This page has been archived and commenting is disabled.
The US Hasn't "Decoupled" And There Ain’t No Giant "Oil Tax Cut"
Submitted by David Stockman via Contra Corner blog,
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.
At the present time, total US petroleum product consumption—including gasoline, heating oil, jet fuel, chemical feedstocks and the rest of the refinery slate—is about 19 million barrels/day or just about 7 billion barrels annually. Assuming we get an average $60 per barrel price reduction in 2015—from the previous $100 trend to about $40—-the indicated annualized “savings” is about $420 billion.
Yes, that’s something. It amounts to about 2.3% of GDP and 3.5% of personal consumption expenditures (PCE). But net imports in the most recent month (November) were only 5.1 million bbls/day, meaning that fully 14 million bbls/day was accounted for by domestic crude oil, condensates, NGLs and refinery gains. So the domestic revenue hit at $60 per barrel will amount to a thumping $300 billion.
Now the net gain to the US economy of the $120 billion difference is nothing to sneeze at—even if it does amount to only 1% of the current $12 trillion of PCE. Yet even that is not all that meets the eye.
In the first place, net oil imports are virtually certain to continuing falling in 2015—notwithstanding lower prices to domestic producers. That is owing to the “sunk capital” phenomenon, which is especially true in the capital intensive petroleum industry, and especially in the shale patch. Based on fields already opened, production infrastructure in place and wells already drilled, shale oil production is likely to continue rising this year—- along with condensates and NGLs from the wet gas fields.
Stated differently, what will be hit hard in the short-run is oilfield investment spending on drilling rigs, supplies, crews and new acreage leases. The multiplier from that will hit restaurants, bars, car dealers and strip malls in Bakken,Eagle Ford and the five big oil states generally— long before daily production peaks and begins to roll-over owing to the steep decline curves on fracked wells.
As is by now well known, all the net gain in US payroll jobs since January 2008 have been attributable to the five shale states. Now, perforce, begins the great unwind.
This prospect marks a sharp change from the oil price plunge at the time of the 2008 financial crisis. Back then, net imports totaled 11 million bbls/day and accounted for nearly 60% of domestic consumption. Accordingly, if the oil price collapse last time was mainly “off-shored”, this time it will be predominately “on-shored”. Due to the lagged impact of price reduction on current domestic production, net petroleum imports are likely to fall under 5 million barrels per day this year, or to approximately the 1972 level.
In all, the net benefit to the US economy—-even on a crude first order basis—is likely to be less than $100 billion per year. Moreover, some of that re-allocated spending will go to imports of goods and services, reducing the mathematical net gain even more. After all, net imports on the current account amount to nearly 15% of GDP; and the overwhelming share of “stuff” that might benefit from spending reallocation—-shoes, shirts, i-Pads,furniture, flat-screen TVs and all the other trinkets sold at Wal-Mart—- still come from China and its satellites.
But there is something else. Even the modest recovery in personal consumption spending over the last five year has been disproportionately attributable to the top 20% of households; the customers of Macy’s and Nordstrom’s.
The rest of the main street households have experienced virtually no real wage gains and are still underwater or nearly so on their mortgages and have maxed out their credit cards. They have also already bought new cars on cheap credit at more than 100% LTV ratios and are facing sharp increases in the cost of employer provided or Obamacare health insurance. Most crucially, upwards of three-fourths of the bottom 80% of households don’t have even $500 of cash savings for a rainy day.
So its just possible that the Keynesian economists and their Wall Street fellow travelers have called for a consumption party that few American will join. Indeed, the chart below should be an ever-lasting rebuke to the Wall Street touts peddling the “oil tax cut”.
The household savings rate is again at rock bottom following a temporary uptick after the last crisis. It just might be that the $2 per day savings on gasoline now accruing to the 80% will end up in the piggy-bank, not cash registers at the strip mall.

In any event, the $300 billion net decline in cash flow to the domestic petroleum industry is certain to take a deep toll on the bloated level of capital spending and jobs that has resulted from more than a decade of rampant money printing by the Fed and other central banks on a worldwide basis.
The global commodity, industrial and construction boom that resulted from this monetary madness is already cooling visibly and relentlessly by the day. $30 oil and $30 (per ton) iron ore are already realistic possibilities. And those indicators are only the leading edge of an era of worldwide deflation of profits, investment, trade and debt fueled consumption.
The touts have it backwards. This isn’t about greeters at Wal-Mart handing out tax cuts to hard-pressed American consumers. Its about the coming liquidation of the massive malinvestments and bloated economies that have been enabled by rampant central bank money printing and the resulting madcap expansion of unrepayable debt.
Buying-the-dip was always a strategy that would work until it didn’t. The “oil tax cut” tale is designed to ensure that Wall Street’s Muppets will be the last to get the word.
- 10150 reads
- Printer-friendly version
- Send to friend
- advertisements -



Dude sounds grouchy. Obviously doesn't BTFD
That's what I said first few days of the oil price decline. It's gonna be bad, as evidenced (cause effect cause) by being in a Liquidity Trap. Nobody's using the money already out there except to blow bubbles. The consumer is in shit city. An oil price cut, when it flows down to him's probably gonna go for a new pair of socks at best. Except the 1% who got all the new money anyhow, and they don't count in the economic growth calculus.
Funny, because this same comment, with less words was posted in the bond pit 30 min ago.
You look at the breakdown of the retail purchasing habits, and outside california the major consumers were ND/Ok/Tx. So there is a latent beta factor to all the existing homebuilder/retail facing equities which are not yet priced in our being talked about, piling ontop of the Fx hit which is going to impair or def. charge down most foreign growth.
All of which will clearly be explained away on the weekend by a Super Mario sticksave.
"the plunge in oil prices is not a “tax cut” and its doesn’t put a dime into the pockets of any consumer."
I stopped reading here. Bullshit, bullshit, bullshit. Don't know about you, but I paid less for gas -- a lot less. This helps pay the other bills. If you had oil industry investments, as I assume this angry writer did, you are a muppet who got screwed. Again. Tough shit. Be smarter next time if you can.
How long do you anticipate these "prices" will last? Enlighten us.
personally, I think it is impossible to actually price something when price discovery is fucking dead.
'But don’t think we are off to the races once again. This year may be different, finally'... It's already evident here. The FUV's (as in eff you, get out of my way), are back on the roads during the week. A few months ago, they only got out on Sundays. The dually P/U's are out again, too. Wall Street debt masters poured billions of FED induced malinvestment into over-priced oil. They will still show a net positive gain, since the debt slaves will have more money after filling up their gas hogs to go to the mall. These articles are simply laying the foundation for yet another tax payer bailout of the banskters who got burned.
c'mon Stockman, greed is good, didn't you get the memo?
It is about glorified theft by the financial sector. Create bubbles and increase money supply, which in turn increases phantom AND SENIOR fractional reserve banking claims on real flows of value. Frontrun the financial assets and then, when everyone is bought into the bubble, strategically deflate do the senior claims own all... The unchecked FRB ponzi must end. Liquidate essentially fraudulently priced financial assets to raise cash and buy gold. Redeploy to domestic producers as everyone panics so that those who manufacture the crunch cannot exploit it.
"Create bubbles and increase money supply, which in turn increases phantom AND SENIOR fractional reserve banking claims on real flows of value."
Money supply increasing as velocity is decreasing sharply. Hello?!?!
Middle class fistfuck is endless
How are the blowhorns going to explain the action today to the viewership that is supposed to keep buying at all cost?
Market started really good on some positive news and then when it all seemed oh so great, the sellers overwhelmed the buyers and cashed in? This is not supposed to happen!
It's all going to shit in a waste bucket before the end of the quarter. War drums getting louder already.
I've been reading the headlines since the little 'unexpected' tumble in the market and things are starting to get a bit schizophrenic. Apparently one one stock (Alcoa) can't prop the market up like it usually does....pesky reality should be outlawed...
2:20 and still no stick save?
Hmmmmmmm?
THIS ARTICLES LIES! YOU LIE! fingers in ears!
Ha ha!
Can't wait to watch that whale wallow and lie her way through the primaries.
Vomit-us!
Copper down 5% -- eyes front, nothing to see here.
There is a certain "built in de-couple" of America from the rest of the world economy. Notice I said "certain" not "complete".
Only the USA can print wealth from nothing and have it accepted world wide as real wealth, able to buy energy, minerals, services and the host of consumer goods unemployed Americans feast on!
This by it's very nature is a de-couple. If you are in Argentina, you must produce something, sell it, earn dollars, THEN you can go onto the world market place and buy something. You see the difference? That is a de-couple. Iran can buy nothing, until it first sells something of value to earn dollars, then it can buy consumer goods. Russia must sell oil, earn dollars, then it can buy things from Germany. America on the other hand need produce and sell nothing, in order to go on the world market place and buy. That is a de-couple. We run a trade deficit since I was born! Every year, NEGATIVE. No other nation can do that, we are coupled to the world economy of course. But not in the sense other nations are, we have a de-couple of dollar printing wealth.
indeed, good one
Creating infinite paper claims on real goods and services has been tried before. It always ends the same.
trade is the only thing that keeps the world from going to war in earnest.
same as it ever was Jack.
On paper nothing is impossible......
So, let it end the same LawofPhys. In the meantime, enjoy all your free shit.
Oh, you think you don't get free shit. Sure you do. The federal gov spends double what it takes in as taxes. What ever that is spent on is free shit. You benefit, like everyone else does, whether it's infrastructure, jobs, demand for every good/service or welfare to keep the inner city people from running feral.
Someday the free ride will end, and boy will that suck.
What part of same as it ever was didn't you understand asshat?
It? Ever?
Nobody knows what you are referring to, autism boy. Don't bother replying. Who cares what the voices in your head say.
The Fed. gov. drives prices up against honest folks. In high school, they made us go to an assembly at Christmas, where they were raising donations for the starving Ethiopians. They sang that puke worthy song, We are the World.
http://www.youtube.com/watch?v=M9BNoNFKCBI
A friend stood and yelled, 'Let the Fuckers Starve'. Lucky for him the thought police (teachers) didn't hear him. I predict the fuckers will starve more than running feral. Running feral guarantees they'll be shot, in this country.
But that's the fun thing about living in today's world Jack, as opposed to those years since we were born... Those years consisted of 'boring investments', fair rates of return on capital and outlooks that were steady for well over a year or more. Contrast those times with what has transpired over just the past (6) years - both economically and geopolitically, and the 'de-coupling' theme wears thin. Yes - for now we're #1 (USA!!! USA!!! USA!!!), but as we have all been witness to, events can (and will) change - perhaps much faster and more abrupt than anyone could have imagined in any year since we were born.
Muppets!
THE David Stockman? That leftist /anarchist /socialist? What does he know? /sarc
I agree that the energy boom bust is much more of our economy than people realize...trucks to steel to housing and retail are all going to take a hit when drilling stops and it is right now....investment in oil and gas is going to dry up..and many will not be paid back their investments or loans...bad debts...its going to be a bigger hit than many people know...especially an Ivy league econ professor who has no idea what an oil rig is or does....
But... Green shoots? Recovery? Fed's got your back? Wait... None of these are true?
Bummer..
Hope you already got your PM stacked. We're about to see fireworks the likes of which mankind has rarely seen.
Wouldn't 'now' be an opportune time to make a big "save the US, do the right thing" speech and tout all the benefits of an added 50cent per gallon gas tax?
The govener in Wa state is trying to carbon tax gas at the pump via an executive order right now.
Yes, after alredy incresing the pot taxes. gonna be a windfall for them. For the sheep, not so much.
I like cheap gas.
After cutting wages, benefits, hourly work week and at the same time, increased taxes, groceries, health insurance, rent, guns, ammo, and anything else needed for essential living, now the masters of the universe want the goose to keep laying golden eggs by spending MOAR...
Buy some more made in China crap with your gasoline savings....
What A Bunch Of Bullshit (WABOB)
There is nothing left to take or for us to spend (except for boating accident insurance) . This what happens when you steal it all.
Aaaaaaannnnnnd it's gone....
I understand the point that the stocks and paper investments will suffer because of crashing oil. I understand that there could be severe ripple effects in the overall economy. However, If read one more time that this is not good for the middle class and working poor (in the short term) I am going to scream my fool head off!! Almost every single day I read a new article on Zerohedge from some investor who is going to lose his/her shirt because of risky plays in the oil patch. Screw you! The lower gas price is absolutely great for me and all of my neighbors right now. It is ABSOLUTELY a "tax cut". It is an unqualified boom for my pocketbook. It is also good for the company I work for because it has a high gas bill and requires a lot of travel. Instead of mine and my company's money going to pay U.S. and middle eastern oligarch's so they can blow it on blow, hookers, bigger yacths, bigger planes, and faster cars, we can save more, and use the money for true productive uses/investment. It is real money and it is a good thing for the middle class right now. Believe it or not, all you writers here at Zerohedge, I don't want to pay $5, $10, $15 for a gallon of gas.
You answer your own question. Yes, short term it is a good break. I guess the question is whether or not you are a short or long-term thinker. If you plan on dying soon, then yes, party on Garth!
No one is arguing that lower pump prices aren't a good thing. It is the context in which they are ocurring... And it is unforunately, a very twisted, perverted and upside-down economic context - the kind that only interventions from Central banks defying the natural laws of economic physics, can wreck upon an economy - i.e., not allowing a true market-clearing event/s to transpire - naturally. In any event, enjoy your low gasoline prices now, while you still have a job to purchase the low-priced fuel with. And no, I did not down-arrow you either.
so btfd then?
USD is dying. Too bad only the "East" knows it..
Best quote of the piece (to me anyway), and The One that should be on a billboard within the city limits of every municipality nationwide...
"As is by now well known, all the net gain in US payroll jobs since January 2008 have been attributable to the five shale states. Now, perforce, begins the great unwind."
OIL is in the process of finding temporary support which will last several weeks to months, but the long term trend is still down.
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
charles mackay - "memoirs of extraordinary popular delusions and the madness of crowds"