Will the Trump Bubble Burst?

Will the Trump Bubble Burst?

Not unlike Alice from Lewis Carroll’s Victorian novel, I’ve recently fallen through the rabbit hole of reading various articles and other texts about the history and rise of financial markets. Something – anything – unrelated to politics and away from social media seems like a positive development in this over-connected world. Alas, in reading Niall Ferguson’s Ascent of Money, his explanation of financial bubbles conjured a clear parallel in my mind to the rise (and fall?) of Donald J. Trump. 

The rise and eventual explosion of financial bubbles are divided into five categories, which appear consistently across bubbles in history ranging from Tulip mania in 17th century Netherlands to the housing bubble that plunged the world into the Great Recession just a decade ago. The five verbatim from Ferguson’s book:

  1. Displacement: Some change in economic circumstances creates new and profitable opportunities for certain companies.
  2. Euphoria or overtrading: A feedback process sets in whereby rising expected profits lead to rapid growth in share prices. 
  3. Mania: The prospect of easy capital gains attracts first-time investors and swindlers eager to mulct them of their money.
  4. Distress: The insiders discern that expected profits cannot possibly justify the now exorbitant price of the shares and begin to take profits by selling.
  5. Revulsion or discredit: As share prices fall, the outsiders all stampede for the exits, causing the bubble to burst altogether.

Who better to map against the rise and fall of valuation, of boom and bust, than Donald Trump?

Politics and economics are intertwined, no doubt, but the parallels here may come across as somewhat contrived. Regardless, I think there is value in attempting to relate a subjective, political story to a generally accepted empirical framework for financial markets.

Displacement

We begin with displacement. In fact, this story begins in the devastation of the last major bubble bursting: the 2008 housing crisis. Barack Obama ascends to the White House with promises of hope and change, and a mandate from the people as Democrats commanded the presidency, the House and the Senate. With the economy in dire straits, the administration passed a bailout to prevent major corporations from going belly-up, on top of a program that helped homeowners who were facing foreclosure and capped by the Affordable Care Act in 2010. 

The middle portion, aid to homeowners swindled by banks hawking subprime mortgages whose rates exploded after a fixed term, drew particular ire from conservatives. Rick Santelli, a CNBC contributor, delivered a rousing speech in February of 2009 that spurred the Tea Party Movement from the floor of the Chicago Mercantile Exchange: “The government is promoting bad behavior,” he said. “Do we really want to subsidize the losers’ mortgages… we should reward the people who want to carry the water instead of those who want to drink the water.” 

From the ashes of the worst financial crisis since the Great Depression, the Tea Party arose like a phoenix, or more properly a fiscal hawk. This marks the clear displacement referenced above: The Republican Party is in some ways a big tent, but the Tea Party represented a fierce belief in smaller government, lower taxes, and strict originalist readings of the Constitution. The “market” saw a void and the Tea Party filled it, perhaps a portent of Trump. While its leaders may in good faith espouse this, in practice the movement seems to have given a home to more fringe elements of the party, such as those who questioned Barack Obama’s citizenship. Donald Trump, prior to his serious bid for the presidency, was a loud and frequent “birther,” suggesting Obama was illegitimate and not an American. 

The piece of this ideology that remained consistent both in philosophy and in practice was a distrust and disdain for “establishment” politicians, not just in the opposition but within the Republican Party. That’s why otherwise unlikely candidates such as Michele Bachmann were propelled into the halls of power, and how in safe-red districts the real challenge incumbents face is a primary opponent that tacks even further to the right.

Moving forward to the 2016 elections, a massive field of candidates, not unlike the Democrats have in 2020, ran to be the Republican answer for eight years of Obama. In that field were plenty of anti-establishment candidates, among them: Ben Carson, Ted Cruz, Rand Paul and, yes, Donald Trump. But perhaps above all the others, Trump truly bucked the trends and took Republican disregard for “political correctness” to dizzying heights. He seemed to say and do whatever came to mind, with no thought or concern for the repercussions. The strategy bore fruit, as his rise in the polls hardly faltered and he cruised rather easily to the nomination, though stragglers like Jeb Bush, John Kasich, Marco Rubio and Ted Cruz nipped at his heels through the summer up to the convention.

So ends the displacement. Republicans moved away from the statesmen-like figures of Reagan, McCain or Romney and toward the bull in the china shop, Donald Trump. If big banks ruined the economy, let Trump disrupt the political class – Republican and Democratic alike.

Euphoria

With the background out of the way, the rest of these categories are liable to be rather short in comparison. Euphoria, to my mind, is the stage after it was clear Donald Trump would be the nominee. Plenty of candidates stayed in the primary, as I listed above, but it was a fool’s errand to be sure. 

If any single candidate had challenged Trump in that primary, it seems possible, if not likely, that the challenger would have prevailed. Trump consistently polled well below a majority in the primary, but with a half dozen other candidates dividing up the establishment vote, there was little room for anyone besides Trump to win. Couple that with winner-take-all states later in the primary, where nothing but first place really mattered, and Trump was bound to win.

At the same time as his success in the polls, Trump was holding massive rallies where he ginned up the audiences. Euphoria seems a fitting enough term for the spectacles, where people would appear in droves to see the celebrity-turned-candidate, waiting hours often in bad weather just to catch a glimpse of the man in the red hat. The rallies often took dark turns, with Trump openly calling for his supporters to rough up any protestors that might appear, and chants of Lock Her Up in reference to Hillary Clinton echoing throughout the venues. North Carolina’s own Dallas Woodhouse, erstwhile head of the NCGOP, appeared on television with a pair of handcuffs, dangling them during his interview and suggesting Secretary Clinton would soon don a pair.

The Trump rallies during the primary, and still today as he campaigns for reelection, produced a frenzy likely paralleled in rancor only by something from the Deep South years ago. Outright suggestions of violence against particular groups, thinly and not-so-thinly veiled, were and are constants, and the divisions within the nation only appear to be deepening. 

Mania

Part of the issue with the Trump candidacy and now presidency is his proclivity to endorse and entertain far-right fringe and conspiratorial theories. Perhaps unknowingly or perhaps with a clear-eyed plan, the president propagates ridiculous and easily discredited “alternative facts,” to borrow from Kellyanne Conway’s lexicon. More troubling than the fact that the president openly lies without repercussion is the readily eager crowds of supporters who accept everything he says as gospel. Or, worse yet, know he lies but don’t care.

This is the issue with mania: it discredits the truth and makes everything meaningless. Why does it matter for anyone to attempt to find the truth of a story if the most powerful man in the nation openly discards any narrative, even the most factual, that diverges from his predisposed view of the world? It is a sad lens of the world but true, nonetheless. This behavior has seeped into every part of the discourse, and partisans of any stripe are encouraged to find the narrative that makes them feel good and reinforces what they already believe, instead of challenging preexisting notions.

The latest example of this mania is what has caused the current talk of impeachment. The president apparently tried to coax the new leader of Ukraine into digging through the business dealings of Hunter Biden, Vice President Joe Biden’s son. The younger Biden worked in the Ukraine and served on the board of a company that would have possibly faced scrutiny by a Ukrainian prosecutor, all while the older Biden was VP.

The alleged impropriety is that Joe Biden pressured Ukraine to relinquish that prosecutor of his duties because he was too lax on corruption. Eastern European corruption remains an issue as the former Soviet satellites strive to build modern, Western economies and democracies; corruption makes that impossible, and pushes Western entities otherwise inclined to support their efforts away. 

In fact, this is where the story being hawked by Trump and his supporters falls apart: The crux of their scandal requires Joe Biden to have acted in a way that directly supported his son, apparently in a corrupt manner. But the facts disagree; truth be told, keeping the derelict prosecutor in place would have done more to shield Hunter Biden from inquiry than removing him in favor of a more deliberate prosecutor. On top of the illogic of that reasoning, it wasn’t Joe Biden alone making this decision. He worked as Barack Obama’s point person, and it would have been the opinion of the US State Department and plenty more individuals with less than zero concern for Hunter Biden, that were pressuring Ukraine to dismiss their prosecutor. Beyond the United States, other Western nations and institutions like the International Monetary Fund were pushing for the same result; you would have to be willfully obtuse to believe the conspiracy pushed by the president.

But then again, the president released an attack ad just this past week suggesting the Biden story held water and attempting to foist the blame away from himself and toward another. It’s a decent tactic, but likely the only one he has. The issue before Trump is that he now faces impeachment because of throwing around his own weight in an attempt to dig up dirt against Biden. He either doesn’t know that he ought not pressure foreign governments for help in domestic campaigns or doesn’t care; either choice is distressing.

Distress

Distress. You are here. This is the point in the bubble of the Trump presidency that we currently find ourselves. Now that he faces proper impeachment, likely by Thanksgiving if the process continues apace, some of the Republicans that are steadfast supporters of the president may find themselves with weak knees. A recent poll from Morning Consult found support for impeachment increase about 13 points just in the week that these Ukrainian revelations came out. Most striking, to me, is that the number among Republicans grew from 5 to 10 percent. 

What appears most likely is that the House of Representatives will impeach the president, in an almost strictly partisan vote (though one independent and one Republican seem to be interested as of today), and the Senate will vote against removing him from office. The question bandied about now is whether impeachment is worth it. I think it is. The Founders may not have foreseen this particular circumstance (and how could they?), but impeachment alone is a valuable enterprise. It allows for the facts to come out and for the people to fully understand who knew what and when they knew it. 

Many Republicans are crowing about this being Democrats’ attempt to reverse the outcome of the 2016 election, but that is ridiculous on its face. Democrats have had the majority for nearly a year now, with most moderates opposed to impeachment. Again, the reasoning presented flies in the face of logic: How can Democrats be reversing the outcome of 2016 if there is no chance the president will be removed by the Senate; and, if he were to be removed by the Senate, it only vindicates Speaker Pelosi’s impression that this was indeed a grave offense. You can’t have it both ways.

That’s why we’re at the point of distress. Supporters of the president should take stock in where things are and where they are liable to go. What’s best for the country is an honest assessment of merits and demerits to the case presented before the Senate, if impeachment proceeds. The media echo chamber on the right parrots talking points from the White House and is undermining the legitimacy of the investigation before it even takes place. That is bad for the country; the best thing to do is wait and see what happens, before arriving at a predestined notion of who is right and who is wrong.

The problem with bubbles, Niall Ferguson notes, is that “Time and again, this process has been accompanied by skullduggery, as unscrupulous insiders have sought to profit at the expense of naïve neophytes.” If voting in the Senate for removal were done via secret ballot, one insider noted, the president would likely be shaking in his boots. But because the votes are publicly recorded, and Republicans and Democrats alike have to run for reelection based on how they acted, there is a perverse incentive to do what is popular over what is right, whatever that may be at the time.

Revulsion

That leaves revulsion. This is the one piece of the puzzle yet to be seen, and one that we can hardly predict. It has two potential parts: One, Trump loses in 2020 or is otherwise removed from office, meaning that the requisite number of voters decided to be done with him or else their elected representatives in the House and Senate felt the same way; or two, Trump wins in 2020 and continues on with his rebranding of the Republican party, likely for a generation.

Revulsion would be the bursting of the bubble. It’s Trump losing because a majority of the country, including a number of Republicans, decide his politics and persona are unpalatable and something needs to change. It would mark quite a defeat for Trumpism, and it would also be a proper burst because it would take down far more than just the President. The entire modern GOP is indentured to Trump, with the RNC running as his mouthpiece and the NRCC parroting snide remarks and attacks against Democrats daily. The face of the party is Trump now, not Reagan. Only through his defeat in 2020 would that trend face a potential challenge; otherwise, it seems the Party of Reagan would complete its transformation into the Party of Trump.

Conclusion

So those are my thoughts on the Trump phenomenon, if it is a phenomenon. The most interesting part about politics and of this current era is that there is no simple answer. Nobody is right or wrong, in terms of prognosticating. Was Trump the teleological end to what the Tea Party birthed in 2009? Perhaps. The real tell will be whether candidates for president on the Republican ticket in 2024 align themselves tightly with Trump or if they run for the hills and the mere mention of his name. As always, time will tell.  

Entertaining Impeachment

Over the course of this current presidency, a lot of people on “my side of the aisle” have crowed about impeaching Donald Trump. I found it mostly counterproductive, to be honest, and borne more out of shock about losing the 2016 election than anything else. Plenty of folks in the pundit class were beating the drum as well; catch ten minutes of Morning Joe on MSNBC and you’ll hear more about impeachment than you have in any conversations with average people in the past three years.

The primary focus of the initial wave of impeachment calls were fixated on the Mueller investigation. Remember L’Affaire Russe? Everyone and their mother were telling you that, if we just waited for Mueller to testify, or release a statement, or tweet, or… I don’t know what, then this whole episode will be over. But Bob Mueller was no white knight, and even had he uncovered some damning information that merited the president’s removal from office, it wouldn’t have been his purview to do it. That rests with the Congress.

Quickly, because it’s pedantic and everyone knows this nowadays given the wall-to-wall coverage, but impeachment is the official process by which a government official is removed from office; in this case, we mean the president. It is a political process, not a legal one. The House of Representatives practically has carte blanche in deciding whether or not to move forward on impeachment proceedings; if you’ve got the votes, you’ve got your trial. The accused is impeached for “high crimes and misdemeanors,” which is a grandiose way of saying “whatever the Congress deems impeachable,” because that’s the practical implication. It isn’t hard and fast, and that’s one of the places where the arcane document governing our entire republic made room for us to wiggle: in terms of impeachable offenses, you’ll know it when you see it.

But up until now, the most noise from elected Democrats about impeachment was coming from 1) quite liberal members of Congress and 2) quite liberal candidates for president on the Democratic side. And this makes sense. Slow and steady, the number of Democrats in the House calling for impeachment has risen over the past few months. It’s reached a sort of crescendo in the last week. Somewhere north of 140 Democrats (as of today) support impeachment; there are 435 members total in the House.

The issue now raising their eyebrows — and the specter of impeachment — is one regarding the current frontrunner for the Democratic nomination: Vice President Joe Biden. The story goes (and I do emphasize here that as of today, the facts are not all available; this is obscenely speculative) that President Trump attempted to leverage money appropriated by Congress for Ukraine in a bid to solicit politically damning information on Biden. Joe Biden’s son has businesses dealings abroad, including in Ukraine.

It would certainly be a grotesque precedent to set if we allowed a sitting president to gather political dirt on an opponent in broad daylight – and with aid appropriated by Congress as a carrot. For the most part, I’ve seen the Trump presidency as a drag on institutions and multilateral cooperation, but if there is truth in the current allegations, it’s a bridge too far. At least Nixon was couth enough to dig up dirt within the United States, instead of looking abroad for oppo.

Speaker Pelosi has done well in holding her caucus together in what has been a difficult year since winning back the majority. With moderate, veteran legislators taking a stand on impeachment, we very well may be on the precipice. Republican lawmakers would have done well to check this presidency when they had the chance — remember the first two years of unified government? Now, he’s unchained, but with a Speaker who will actually check his worst impulses instead of abetting them.

Newt Gingrich moved to impeach Bill Clinton in 1998 for lying about an affair. President Trump has skated on far more than that, and with far less of a price to pay. Democrats will be put in a lot of difficult places over the course of the next year and a half, but if it comes to a point where the allegations move from speculation to fact, there is little left to do but move to impeach. To do otherwise would be a dereliction of separated powers and further empower the executive branch to do what it pleases with impunity.

Fear and Loathing in Iran

background

Over the past few months specifically, but across decades if not centuries, the international eye has focused on the Strait of Hormuz. The image below is from Tufts University.

The Strait occupies a key shipping route in the Persian Gulf. An enormous percentage of the world’s fuel travels through the Strait, carried by massive oil tankers. In recent weeks, the freedom of those ships to conduct their business has been stymied by the Iranian Revolutionary Guard Corps, an arm of the Iranian military and, recently designated a terrorist organization by the Trump administration.

The latest provocation came late last week. A British tanker was apprehended by the IRGC, a direct retaliation for an earlier move by the UK on July 4th, when the Royal Marines seized an Iranian tanker near Gilbratar. The Iranians had been threatening to act for weeks.

Video from an IRGC ship as they circle the British tanker last week.

Separate from the escalations between the UK and Iran, the United States has also faced off with the Iranians. Both parties have destroyed opposing drones coming too close for comfort. There is no doubt that the situation with Iran has ratcheted up in the past month.

Two topics of interest

Two topics come to mind; the first is freedom of navigation.

Conflict in the Strait of Hormuz is nothing new. In fact, the Fletcher School’s chapter on Freedom of Navigation cites the Strait (hence the above photo). Of varying degrees, Tufts says that, “There were 35 close encounters between U.S. and Iranian vessels in 2016, most of which occurred during the first half of the year, and 23 encounters in 2015.”

The United States operates Freedom of Navigation missions routinely. The Tufts site unpacks the rationale with far more specificity, but the gist of FoN is to ensure international waters remain international. It is one of many roles the United States plays in its capacity as the “world’s police,” but it is essential.

Rogue states, left unchecked, could easily block key economic and military chokepoints around the world. The Strait of Hormuz is one such chokepoint. In lieu of repeating an already apt description:

The Strait of Hormuz is one of the world’s key maritime chokepoints.

This narrow seaway connects the Indian Ocean with the Arabian/Persian Gulf. For all of recorded history, the seaway has connected Arab and Persian civilizations with the Indian subcontinent, Pacific Asia and the Americas. For example, before the rise of European seaborne empires in the 15th and 16th centuries, porcelain from China and spices from the Indochina peninsula often passed through the strait on their way to Central Asia and Europe.

Today the Strait of Hormuz separates the modern Iranian state from the countries of Oman and the United Arab Emirates, which have strong defense connections with the United States and Saudi Arabia.

All shipping traffic from energy-rich Gulf countries converges in the strait, including crude oil and liquefied natural gas exports from Iran, Iraq, Kuwait, Bahrain, Qatar, Saudi Arabia and the United Arab Emirates. Twenty percent of the world’s crude oil flows through this 21-mile wide waterway.

This maritime chokepoint became an arena of conflict during the Iran-Iraq War in the 1980s. Each side in the so-called “Tanker War” tried to sink the other’s energy exports. To avoid being targeted, Kuwaiti oil tankers were reflagged under the U.S. shipping registry. 

Although crude oil continued to flow, marine insurance rates for vessels operating in the strait spiked by as much as 400 percent. Those higher costs likely contributed to higher gasoline and diesel prices worldwide.

Dr. Rockford Weitz

The Brits, for what it’s worth, have stated that, “When it comes to freedom of navigation, there can be no compromise.”

Freedom of Navigation is an essential feature of the global economy. Without it, the international order devolves and shipping lanes become a free-for-all. Sympathetic nations will have to thread the needle, both reprimanding and punishing Iran enough to discourage this activity, but short of sustained kinetic engagements.

Which leads me to the second focus: Kahn’s Escalation Ladder.

I came across this model for the first time when reading a great, somewhat new book called Destined for War, which explores whether war between China and the United States is inevitable. One of the key topics the author engages is Kahn’s Escalation Ladder, basically a framework of escalations that take two parties from a seemingly small conflict to full-scale nuclear war.

Now, the Escalation Ladder is meant to demonstrate how two nuclear powers might escalate, and as of today the Iranian regime does not have nuclear weapons. But the actions taken by both the UK and USA in reaction to Iranian provocations are likely portents to how escalation could play out in the future, were Iran to weaponize uranium.

Below is the Escalation Ladder. The initial crises is at the bottom, working its way up to nuclear war. Notice that formal declaration of war is rather close to the top. There are a number of relatively minor steps before proper “war,” but taken in sum it becomes almost inevitable.

Another key feature is that the rungs are not necessarily linear. One reading of the ladder suggested to think of it as an elevator: A party involved in conflict could easily jump multiple “rungs” and escalate the situation quicker, particularly if an opportunity to capture some relative advantage presents itself.

upshot

It’s a bit too easy, in my opinion, to cast stones from the outside and suggest that the United States (or now the international community, since the UK is involved and remains a signatory and proponent of the Iran Deal) is belligerent and in pursuit of proper war with Iran. While I believe the incumbent administration has taken steps to destabilize the situation we face with Iran, there are also absolute commitments that nearly every nation supports. Freedom of Navigation is one such protection.

Allowing Iran to monopolize passage through the Strait of Hormuz has the potential to sink the world into economic malaise, not to mention requiring exponentially more force to resolve the issue.

On The State

Earlier this week on Twitter, perhaps the worst medium for reasonable discourse, Brent Woodcox made a statement which raised the eyebrows of a few followers:

Now, given the respective roles each of these players fill, the ad hominem aspects should be put aside. Ford Porter is on Governor Cooper’s communications team, and Brent is Special Counsel for Republicans in the General Assembly. They occupy opposite ends of the spectrum politically.

But though the genesis of their spat is on politics-as-usual, there’s actually truth in what Brent is saying, though it may pain me to confess it.

It’s more about the way he said it as opposed to what he said, that drew a few potshots from others online. The crux of his statement is true, at least in a popular reading of political philosophy.

Max Weber, one of the foremost intellectuals of the late 1800s-early 1900s, has a succinct definition of the state:

“A human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory”

Weber, Politics as a Vocation, 1919

For Weber, it’s as simple as that. The one entity that has the power to wield force – legitimately – over members of the community. That doesn’t mean we live in a totalitarian state; far from it. But there is the implication of violence in the sense that you can be coerced to do something against your will.

The easiest example, and the one cited by Brent, is taxation. Although plenty of us understand and may even value the services yielded by taxation (would you build your own road, or schools, or libraries?) few if any would voluntarily pay them.

Apart from some of the uber-wealthy, who have ways to get around paying taxes because of loopholes and complicated tax codes they can afford to exploit, pretty much everyone coughs it up every year. But why?

Because, as Jonah Goldberg wrote, “Refuse to obey even the most picayune law and eventually a man in uniform with a gun on his hip is going to come talk to you about it.”

If you refuse to pay your taxes, or child support, or some comparable fee owed to an entity other than yourself, at some point along the line an officer of the law will pay you a visit. That doesn’t mean you’re going to be obtained in some violent manner, but there’s a reason you wouldn’t resist arrest, either.

John Hood chimed in as well, with a great encapsulation:

He makes clear the distinction that is lost with such a simple definition. It doesn’t necessarily mean the government is violent all the time, but it’s the specter of violence that allows the federal government to maintain control, enforce laws, protect the nation, etc.

The upshot of this should be that, given we live in a republic, it is incumbent on the voters to ensure we send competent, moral and upstanding citizens to represent our interests, be it to city councils, state legislatures, Congress and, yes, the White House.

An engaged citizenry that elects admirable representatives is the only bulwark against a devolution to chaos.

Humble Beginnings

Over the past few years, certainly since senior year of college, I’ve become more and more interested in writing. Words I’ve cobbled together have appeared on a number of sites in the past, and, in fact, the first was a poorly constructed WordPress site, not unlike this one (for now.) Back and better, hopefully.

I still intend to write on PoliticsNC.com, where content more suited for a Tar Heel audience will appear, and on odd weeks in the Salisbury Post, where my opinion column has yet to be revoked.

So while this site in its nascent form has no specific purpose, maybe that’s half the point.