On August 21st many Americans witnessed the moon cast a historic but short-lived shadow across the United States. One day later, President Trump reversed his previously stated position on the 16 year old Afghan War, thereby eclipsing the possibility that the United States would finally come to its senses and rethink a failed strategy that is likely to fail for years, perhaps decades, to come. The abrupt change, in what had been a central plank in candidate Trump’s appeal to voters thirsting for change in American foreign policy, came hard after the departure of Steve Bannon from the White House. As a self-avowed nationalist, Bannon had represented a true break in interventionist Republican thinking that had entangled the United States in intractable conflicts around the globe. To put an exclamation point, Sebastian Gorka, the last remaining proponent of the Bannon perspective, was forced out of the White House. The counter-revolution appears to be complete.
In his widely-followed speech regarding Afghan policy, Trump now appears to favor a widening of the military effort to insure that the United States continues to exert an influence on a remote central Asian region, where it is often said that empires go to die.
A big part of Trump’s “drain the swamp” appeal, lay in his promise to change the politics of Washington. To many voters, such a shift would include a break from America’s “Neo-Con” agenda of foreign intervention, which has deeply enmeshed the country in foreign politics and has enriched the defense industry and its lobbyists. However, given the Administration’s failure to break the Congressional inertia with respect to healthcare and now its reversal on Afghanistan, it appears as if the swamp refuses to be drained.
Recent elections in the U.S. and Europe have exposed deep-seated public distrust, suspicion and anger at the political establishment. Most had expected that the 2016 Presidential election would be a test of established figures, but populist elements in both parties soon took center stage. Against almost all political calculations, Trump ousted Jeb Bush as the establishment Republican candidate and went on to win the Presidency. The political establishment was stunned, and has yet to come to terms with the people’s choice. Now it appears that the entire establishment is united in a common aim to destroy the duly elected President.
The fact that business as usual now appears to be remaining so is manifesting itself with growing popular frustration. The past few days have seen an increase in politically motivated street violence in America. Meanwhile, the grass roots supporters of Sanders and Trump fight in the streets and on university campuses.
It appears that Bannon was squeezed out of the White House by establishment Republicans. In other words, the swamp swamped him, and America is just as stuck in Afghanistan as she ever was. While Trump may have insisted on better tactics, including increased aggression and more realistic rules of engagement, our servicemen and women will continue fighting a sixteen-year war on ground chosen by and favoring the enemy. Normally, history illustrates that given a determined enemy, and particularly one with sanctuary neighbors like Pakistan, even the largest armies lose. Such was the case in Vietnam.
The likelihood for real change in foreign policy has been mirrored by equal despair in the realm of healthcare. Based on the intransigence and hypocrisy of Congressional Republicans, and the failure of the Trump Administration to honestly and meaningfully grasp the policy details of healthcare, it appears as if the promise to repeal and replace Obamacare is now on life support, if not already dead on the table. It is starting to dawn on many Trump voters that effective deregulation and meaningful tax reform may vanish down the same rabbit hole.
It is become ever more probable that the United States will be left with increased government spending, ever greater public debts, and an expansion of identity politics and the welfare state. A stalling of enterprise, recession, and a fall in tax revenues may follow. America may resume the downward path carved by past Republican and Democrat politicians most markedly over the past half century.
If Government debt explodes, confidence in the U.S. economy and its dollar could fall, likely forcing interest rates to rise, possibly in the face of a recession. As hope for an enterprise revival fades, stock markets could stall and then fall dramatically.
But, currently, stock markets are heading for new highs, supported by oversize gains in biotech, transports and financials. Most likely these gains are based still on the blind hope that Republican and Democrat establishments will not succeed in sabotaging Trump’s goals, including the repatriation of up to $5 trillion of U.S. corporate earnings marooned overseas, and cuts to the U.S. corporate income tax rates that would make U.S. corporations more competitive globally. If those initiatives disappear into the swamp, look for U.S. stocks to come under selling pressure.
Investors should concentrate hard on determining whether current ascendency of the establishment represents a skirmishing success or a major trendsetting victory. Regardless, Trump will continue to face resistance from Republican establishment leaders until he shows more determination to root out swamp personnel from the White House and from within his Administration.
Should Trump fail, Americans in his power base will feel betrayed, seriously disappointed and may take matters increasingly into their own hands on the streets. People from all sides, including those of allied nations, should fear such an outcome that now is poised menacingly to cast a dark and lasting shadow over America.
History shows that when the people hold their established politicians in open contempt and fight each other not with words in parliaments but with fists and weapons on the streets, as they did in the French and Russian Revolutions and in Weimar Germany, the results threaten democracy. Amazing as it may seem, this worrying specter now faces the United States.
For many Americans, Trump’s election offered hope - that government would concentrate on defending the country, protecting citizens under the law, bringing immigration within the law, rebalancing trade deals and removing ensnaring regulations and crippling taxation. In the months following the election, the optimism fed into the markets and helped push stock prices up to record levels. As a Member of the English Parliament under Margaret Thatcher, I witnessed almost all these results at first hand. In particular, deregulation and lower tax rates triggered an economic renaissance and higher total tax revenues from increased earnings.
There can be little doubt that the American economy has declined markedly in recent years. But the truth has been kept from ordinary people by the surreptitious manipulation of key statistics such as inflation and employment figures and the massive deployment of fake money.
Ordinary Americans suffer falling living standards as the income gap continues to widen. They sense this as grossly unfair and blame correctly their establishment politicians who have feathered their own nests unashamedly. They are demanding change, and if it can’t come through the democratic process, the results could be ugly.
John Browne is a Senior Economic Consultant to Euro Pacific Capital.
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