Donald Trump and The Perennial Myth Of Crumbling Infrastructure

By David Stockman

There is a good reason why Donald Trump’s campaign has been light on policy details. To wit, it seems that every time he gets specific he manages to serve up a steaming pile of hogwash.

So when he told Fox News that he would double-down on Hillary’s $275 billion infrastructure boondoggle, The Donald was right on cue. And in pulling his new $500 billion infrastructure program straight out from under his comb-over, he also demonstrated he has no idea what he is talking about.

Donald Trump on Tuesday proposed a plan to rebuild U.S. infrastructure that costs “at least double” the amount that Hillary Clinton has floated, in what would amount to a massive new government program……“Well, I would say at least double her numbers, and you’re going to really need more than that. We have bridges that are falling down. I don’t know if you’ve seen the warning charts, but we have many, many bridges that are in danger of falling.”

No, Donald, the bridges of America are not falling down and the nation’s infrastructure—-to the extent that it is any business of Imperial Washington at all—-is not “crumbling”. Actually, Washington’s primary job is maintenance of the Interstate Highway System, and that’s in pretty good shape, including its heavily trafficked bridges.

More importantly, if additional investment is needed in the interstate highway grid, then the users should pay for it with a modest increase in the gasoline tax. Or better still, rescind the earmarks which divert upwards o 67% of the existing $45 billion per year of gas tax revenues to state and local roads, mass transit, bike trails, walking paths, weed removal, transportation museums and countless other diversions. In short order the system would be in tip-top shape.

But that’s not the half of Trump’s wild pitch on this one. Having swallowed the infrastructure myth hook, line and sinker, the GOP candidate went a horrid step further and talked up an “infrastructure bank”—–the Democrats’ favorite backdoor route to further ballooning the nation’s already crushing public debt.

Despite insisting that “I’m doing the biggest tax decrease”, Trump saw no sweat at all in coming up with the half trillion dollar price tag for his latest brainstorm:

“We’ll get a fund. We’ll make a phenomenal deal with the low interest rates,” he said. Who would provide the money? “People, investors. People would put money into the fund. The citizens would put money into the fund,” he said, adding that he’d use “infrastructure bonds from the country, from the United States.”

Here’s the thing. Upwards of 95% of what passes for infrastructure investment—-highways, roads, streets, bridges, airports, seaports, mass transit, water and sewer, the power grid, parks and recreation etc—–are the responsibility of the private sector and should be paid for by users or, arguably, constitute local public goods and amenities. The latter should be managed by state and local governments and funded by local users and taxpayers.

But give the beltway lobbies and racketeers an inch and they will take a mile. After decades of Federal mission creep, there is virtually no aspect of “infrastructure” spending that has not wormed its way into the federal budget.

Trump Is Right—–Dump NATO Now

By David Stockman

If you want to know why we have a $19 trillion national debt and a fiscal structure that will take that already staggering figure to $35 trillion and 140% of GDP within a decade, just consider the latest campaign fracas. That is, the shrieks of disbelief in response to Donald Trump’s sensible suggestion that the Europeans pay for their own defense.

The fact is, NATO has been an obsolete waste for 25 years. Yet the denizens of the Imperial City cannot even seem to grasp that the 4 million Red Army is no more; and that the Soviet Empire, which enslaved 410 million souls to its economic and military service, vanished from the pages of history in December 1991.

What is left is a pitiful remnant—–145 million aging, Vodka-besotted Russians who subsist in what is essentially a failing third world economy. Its larcenous oligarchy of Putin and friends appeared to live high on the hog and to spread a veneer of glitz around Moscow and St. Petersburg. But that was all based on the world’s one-time boom in oil, gas, nickel, aluminum, fertilizer, steel and other commodities and processed industrial materials.

Stated differently, the Russian economy is a glorified oil patch and mining town with a GDP the equivalent of the NYC metropolitan area. And that’s its devastating Achilles Heel.

Krugman’s Dopey Diatribe Deifying The Public Debt

By David Stockman

Actually, dopey does not even begin to describe Paul Krugman’s latest spot of tommyrot. So here are his own words—–least it appear that the good professor is being unfairly caricaturized. In a world drowning in government debt what we desperately need, by golly, is more of  the same:

That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.

Yes, indeed. There is currently about $60 trillion of public debt outstanding on a worldwide basis compared to less than $20 trillion at the turn of the century. But somehow this isn’t enough, even though the gain in public debt——-from the US to Europe, Japan, China, Brazil and the rest of the debt-saturated EM world—–actually exceeds the $35 billion growth of global GDP during the last 15 years.

But rather than explain why economic growth in most of the world is slowing to a crawl despite this unprecedented eruption of public debt, Krugman chose to smack down one of his patented strawmen. Noting that Rand Paul had lamented that 1835 was the last time the US was “debt free”, the Nobel prize winner offered up a big fat non sequitir:

The Financial Folly Lurking Beneath Yellen’s Patient Lack Of Impatience

By David Stockman

Janet’s Yellen’s pettifogging today about her patient lack of impatience was downright pathetic. Her verbal hair-splitting is starting to make medieval ritual incantations sound coherent by comparison.

Kick-The-Can Has Morphed Into A Blatant Farce

By David Stockman

Kick-the-can has morphed into a blatant farce. Everywhere in the world central banks and financial officialdom are engaging in desperate, juvenile maneuvers to buy time—–amounting to hardly a few weeks at a go. Never before has the debt-saturated, speculation-ridden global casino rested upon such a precarious foundation.

This week, for instance, Janet Yellen will again waste two days of Congressional hearings in forked-tongue equivocations about an absolutely stupid issue. Namely, the exact date when money market interest rates will be permitted to blip upward from the zero bound by even 25 basis points.

But this “lift-off” drama is flat-out surreal. How could it possibly matter whether ZIRP will have been in place by 80 months or 83 months from its inception point way back in December 2008? There is not a single household or business on main street America which will change its behavior in the slightest during the next year regardless of whether the federal funds rate is 5 bps, 30 bps or 130 bps.

The whole Kabuki dance in the Eccles Building is about

Tesla: Bonfire Of The Money Printers’ Vanities

By David Stockman

The trouble with the money printing madness in the Eccles Building is that it generates huge deformations, misallocations and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century.  The resulting carnage, needless to say, is not

Europe’s Greek Showdown: The Sum Of All Statist Errors

By David Stockman

The politicians of Europe are plunging into a form of ideological fratricide as they battle over Greece. And “fratricide” is precisely the right descriptor because in this battle there are no white hats or black hits—-just statists.

Accordingly, all the combatants—the German, Greek and other national politicians and the apparatchiks of Brussels and Frankfurt—- are fundamentally on the wrong path, albeit for different reasons. Yet by collectively indulging in the sum of all statist errors they may ultimately

History In the Balance: Why Greece Must Repudiate Its “Banker Bailout” Debts And Exit The Euro

By David Stockman

Now and again history reaches an inflection point. Statesman and mere politicians, as the case may be, find themselves confronted with fraught circumstances and stark choices. February 2015 is one such moment.

For its part, Greece stands at

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

By David Stockman

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

Mario Draghi: Charlatan Of The Apparatchiks

By David Stockman

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

Here They Go Again—-Subprime Delinquencies Rising In Autoland

By David Stockman

Yesterday’s WSJ article on rising auto loan delinquencies had a familiar ring. It focused on sub-prime borrowers who were missing payments within a few months of the vehicle purchase. Needless to say, that’s exactly the manner in which early signs of the subprime mortgage crisis appeared in late 2006 and early 2007.

More than 8.4% of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November, according to the Moody’s analysis of Equifax credit-reporting data. That was the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%.

To be sure, subprime auto will never have the sweeping impact that came from the mortgage crisis. The entire auto loan market is

The Deflation Calamity Howlers Are Dead Wrong

By David Stockman

The calamity howlers of deflation are out in force this morning owing to an absolute economic non sequitur. Namely, that year-on-year consumer prices in the EU came in at negative 0.2% in December, implying that ECB printing presses need to go into immediate overdrive.

Well, of course the CPI has momentarily weakened. Crude oil has experienced a monumental plunge of more than 50% since mid-2014. That has temporarily dragged down the euro zone’s reported CPI and the math isn’t all that complex. During the last 12 months,  euro zone energy prices have fallen by 6.3%, and everything else is still 0.6% higher than a year ago.

So what’s the emergency? This is the very same CPI blip that occurred when

Washington’s Lies About TARP’s “Success” Are Worse Than The Original Bailouts,

By David Stockman

The mainstream economics narrative is so far down the monetary rabbit hole that the blinding clarity of the chart below has no chance whatsoever of seeing the light of day. That’s because it dramatizes the real truth regarding all the Fed gibberish about “accommodation” and “stimulus”. Namely, that what lies beneath its “extraordinary measures”, such as ZIRP, QE, wealth effects and the rest of the litany, is a central banking regime that systematically destroy savers.  Period.

Just take the simple case of a worker who joined the labor force in 1969 at

The Central Bank Delirium Phase

By David Stockman

Virtually every day there is an eruption of lunacy from one central bank or another somewhere in the world. Today it was the Swiss central bank’s turn, and it didn’t pull any punches with regard to Russian billionaires seeking a safe haven from the ruble-rubble in Moscow or investors from all around its borders fleeing Mario Draghi’s impending euro-trashing campaign. The essence of its action was that your money is

The Shale Oil Crash Could Be Worse Than the Housing Bubble Crash

David Stockman writes:

Folks, you don’t have to know whether the breakeven for wells drilled in the Eagleville Condy portion of the great Eagle Ford shale play is $80.28 per barrel, as one recent analysis documents, or $55 if you don’t count all the so-called “sunk costs” such as acreage leases and oilfield infrastructure. The point is, an honest free market would have never delivered up even $50 billion of leveraged capital—let alone $500 billion— at less than 400bps over risk-free treasuries to wildly speculative ventures like shale oil extraction.

The fact is, few North American shale oil fields make money below $55/barrel WTI on a full cycle basis (lease cost, taxes, overhead, transport, lifting cost etc.). As shown below, that actually amounts to up to $10 less on a netback to the wellhead basis—–the calculation that drives return on drillings costs.

In short, as the oil market price takes its next leg down into the $50s/bbl. bracket, much of the  fracking patch will become a losing proposition. Moreover, given the faltering state of the global economy and the huge overhang of excess supply, it is likely that the current crude oil crash will be more like 1986, which was long-lasting, than 2008-09, which was artificially resuscitated by the raging money printers at the world’s central banks.

So why is there a shale patch depression in store? Because there is literally a no more toxic combination than the high fixed costs of fracked oil wells, which produce 90% of their lifetime output in less than two years, and the massive range of short-run uncertainty that applies to the selling price of the world’s most important commodity. 

Surely, it doesn’t need restating, but here is the price path for crude oil over the past 100 months. That is to say, it went from $40 per barrel to $150, back to $40, up to $115 and now back to barely $60 in what is an exceedingly short time horizon. 

Obviously, what we have here is another massive deformation of capital markets and the related flow of economic activity. The so-called “shale miracle” was not made in Houston with some technology help from Silicon Valley. The technology of horizontal drilling and well fracking with chemicals has been around for decades. What changed were the economics, and those  were made in the Eccles Building with some help from Wall Street.

As to the latter, was it not made clear by Wall Street’s mortgage CDO meth labs last time that when the central bank engages in deep and sustained financial repression that it produces a stampede for “yield” which is not warranted by any sensible relationship between risk and return? It should not have been even possible to sell a shale junk bond or CLO that was based on assets with an effective two year life, a revenue stream subject to wild commodity price swings and one thing even more unaccountable. Namely, that the enterprise viability of virtually every shale junk issuer has always been dependent upon an endless rise in the junk bond issuance cycle.

Stated differently, oil and gas shale E&P operators are drastic capital consumption machines. Due to the lightening fast decline rates of shale wells, firms must access more and more capital just to run in place. If they don’t flush money down the well bore, they die along with all the “sunk” capital that was previously put in place.

In the case of shale oil, for example, it is estimated that were drilling to stop for just one month, production in the Eagle Ford, Bakken and one or two other major provinces would drop by 250,000 barrels per day. After four months, the drop would be 1 million bbl./day and after a one-year, nearly half the current four million barrels of shale oil production would disappear.

That’s why all of a sudden there is so much strum and drang about “breakeven” pricing. Obviously, new drilling is not going to go to zero under any imaginable price scenario, but for all practical purposes the shale revolution could shut down just as fast as did the housing boom in 2006-2007. In effect, the shale financing boom presumed that both the junk bond cycle and the oil price cycle had been eliminated.

Needless to say, they have not. So the impending “correction” may well be as swift and violent as was the housing bust.

Indeed, in the short-run the shale crash could be worse. The fantastic, debt-fueled drilling spree of the past 5-years is now sunk and will produce rising levels of production for a few quarters until rig activity is sharply curtailed and some of the better capitalized operators stop drilling in order to avoid lease expiration writeoffs.

So as the WTI market price is driven toward $50/ barrel, recall that the netback to the producer is significantly less. In the case of the biggest shale oil province, the Bakken, the netback to the well-head is upwards of $11 below WTI.  Accordingly, cash flow will plunge and that source of drilling funds will evaporate with it.

 David Stockman was the Director of the Office of Management and Budget during part of the Reagan Administration, from 1981 to 1985. He is the author of The Great Deformation: The Corruption of Capitaism in America and The Triumph of Politics: Why the Reagan Revolution Failed.

 The above originally appeared at David Stockman's Contra Corner and is reprinted with permission. 

How The Federal Debt Went From $1 Trillion To $18 Trillion in 33 Years

By David Stockman

In the great fiscal scheme of things, October 22, 1981 seems like only yesterday. That’s the day the US public debt crossed the $1 trillion mark for the first time. It had taken the nation 74,984 days to get there (205 years). What prompts this reflection is that just a few days ago the national debt breached the $18 trillion mark; and the last trillion was added in hardly 365 days. 

I remember October 1981 perhaps better than most because as the nation’s budget director at the time I had some splain’ to do. Ronald Reagan had waged the most stridently anti-deficit campaign since 1932 when, ironically, FDR promised a balanced budget while denouncing Herbert Hoover as a “spendthrift”. Likewise, Gov. Reagan had denounced Jimmy Carter’s red ink and promised a balanced budget by 1983.

But as 1981 unfolded and the US treasury borrowed large sums each day to fund what we were pleased to call Jimmy Carter’s “inherited deficits”, the trillion dollar national debt threshold rushed upon us. And, in truth, it came

B-Dud Explains The Fed’s Economic Coup

By David Stockman

Keynesian economists are annoying enough when they are pitching inflated financial assets on Wall Street or the supposed curative powers of fiscal deficits on Capitol Hill. But they become positively dangerous when they

Financial Terrorists On The Road—–Krugman And Rogoff Peddling Toxic Advice

By David Stockman

Here are a couple of reasons why Keynesian economists are truly a menace in today’s bubble ridden and debt-impaled world. It seems that both Harvard’s Kenneth Rogoff and Princeton’s Paul Krugman are on the global advice circuit, peddling what amounts to sheer snake oil to desperate politicians and policy-makers who have already buried themselves—-so far to no avail—-in unprecedented waves of fiscal and monetary “stimulus”.

But never mind. The professors have a three part solution, and its more, more……and moar! To make room for more monetary stimulus after six-years at the zero bound, therefore, Professor Rogoff has a truly juvenile solution. Namely, to abolish cash. That’s right, this Harvard windbag proposes to confiscate your kids’ piggy bank and any green stuff that may  be left in your wallet.

Meanwhile, Krugman has

How Janet Yellen is Fueling The Next Subprime Bust

By David Stockman

On any given day, Janet Yellen is busy squinting at 19 essentially meaningless labor market graphs on her “dashboard”, apparently looking for evidence that ZIRP is working. Well, after 71 months of zero money market rates—-an unprecedented financial absurdity—-there are plenty of footprints dotting the financial landscape.

But they have nothing to do with

Prime Minister Abe is a Certifiable Madman: In Short Order, He Will have Plenty of Company All Around the Planet.

By David Stockman

This is getting hard to believe. The announcement that Japan has plunged into a triple dip recession should have been lights out for Abenomics. But, no, its madman prime minister has now called a snap election to enlist more public support for his campaign to destroy what remains of Japan’s economy.

And what’s worse,