What a difference eleven months make.
Shortly after Donald Trump was inaugurated he fired Michael Flynn.
What’s become the conventional subtext is that the intelligence agencies have launched a “soft coup” against Trump, he has been significantly weakened, and the Deep State has scored a major victory.
“Plot Holes,” SLL, 2/26/17
Rejecting that subtext, SLL developed in “Plot Holes” and later articles a series of interrelated hypotheses. We posited that Trump was smarter and the Deep State weaker and more incompetent than generally reckoned. Also, that the Deep State’s animus towards Trump was based chiefly on fear of exposure and prosecution for its long history of corruption and criminality, not policy differences, notably concerning Russia. Finally, we suggested Trump is chiefly motivated by a drive for power. These hypotheses yielded testable predictions.
As predicted, the Russiagate investigation, based as it is on nothing, is now recognized as a monumental blunder. It forced the Deep State into the open and revealed its prosecutorial forbearance towards Hillary Clinton, its effort to help her and hinder Trump during the election, and its attempt to depose Trump afterwards. The FBI has been exposed as the antithesis of a concept implied by the word investigation: impartiality. Holdovers from the Obama Justice Department have been compromised.
The tables are turned. As the Russiagate investigation fades, Trump is left with investigatory gold mines: Uranium One, Fusion GPS, FBI and Department of Justice political meddling and obstruction of justice, Hillary Clinton’s emails, and the Clinton foundation. Trump could fire Robert Mueller with only a minor political uproar, but Mueller’s making a fool of himself to Trump’s political benefit. Why stop him?
As for those gold mines, Trump will decide if the threat of an investigation or an actual investigation best satisfies his leverage and power calculations and proceed accordingly. There has been no general swamp draining, nor will there be. Trump uses investigatory threats as a Machiavellian tactic to extract what he wants from compromised political actors in useful positions. The Clintons and James Comey, no longer in power and thus, no longer useful, are the most likely to be investigated and prosecuted.
In foreign policy, recognizing Jerusalem as the capital of Israel emphasizes Trump’s pronounced tilt toward Israel. Acquiescing to Saudi Arabia’s hapless war against Yemen and Mohammed Bin Salman’s recent purge confirms his support of that regime. In return, Israel and Saudi Arabia have sat still for Trump’s discontinuance of the US policy of supporting Islamic extremists to further regime changes (see “Powerball, Part Two”). This has meant accepting a de facto victory for the Russian-Shia alliance in Syria. US support for the Middle East’s Sunni bloc and Israel as Russian backs the Shiite bloc may lead to a standoff that brings a reduction in violence in that troubled region. It has already begun to reduce refugee flows from the area to Europe.
This is not to say that Trump’s rhetorical broadsides against Iran will stop, but the claims that the US is on the verge of war are overblown. Such a conflict would lead to a Middle East conflagration and the third officially recognized world war.
Trump’s blasts against North Korea are more problematic. His task there is more difficult than Iran; North Korea has nuclear weaponry purportedly able to strike most of the US. Trump has two options: a military strike designed to wipe out North Korea’s nuclear arsenal and Kim Jong-un’s regime, or negotiations that ratify the status quo, with Russia and China applying continuing pressure to enforce Kim’s compliance. At this point Trump may not know what he’s going to do, other than more verbal shots at North Korea and continuing displays of military strength in the region.
Trump has started no new wars. His administration has rolled back some regulations and he just won a legislative victory on tax reform. That may give him enough of a headwind to readdress Obamacare, which has neither been repealed nor replaced. He has his enemies on their back feet. Only fringe elements are still talking about impeachment. The government’s statistics indicate growth is running at above 3 percent, better than trend Obama growth, and the stock indexes keep making new records.
In 2017 SLL made contrarian, optimistic predictions for the president and pessimistic predictions for the economy and stock market (see “Hard Core Doom Porn”) We’ve been more right on the former than the latter…so far. For 2018, we’re with the minority who see clouds and thunderstorms, not silver linings. This is about as good as it gets for Trump.
Deft—by this analysis—as Trump has been, his biggest challenge lies ahead. The government is bankrupt, and demographics will push it ever-deeper in the hole. The global economy is struggling under monstrous and unsupportable debt. Fiat money something-for-nothing has a sell-by date, sooner or later the stock market and economy will head south. Historically, there’s been a tight correlation between stocks, the economy, and presidential popularity.
“Is Trump Winning?” SLL, 8/6/17
Debt has been Trump’s siren song his entire career, and more than once he’s crashed on the rocks. Big triumphs have been followed by big disasters, hubris undoubtedly playing a role.
Stock market and cryptocurrency pyrotechnics have obscured an incipient bear trend in a much more important market, bonds, which in the US apparently topped out in July 2016. Falling bond prices mean rising interest rates. The world has never been more indebted; a global bear market in bonds would be toxic to equity markets and economies (and perhaps cryptocurrencies). Tellingly, high yield bond prices are diverging from rising stock prices, indicating increasing credit stress. According to David Stockman, tax reform will increase the government’s borrowing to $1.25 trillion in fiscal year 2019. Rising rates would add more to the government’s interest bill, and hit indebted businesses and individuals as well. They would offer relief to savers long abused by the Fed’s interest rate suppression tactics, but savers are a much smaller group than borrowers, and they spend less.
Rising debt and ever-expanding government are in large part responsible for a long-term decline in trend economic growth rates across the developed world. Much of what growth there has been was funded with debt. If you buy $100 dollars worth of good or services on credit you have not increased your income, your personal “gross domestic product.” If the government does the same, it registers as an increase in the gross domestic product. Back out such debt-funded “growth” and it’s unclear if there’s been any growth at all since 2009.
In the US, real incomes have stagnated since the turn of the century. Rising equity markets and falling growth rates mean that corporate valuations are in the stratosphere. Joined with off-the-chart measures of optimism and declining central bank support, equity markets are poised for a fall. That it hasn’t happened yet doesn’t mean it won’t. It’s never “different this time.” Given the leverage and speculation embedded in the market, the fall could be breathtaking, a quick drop of 50 percent or more.
As noted, falling stock markets and economies generally take the popularity of incumbent politicians with them. Trump, the most polarizing political figure since Franklin Roosevelt, is not all that popular to begin with. The Deep State that has ruled this country since World War II is down; it would be unwise to count it out. It will certainly capitalize on financial and economic turmoil to launch a counterattack against Trump.
Next year’s silver lining may be that it marks peak government. Governments have coopted much of the world’s resources and put a gigantic lien on its future production. In a severe economic contraction, the wherewithal from taxes and credit markets that would allow them to grow even bigger—and thus more intrusive and repressive—simply won’t be there.
A financial and political focal point will be pension and medical funds. Many such funds are visibly under stress. Widespread insolvency is inevitable, especially if equity and credit markets head south. The resultant fear and fury will be uncontrollable, obliterating today’s widespread, quasi-religious faith in government and its works. The upheaval would make present discord look like a picnic in the park.
It would be unwise to rely on anything but one’s own resources, family, and friends during the coming turmoil. It would be wise to shore up those defenses, and soon.