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Tuesday, June 20, 2017

Jim Rickards - "It's Now Tantamount to a Civil War"

Before the recent testimony by James Comey to the Senate, I emailed Jim Rickards to get his thoughts on the situation. As usual, Jim quickly replied and gave his best assessment based on what was known at the time. Because this situation continues to ramp up in potential intensity, I am re posting his comments just below. After that are some updated thoughts on this situation and what we need to focus on here on this blog in regards to it. Below is my email exchange.

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My questions are (if you have any thoughts on this):

1- Is the Coats/Comey testimony this week going to put Trump in a potentially serious legal situation (potential obstruction of justice?)

2- If Trump really launches a direct attack on Twitter on Comey during testimony will this add fuel to an already potentially explosive situation? It sounds like he is going to ignore his own lawyers advice on that.

3-If the news out tonight that a former contractor is suing the FBI for spying illegally on 20 million Americans turns out to be correct, does this inflame things even more?  Will the public start to lose confidence at what seems like open warfare within our own intelligence services between pro Trump and anti Trump factions?

I am trying to figure out if the combination of all this could actually turn into a genuine crisis of confidence situation that could then spill over into the markets? If so, I feel I should alert readers to watch all this carefully in that regard.

On the other hand, if all this is just more political theater and nothing truly significant is going to come of it, then of course I should just ignore it.

Jim's reply:

1. Trump's problems are more political than legal, but in Washington that amounts to the same thing.

2. Yes, this will continue and will get worse. The dysfunction will kill the Trump agenda. It's now tantamount to a civil war.

3. Meanwhile international crises from North Korea, China, Syria, Venezuela, and Iran will begin to intrude. This could be Trump's political salvation because the Commander-in-Chief has complete freedom of action in these realms and Mattis, Tillerson and McMaster are driving the bus. This could push the domestic agenda off the headlines, but it could also result in something that starts to look like World War III.      -----    James Rickards
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My added updated comments: As this whole situation continues to unfold, I am particularly struck by the comment by Jim Rickards that "It's now tantamount to a civil war."

I follow all this because of the potential for it to ramp up to the point where it actually spills over into the markets and even impact systemic stability. While it is clear that there is a huge amount of political theater taking place which sadly is somewhat normal for Washington DC these days, the sheer intensity of the animosity (hatred?) behind some of the factions fighting in this battle are a real potential cause for concern. As we have just seen, this can lead to actual physical attacks on perceived political opponents.

We clearly have very powerful people involved on both sides of this "civil war". It also appears that we have people working in our intelligence services who have picked sides and are willing to go so far as to risk being prosecuted for illegal leaking of information to try and win this battle. Then we have very powerful and influential media lining up against each other as well that also benefit in ratings from conflict and hyperbole. The fact that it has become clear that people are willing to destroy other people's lives and careers illustrates to me how serious this power struggle has the potential to become.

Of course, at some point it may all blow over as usually happens with political noise. However, in this case it does seem like an enormous power struggle is in place with both sides willing to use more extreme tactics than we usually see. If this continues to ramp up, at some point it actually may spill over into what I will call the "real world" outside the beltway and impact stability and trust in the entire system. So far it has not and the markets are making that clear.

We need to watch and see if market behavior changes to reflect genuine concern over all this political infighting. My take on this is that so long as the US stock market holds up fairly well, the US dollar holds up fairly well, and gold remains in a normal trading range, confidence in President Trump and the current system as a whole is holding up OK even if all kinds of unusual events are happening on an almost daily basis.

I will think that President Trump may be in some kind of genuine trouble if we see the markets mentioned above start telling us a different story. A sharp drop in the US stock market (say more than 15% fairly quickly), a sharp move down in the US dollar, and a gold price moving sharply higher would indicate to me that something serious is going on and we need to pay very close attention. If the markets don't give those signals, I will assume that all we are seeing is the usual political noise and no one outside the beltway is overly concerned. It would indicate to me that Trump is not in serious trouble even if his agenda may be stalled.

Only time will tell us as the situation is certainly not resolved by any means. Democrats are still quite determined to try and do anything possible to prevent the Trump Administration from getting anything done on its agenda and now we are starting to see some push back on that. Now there are starting to be news stories from Trump friendly media sources suggesting that the former Attorney General should be investigated for possible obstruction of justice and demands to reopen the Hillary Clinton email investigation. If things like that actually start to happen, I think Jim Rickards comment about a civil war are likely to become even more on target.

Summary: Right now it is hard to tell where all this is going. Will this just be the usual political noise that ends up going nowhere and die out?

OR

Will the intensity of the conflict continue to ramp up with one side going all out to take down the President and his forces firing back to try and take out his enemies in the same way (someone loses big)?

Normally, I would not think the latter was likley at all. However, this situation may be different and we have to follow it due to the potential for the collateral damage from such a "civil war" to spill over into the markets and impact our lives. All we can do is continue to monitor events.

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Added note: A blog reader pointed me to this new article  by British historian Richard Evans (Cambridge) appearing in the publication Foreign Policy. It tends to support the idea Jim Rickards suggested in his reply above that we may be in real civil war. Here are some quotes from the Foreign Policy article - The Madness of King Donald :


"What would happen if a monarch does not cooperate with political elites who consider him deranged? In that case, removal by force becomes an option ,though sometimes it can only be effected through the intervention of a foreign power."

. . . . 

"But that still leaves other options. If Trump rules through what is in effect the modern American equivalent of a royal court, then perhaps it is the courtiers, as in so many examples from history, together with his family, who might have to get together and remove him, or at the very least, neutralize him."

. . . . 

"If Americans prove incapable of deposing their debilitated president, they may soon earn the mild relief of one, or more, informally appointed American regents."

Added note: 9:40pm CST:

With the results of the two congressional special elections tonight now in, the Democrats failed in every attempt to take any of the seats up for grabs across the country in special elections. These were Republican districts so that part is not overly surprising. What it does though is provide more confirmation that there is no major revolt going on across the country against President Trump in the minds of voters. This further convinces me that if we do not see a sharp stock market selloff, a big drop in the US dollar, and a surge in gold prices, it indicates that President Trump is not in any real trouble despite the media hype to the contrary we see daily. If things change, we will try to report that here.

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