After The ‘Syriza Shock’: Now Comes The Hard Choice Of Escape Or Merely Re-setting The Terms of Greece’s EU Servitude

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We can heartily praise Alexis Tsirpras for calling bull on the destructive puzzle palace economics thrust on his country by the hypocrites and liars who rule from Brussels. And his finance minister designate, economist Yanis Varoufakis, is surely on the right track when he targets the rent-seeking bankers, big businesses and media operators who have plundered the Greek state for decades.
Indeed, his pledge that ‘we are going to destroy the Greek oligarchy system’ should resonate throughout the length and breadth of Europe. After all, what has smothered growth, enterprise and hope in the EU is exactly the kind of crony capitalist corruption of economic life and exploitation of the state that had already wrecked the Greek economy – -even before the Trioka administered the coup de’ grace.
So the Syriza Shock is an inflection point. It represents the beginning of the end of unimpeded rule by the elitist apparatchiks who dominate the central banks and the economic policy machinery of Brussels, Washington and London. Overwhelmingly, their half-baked Keynesian and statist solutions have propped up the giant banks, fueled stupendous inflation of financial assets and enabled an era of obscene gambling windfalls to the very rich which is unprecedented in modern history.
But what centrally administered financialization has not done is relieve the middle and working classes from a relentless assault on their living standards or a growing recognition that their voices have been totally muted in the halls of government. So it was only a matter of time before a revolt of the ‘demos’ would materialize; and, needless to say, what could be more supremely fitting than that the insurrection has started in the very land where the demos first found its voice?

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 26, 2015.

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Fear And Dread Of Deflation – -The Keynesian Big Lie At Work

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The fear of deflation has become the cornerstone of Keynesian economic thought. A lack of inflation has been used to explain periods of economic weakness from the Great Depression of the 1930′s, to the Great Recession 2008-2009. And now, that philosophy has been adopted as gospel by those that control the Federal Reserve and virtually every central bank on the planet. In reality deflation is cathartic, and a necessary condition to heal the economy. If deflation were allowed to naturally run its course, as it did in the brief Depression of 1920-21, depressions would be sharp but fairly short in duration. And the economy would find itself on firm footing fairly quickly. However, Keynesians view deflation as the source of a destructive cycle in which; asset prices plunge, companies cut jobs, spending plummets, and a permanent recession sets in. Therefore, the prevailing current view maintains that deflation is something that needs immediate intervention of massive monetary stimulus – you can say they have become deflation phobic. This is why I find it fascinating that Keynesians, who proliferate in central banks and in the financial media, are relentlessly cheerleading the recent spate of deflationary data. And, just to be clear, deflation has not been limited to the New England Patriots’ footballs – it is everywhere you look.
However, it is the height of hypocrisy that Keynesians use the specter of deflation to frighten us into believing we need to endlessly dilute the value of our currencies and take the rate on our savings to zero percent. But then, at the same time, take every data point that points to falling prices as another reason to be bullish on markets and the economy. Their mantras are: Lower commodity prices – a boost to the consumer, plunging interest rates – an increase in mortgage refinancing, I actually heard a commentator suggest crumbling copper prices were a boon to minting pennies – he obviously didn’t realize pennies have been minted mostly with zinc since 1983.
How can Keynesians celebrate deflation, while at the same time use it to scare us into accepting ZIRP forever? The easy answer would be, they are cheerleaders for the stock market…and I believe they are.

This post was published at David Stockmans Contra Corner on January 26, 2015.

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Radical Leftists Win Election In Greece – Future Of Eurozone In Serious Jeopardy

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Radical leftists have been catapulted to power in Greece, and that means that the European financial crisis has just entered a dangerous new phase. Syriza, which is actually an acronym for ‘Coalition of the Radical Left’ in Greek, has 36 percent of the total vote with approximately 80 percent of the polling stations reporting. The current governing party, New Democracy, only has 28 percent of the vote. Syriza leader Alexis Tsipras is promising to roll back a whole host of austerity measures that were imposed on Greece by the EU, and his primary campaign slogan was ‘hope is on the way’. Hmmm – that sounds a bit familiar. Clearly, the Greek population is fed up with the EU after years of austerity and depression-like conditions. At this point, the unemployment rate in Greece is sitting at25.8 percent, and the Greek economy is approximately 25 percent smaller than it was just six years ago. The people of Greece are desperate for things to get better, and so they have turned to the radical leftists. Unfortunately, things may be about to get a whole lot worse.
Once they formally have control of the government, Syriza plans to call for a European debt conference during which they plan to demand that the repayment terms of their debts be renegotiated. But the rest of Europe appears to be highly resistant to any renegotiation – especially Germany.
Syriza says that it does not plan to unilaterally pull Greece out of the eurozone, and that it also intends for Greece to continue to use the euro.
But what happens if Germany will not budge?
Syriza’s entire campaign was based on promises to end austerity. If international creditors refuse to negotiate and continue to insist that Greece abide by the austerity measures that were previously put in place, what will Syriza do?

This post was published at The Economic Collapse Blog on January 25th, 2015.

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European ‘QE’ In a Nutshell – Propagating the Western Trickle Down Policy Errors

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This is about it in a nutshell. ‘Stimulus’ American style comes to Europe.
Printing money and giving it to your cronies inflates asset prices, lines the pockets of the well-heeled heels, but does little for the real economy.
But it doesn’t produce broad inflation (or aggregate demand) so we can do it many times! Success!
“At last the euro’s lords and masters have accepted that something must be done about their zone’s lamentable growth. They will unleash a massive bond-buying programme totalling a reported 1tn. The former BBC economic pundit Stephanie Flanders told the world it was ‘Santa Claus time’; the European Central Bank (ECB) has ridden to the rescue.

This post was published at Jesses Crossroads Cafe on 24 January 2015.

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The Private Equity Boom, Easy Money, and Crony Capitalism

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Amongst the big winners from the Obama Fed’s Great Monetary Experiment has been the private equity industry. Indeed this went through a near-death experience in the Great Panic (2008) before its savior – Fed quantitative easing – propelled it forward into new riches. There is no surprise therefore that its barons who join the political stage (think of the last Republican presidential candidate) have no interest in monetary reform. And the same attitude is common amongst leading politicians who hope private equity will provide them high-paid jobs when they quit Washington.
The ex-politicians are expected by their new bosses to join the intense lobbying effort aimed at preserving the industry’s unique tax advantages (especially with respect to deductibility of interest and carry income) whilst establishing the links with regulators and governments (state and federal) that help generate business opportunity for the varied enterprises within the given private equity group. The special ability of these to take advantage of the monetarily induced frenzy in high-yield debt markets and secure spectacularly cheap funds means they become leading agents of malinvestment in various key sectors of the economy.
What’s Makes Private Equity Run?
Spokespersons for the industry claim that the private equity business is all about spotting opportunities to take over already established businesses, and then using home-grown talent (within the private equity management team) to transform their organization so as to create value for shareholders. And this can all be accomplished, they say, without the burden of frequent reporting requirements as in public equity.
That is all very laudable, but why all the leverage, why all the political connections, and why all the tax advantages? And even before getting to these questions, why should we praise the secrecy? After all, public equity markets are meant to do a good job of incentivizing and disciplining management, especially in this age of shareholder activism, so why is private equity superior?

This post was published at Ludwig von Mises Institute on JANUARY 24, 2015.

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Meet Bloomberg’s Latest Idiot: Shobhana Chandra On Why Falling Prices Cause Hungry People To Starve

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Did the Onion hack Bloomberg’s website? Or perhaps it was Charlie Hebdo and The Strawman Collective. Surely only a prankster could write the following with a straight face:
On the surface, everything getting cheaper sounds like a dream come true. It’s not. The prospect is so terrifying that it’s prompted central bankers around the industrialized world to pour trillions of dollars into their economies to prevent a sustained drop in prices.
That’s right, one Shobhana Chandra – – apparently an unpaid Bloomberg intern who snuck one by the night editor – finds honest money to be ‘terrifying’. But thank heavens for simpletons with a keyboard. In this case, Chandra has distilled the money printers’ ‘deflation’ bogeyman to its utterly ludicrous essence – – and has wrapped it neatly into six propositions which most definitely do not pass the giggle test.
The essence of these gems is the old saw that consumers don’t spend money when they see falling prices. Chandra has obviously never gone to Wal-Mart, Best Buy or an Apple Store.
When shoppers see persistent price declines, they hold out on buying things. They ask, will I get a better deal next week, next month, next year? As a result, consumer spending flails.
To be sure, the monetary apparatchiks and their Wall Street bullhorns are not quite this primitive, and tend to gum about ‘inflation expectations’ and other econ-psycho-babble. Thus, Benoit Coeur, a member of the ECB’s executive board, made these profound observations in behalf of the ECB’s new money printing binge:

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 23, 2015.

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Oil Dinosaurs Face Extinction: State Oil Companies and the Meteor-Strike of Low Oil Prices

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State-owned oil companies that don’t slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction.
Domestic and international energy companies are responding to the 50% decline in the price of oil by doing what’s necessary to remain in business: they’re slashing payroll, postponing capital investments, delaying new projects and soliciting price cuts from suppliers and subcontractors. This is the discipline of profit-driven capitalism: if expenses exceed revenues, profits vanish, losses pile up, capital contracts and eventually the company runs out of cash (and access to credit) and closes down. Unfortunately for state-owned oil companies, the feedback of expenses, losses and access to credit are superceded by the need to feed hordes of parasites: the state-owned company exists not to generate profits but to fund large payrolls and support state officials and cronies. Stripped of the discipline of markets and profits, state-oil companies exist to serve the interests of the state’s Elites and their cronies and favored constituents. As a result, critical infrastructure has fallen into obsolescence, capital investments have been hollowed out and the expertise needed to maintain production has eroded. The state-owned oil companies are like dinosaurs: the extinction meteor of low oil prices has smashed their ecosystem, and all they can do is watch the sky darken as revenues crater and expenses and debt remain at unsustainably high levels.

This post was published at Charles Hugh Smith on THURSDAY, JANUARY 22, 2015.

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Global Cooling Beginning To Hit In High Places – – That Is, The Luxury Condo Market

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Manhattan real estate agent Lisa Gustin listed a four-bedroom Tribeca loft for $7.45 million in October, expecting a quick sale. Instead, she cut the price this month by $550,000.
‘I thought for sure a foreign buyer would come in,’ said Gustin, a broker at Brown Harris Stevens who is still marketing the 3,800-square-foot (353-square-meter) apartment at 195 Hudson St. ‘So many new condos are coming up right now. They’ve been building them for the past few years and now they’re really hurting the resales.’
A flood of new high-priced condominiums and mansions are coming to market in New York, Miami and Los Angeles just as international buyers, who helped fuel demand in the three cities, are seeing their purchasing power wane with the strengthening dollar. Signs of a pullback may already be showing in Manhattan, where luxury-home sales have slowed amid a surge in construction of towers aimed at U. S. millionaires and foreign investors.
This year, 2,386 newly built Manhattan luxury condos will be listed for sale, the most on record, data compiled by Corcoran Sunshine Marketing Group show. The brokerage defines luxury as units priced at more than $2,300 a square foot.
‘We’re building a very narrowly defined super-luxury product with a fairly deep pool of buyers, but the challenge is going to be the mere fact that it’s all coming at the same time,’ said Jonathan Miller, president of New York-based appraiser Miller Samuel Inc. and a Bloomberg View contributor.

This post was published at David Stockmans Contra Corner on January 22, 2015.

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Mario Draghi: Charlatan Of The Apparatchiks

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Well, he finally launched ‘whatever it takes’ and that marks an inflection point. Mario Draghi has just proved that the servile apparatchiks who run the world’s major central banks will stop at nothing to appease the truculent gamblers they have unleashed in the casino. And that means there will eventually be a monumental crash landing because the bubble beneficiaries are now commanding the bubble makers.
There is not one rational reason why the ECB should be purchasing $1.24 trillion of existing sovereign bonds and other debt securities during the next 18 months. Forget all the ritual incantation emanating from the central bankers about fighting deflation and stimulating growth. The ECB has launched into a massive bond buying campaign for the sole purpose of redeeming Mario Draghi’s utterly foolish promise to make speculators stupendously rich by the simple act of buying now (and on huge repo leverage, too) what he guaranteed the ECB would be buying latter.
So today’s program amounts to a giant bailout in the form of a big fat central bank ‘bid’ designed to prop up prices in the immense parking lot of French, Italian, Spanish, Portuguese etc. debt that has been accumulated by hedge funds, prop traders and other rank speculators since mid-2012. Never before have so few – -perhaps several thousand banks and funds – -been pleasured with so many hundreds of billions of ill-gotten gain. Robin Hood is spinning madly in his grave.
The claim that euro zone economies are sputtering owing to ‘low-flation’ is just plain ridiculous. For the first time in decades, consumers have been blessed with approximate price stability on a year/year basis, and this fortunate outbreak of honest money is mainly due to the global collapse of oil prices – not some insidious domestic disease called ‘deflation’. Besides, there is not an iota of proof that real production and wealth increases faster at a 2% CPI inflation rate compared to 1% or 0%.

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 22, 2015.

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Daniel Hannan Exposes Davos’ Narcissistic Corporatist Racketeering

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Excerpted from Capx’s Daniel Hannan’s Davos Is A Corporatist Racket,
Davos Man… derives most of his income, directly or indirectly, from state patronage. If he is in the private sector – and he is more likely to be a lobbyist, politician or bureaucrat than a businessman – he’ll be an instinctive monopolist, keen to persuade ministers and officials to raise barriers against his potential rivals.

This post was published at Zero Hedge on 01/22/2015.

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The Epochal Consequences Of Woodrow Wilson’s War

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Remarks by David Stockman To the
Committee for the Republic, Washington DC
January 21, 2015
My humble thesis tonight is that the entire 20th Century was a giant mistake.
And that you can put the blame for this monumental error squarely on Thomas Woodrow Wilson – – -a megalomaniacal madman who was the very worst President in American history……..well, except for the last two.
His unforgiveable error was to put the United States into the Great War for utterly no good reason of national interest. The European war posed not an iota of threat to the safety and security of the citizens of Lincoln NE, or Worcester MA or Sacramento CA. In that respect, Wilson’s putative defense of ‘freedom of the seas’ and the rights of neutrals was an empty shibboleth; his call to make the world safe for democracy, a preposterous pipe dream.
Actually, his thinly veiled reason for plunging the US into the cauldron of the Great War was to obtain a seat at the peace conference table – – so that he could remake the world in response to god’s calling.
But this was a world about which he was blatantly ignorant; a task for which he was temperamentally unsuited; and an utter chimera based on 14 points that were so abstractly devoid of substance as to constitute mental play dough.
Or, as his alter-ego and sycophant, Colonel House, put it: Intervention positioned Wilson to play ‘The noblest part that has ever come to the son of man’. America thus plunged into Europe’s carnage, and forevermore shed its century-long Republican tradition of anti-militarism and non-intervention in the quarrels of the Old World.

This post was published at David Stockmans Contra Corner on January 21, 2015.

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Low Government Bond Yields Are Made By Central Banks, Not Free Markets

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On January 7th CNBC’s Rick Santelli and Steve Leisman engaged in a heated debate that posed an interesting question; is the free market at work keeping interest rates low, or is it the central banks’ put? This made me consider the real question to ask which is: Where would rates be if central banks didn’t exist?
What would happen if the Fed liquidated its balance sheet and sold its $4.5 trillion worth of Mortgage Backed Securities and Treasuries and closed up shop? Some claim, after an initial spike from all that selling, rates would subsequently tumble due to a deflationary cycle that would result from the end of central bank money printing. These people also maintain that rates are currently historically low because of the overwhelming deflationary forces that exist in the economy. Yes, we now see deflation pervading across the globe and that does tend to push down borrowing costs, but I am not convinced rates would remain this low for very long and here’s why.
The level of sovereign bond yields is both a function of real interest rates AND sovereign credit risk. While there is now a deflationary environment causing yields to fall to record lows, the market is still aware if push came to shove central banks would step in and create a perpetual bid for government debt. However, without a central bank in place, global GDP (which has been fueled by asset bubbles) would quickly get eviscerated.
Therefore, faltering GDP in the U. S. would cause bond holders to panic over the Treasury’s ability to pay back the over $18 trillion in debt that it owes – which is now already over 5.5 times the annual revenue collected. To put things in perspective, 5.5 times annual revenue would be similar to a family who brings in just $50,000 a year, and holds a $275,000 mortgage. But as bad as that condition is it would get even worse because faltering GDP – resulting from rapidly rising debt service payments – would send the current half trillion dollar annual deficits soaring back above one trillion dollars in short order.

This post was published at David Stockmans Contra Corner by Michael Pento ‘ January 19, 2015.

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The Higher Education Bubble Is Suffused With Administrative Bloat

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The result of infusing colleges with billions of dollars in additional funds will be to raise the cost of a college education even higher – just as student loans and federal grants have encouraged wasteful spending by colleges and universities across the country. The open spigot of federal money continues to flow, mostly in the form of guaranteed student loans. These institutions are charging higher tuition rates because they can rely on receiving guaranteed money from the government. Because of these practices, student debt has reached $1 trillion, surpassing credit cards and car loans as the largest source of debt in the country, and there is growing evidence this is creating a ‘student loan bubble.’
The government’s intervention in the health care sector should have warned us of the cost-increasing effects that result from government involvement. Just as health care costs spiraled out of control after the government began Medicaid and Medicare, so too are education costs rising much faster than other consumer prices. In fact, according to College Board, tuition and fees jumped 27 percent between the 2008-2009 and 2013-2014 school years.1They have increased nearly 160 percent since 1990 (after adjusting for inflation).2
One would expect that with more public funding, schools wouldn’t have to increase their tuition rates. At the very least, the higher cost should mean the education received is better. However, a look at where the money goes raises some concern about how institutions of higher education are using their funds.

This post was published at David Stockmans Contra Corner on January 19, 2015.

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D.C.’s New Bosses Start to Pay Back Wall Street

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This is a syndicated repost courtesy of Money Morning – Only the News You Can Profit From. To view original, click here.
Rattlesnakes rattle their tails as a warning. It’s their way of saying, ‘I’m ready to attack you to defend my ground,’ which really means defend myself.
All politicians are snakes. And some of them are rattlesnakes – but only if they have to be.
Most of them would prefer to silently slither in and out of their offices defending their self-interests. But sometimes a politician has to rattle his tail because his constituents’ interests are threatened – meaning his campaign contributions (money) and votes
are threatened.
Republicans have been doing a lot of rattling lately, since they are now the majority species in the deep, dark den known as Congress.
Me, I used to be a staunch Republican. I still adhere to the basic Republican principles of smaller government, lower taxes, and a ‘constructionist’ view of the U. S. Constitution, not an interpretive one.
But I’m disgusted with the Rattlesnake Republicans who are pandering to crony capitalists. Their greedy, pro-super-wealthy and big-business agenda isn’t about the good of the country, but about lining their own pockets and becoming super-wealthy themselves.
And here’s how they’ve been lining their pockets most recently…

This post was published at Wall Street Examiner on January 19, 2015.

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In Praise Of Price Discovery – – The Market Is Off Its Lithium

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This morning’s market is more erratic than Claire Danes off her lithium. Gold is soaring, the euro’s plunging, US treasury yields are in free fall, junk bonds are faltering, copper is bouncing, oil has rolled over, the Russell 2000 momos are getting mauled, the swissie has shot the moon, the Dow is knee-jerking down, correlations are failing……and the robo traders are flat-out lost.
All praise the god of price discovery!
For six years financial markets have been drugged into zombiedom by maniacal central bankers who have violated every known rule of sound money and financial market honesty. In expanding their collective balance sheets from $5 trillion to $16 trillion over the past decade, for instance, they have midwifed a planet-wide fiscal fraud. Politicians have been enabled to spend and borrow like never before because central banks have swapped trillions of public debt for electronic cash confected from nothing.
Likewise, never have carry traders and gamblers been so egregiously pleasured by the state. After 73 straight months of ZIRP they are still pinching themselves, wondering if such stupendous largesse is real. They have bought anything with a yield and everything with prospect of gain, financed it for nothing and collected the arb – – while being swaddled in the Fed’s guarantee that it would never surprise them or perturb their trades with unannounced money market rate changes.

This post was published at David Stockmans Contra Corner on January 15, 2015.

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Memo To Keynesian Money Printers: The Problem Is Faltering Supply Side Enterprise, Not Insufficient ‘Aggregate Demand’

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The U. S. now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than America does.
We are behind in starting new firms per capita, and this is our single most serious economic problem. Yet it seems like a secret. You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths now outnumber business births.
The U. S. Census Bureau reports that the total number of new business startups and business closures per year – the birth and death rates of American companies – have crossed for the first time since the measurement began. I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying.
You may not have seen this graph before.

This post was published at David Stockmans Contra Corner on January 15, 2015.

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Inside The December Retail Report: ‘Disappointing’ Isn’t The Half Of It

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Today’s 0.9% decline in December retail sales apparently came as a shock to bubblevision’s talking heads. After all, we have had this giant ‘oil tax cut’, and, besides, thec has ‘decoupled’ from the stormy waters abroad and is finally on its way to ‘escape velocity’.
The Wall Street touts and Keynesian economic doctors have been saying that for months now – -while averring that all the Fed’s massive money printing is finally beginning to bear fruit. So today’s retail report is a real stumper – – even if you embrace Wall Street’s sudden skepticism about government economic reports and ignore the purported ‘noise’ in the seasonally maladjusted numbers for December.
All right then. Forget the December monthly numbers. Why not look at the unadjusted numbers in the full year retail spending report for 2014 compared to the prior year. Recall that the swoon from last winter’s polar vortex overlapped both years, and was supposed to be a temporary effect anyway – – a mere shift of consumer spending to a few months down the road when spring arrived on schedule.
On an all-in basis, total retail sales in 2014 rose by $210 billion or a respectable 4.0%. But 58% of that gain was attributable to two categories – auto sales and bars&restaurants – which accounted for only 28% of retail sales in 2013. And therein lies a telling tale.

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 14, 2015.

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Good Thing We Need More Strip Malls & Office Buildings: Fed Again Herding Yield-Seekers Into Sliced & Diced Commercial Mortgages

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A hunt for yield and a gradually improving property market are bolstering a key engine of U. S. commercial property lending, helping borrowers to refinance but also reigniting fears the market is getting overheated.
In all, lenders made $94 billion in loans bundled together and sold off as bonds to investors in 2014, the most since 2007 for the product known as commercial mortgage-backed securities, according to trade publication Commercial Mortgage Alert.
Real-estate executives andbankers are predicting that figure will rise in 2015. Eighty-eight percent of respondents to a survey by the CRE Finance Council, a trade group, predicted lenders would make at least $100 billion in CMBS loans in 2015, with 18% predicting issuance would rise above $125 billion.
The CMBS market is a significant – and volatile – component of the broader market for commercial-property lending. It tends to grow rapidly when times are flush as Wall Street banks and other lenders can quickly turn up production so long as there is demand from bond investors.

This post was published at David Stockmans Contra Corner on January 14, 2015.

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It’s Earnings Season – – So Here Come The Crooks, Led By Alcoa

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Once upon a time Alcoa (AA) was a great industrial powerhouse and innovator. Now it is a stumbling, pitiful giant that is a veritable wealth destroyer. And its dismal plight, which is thoroughly obfuscated by a Wall Street pleasing earnings scam called ‘ex-items’, is not atypical of Corporate America.
Last night, for instance, AA reported another essentially profitless year, earning $268 million on $24 billion of sales. That amounted to a 1.1% return on sales and a US Treasury-like return of 2.1% on its $12.5 billion of book equity.
So, let’s see. These meager profits round to 21 cents per share for the trailing 12 months. Yet who in the world would pay 75X EPS for the earnings of a company that has been submerged in red ink for the past seven years, and which is now at the peak of a global aluminum commodity cycle that is heading for a thunderous fall?
The short answer, of course, is the robo-traders and fast money schemers who play the Wall Street ‘ex-items’ game, pretending that todays AA stock price at $15.80 makes all the sense in the world because non-GAAP earnings for 2014 were held to be $0.92/share, not the actual 21 cents. Accordingly, why not pay 17X for a company who’s CEO is brimming with optimism about the future?

This post was published at David Stockmans Contra Corner on January 13, 2015.

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The US Hasn’t ‘Decoupled’ And There Ain’t No Giant ‘Oil Tax Cut’

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The buy-the-dip crowd went on a rampage last Thursday, lifting the Dow by 300 points in the first hour of trading. So doing, it got the stock averages back into the green for 2015 – -thereby making short shrift of another 4-5% ‘dip’ at the turn of the year.
But don’t think we are off to the races once again. This year may be different, finally
Indeed, this time the Wall Street touts have got the narrative so dead wrong that the day-traders and robo machines who track them are likely to be smacked-down on the dips over and over – – until there are no more dips left, only an honest-to-goodness plunge.
The false narrative is an old standby that is usually revived when worrisome clouds form on the global horizon. Namely, that the US economy has ‘decoupled’ from the troubles brewing abroad; and that this time the collapse of crude oil amounts to a giant ‘tax cut’ that will send US consumers into a frenzy of new spending, thereby fueling a surge of hiring, income and growth.
Nice theory – but it’s not going to happen. In the first place, the plunge in oil prices is not a ‘tax cut’ and its doesn’t put a dime into the pockets of any consumer. That whole notion is just one more example of ritual incantation – – a baseless repetitive refrain that flows from Keynesian doctrine and Wall Street bullhorns.
What will happen is that total ‘spending’ in the US economy will be reallocated, not increased. And now that net petroleum imports have dropped to a 40 year low, the math is pretty straight forward; and its not indicative of a windfall boon to the domestic economy, at all.

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 12, 2015.

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