By John Morgan at NewsmaxFinance
The U.S. has not really decoupled from weakening global financial markets, and cratering oil prices will simply be a drag on the economy rather than spark its revival, according to former White House budget chief David Stockman.
Stockman, a keen observer of Washington's foibles and the machinations of Wall Street, says it's a fantasy that plunging crude prices amount to a de facto "tax cut" for average Americans.
"It doesn’t put a dime into the pockets of any consumer. . . . What will happen is that total 'spending' in the U.S. economy will be reallocated, not increased," he predicted on his Contra Corner blog.
The ripple effect of the lower revenues will percolate through the economy, in his view.
"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 rollover owing to the steep decline curves on fracked wells," he noted.
"As is by now well-known, all the net gain in U.S. payroll jobs since January 2008 have been attributable to the five shale states. Now, perforce, begins the great unwind."
Even the reduced amount from oil savings that lands in consumers' pockets is vulnerable to contraction because much of it will be spent on imports — not made-in-the-USA goods that boost the domestic economy, according to Stockman.
"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, iPads, furniture, flat-screen TVs and all the other trinkets sold at Wal-Mart — still come from China and its satellites."
"It just might be that the $2 per day savings on gasoline now accruing to the 80 percent will end up in the piggy-bank, not cash registers at the strip mall."
Stockman predicted the decline in domestic oil revenue is bound to take a bite out of capital spending and jobs that have resulted from more than a decade of reckless money printing by the Federal Reserve and other global central banks.
He believes the U.S. will be trapped in the same bathtub drain of weakening global commodity, industrial and construction booms as other developed nations.
"This isn't about greeters at Wal-Mart handing out tax cuts to hard-pressed American consumers. It's about the coming liquidation of the massive mal-investments and bloated economies that have been enabled by rampant central bank money printing and the resulting madcap expansion of unrepayable debt," he concluded.