission of sins for the creditor.