What Didn’t Happen at G20

… Trump has been promising ‘big’: “I am a tariff man”, he proclaims in a tweet, adding: “Make America Rich Again”. And, the Administration keeps repeating that the US economy is strong, whilst the Chinese one is weak: ‘We have all the leverage’, the Administration outs at regular intervals. We can ‘tariff’ double the goods, and double the tariffs too, Trump warns, whilst the US exercises its military muscle, regularly, right into Xi’s face.

And then? Come G20, ‘nothing’. Trump stalks the edges of G20 looking tense and defensive. He was no alpha-male, dominating these events. He looked crocked. It was all a bit of a dud, really.

Recall however, that the G20 followed immediately in the wake of the ‘guilty plea’ to Robert Mueller, for lying to Congress, by Trump’s former lawyer and fixer, Michael Cohen. This, as Harvard Law Professor Dershowitz notes, is evidence of Mueller again creating new crimes (through entrapment), in place of investigating the possibility of past crimes – yet Mueller, clearly is still ‘after’ Trump: And maybe, he will not prove any crime (collusion, were it to have occurred, is no crime anyway) – but that is not the point. Mueller is cornering Trump politically, as opposed to legally, through painting him as sleazy, and surrounded by liars and scoundrels. Mueller is targeting Trump’s vanity: shredding Trump’s self-image as somehow a heroic figure set on restoring the greatness of America: Making America Rich Again. Mueller is slowly paralysing the President’s potency, whilst making him appear a mere empty vessel.

Former US diplomat, James Jatras thus hints at the answer to ‘why no deal’:

“With the Democrats set to take over in the House of Representatives in just over a month, we’ll soon see intensified investigations coordinated with Mueller to find any possible pretext for impeachment in Trump’s business or private life. It’s conventional wisdom that even if the Democrat-controlled House can find something to support articles of impeachment, the GOP-held Senate will be Trump’s firewall. Bunk. Democrats rallied around their president Bill Clinton but it was Republicans who threw Richard Nixon to the wolves. Are there a dozen or so Republican Senators who would be ready to dump Trump and install Mike Pence in the Oval Office? You betcha. Start with Mitt Romney.”

And what might, in Trump’s view, stand between him and the unbearable indignity – and blow to his ego – of being ‘dumped’ by his party, and being further humiliated by being hounded from office? Well, what wouldn’t is a collapsing market, and an US economy stalling into approaching recession. That, in itself, could possibly deliver the President precisely into the hands of those Republican Senators who despise him, and who would side with the Democrats in a heartbeat, if they thought they could get away with dumping the President – just as Jatras suggests.

The US market was already sinking into the doldrums in the week before the G20. The trade-war fear, initially discounted, has begun gripping market sentiment. And tell-tale harbingers (though not definitive) of a recessional economy are being espied (such as the inversion of part of the Treasury yield curve, and the oil futures curve having been in contango. Both are considered as signals of a global economy that may be slowing).

The point here is simply that Trump has, very explicitly, hitched his presidential fortunes to a rising stock market and a roaring economy. So, if it might stop the market from puncturing his business-savvy image, why not a offer a trade-war respite with China? Why not give the markets a pre-Christmas goosing?

Then there was the other notable G20 omission: another dog that significantly failed to bark. The Presidents of two pre-eminent military and nuclear powers, who sit astride major geo-political faultlines, and who need to talk, circled each other, closed-faced, and without stretching out hands – they could not find even, the subterfuge for sitting together.

Why? Ostensibly, because a tug-boat and a couple of Ukrainian armed coastal vessels were told to enter the Azoz ‘Sea’, whilst ignoring the required norms of obtaining prior permission. Really? For that? How bizarre. Trump no longer can pull Mr Putin aside, send away his aides, to sit and talk? Even more interesting, was that the Kremlin spokesman subsequently said that there ‘had been exchanges’ with Washington, and that John Bolton would be coming to Moscow, to discuss a possible future meeting between Trump and Putin. And that couldn’t have been done face-to-face in Buenos Aires because of an arrested tugboat? And that such meeting now requires Bolton’s prior imprimatur and involvement?

All in all, President Trump emerges from this summit, a pussy-cat. Big on talk, short on action: Short on action domestically; short on action in cleaning the swamp; and short on action generally. Jatras concludes, more in sorrow than in anger, “it would be only a small exaggeration to say that with respect to foreign and security policy, Trump is now a mere figurehead of the permanent state. Even if Trump and Putin do happen to meet again, what can the latter expect the former to say that would make any difference?”.

Why? We can only speculate: Simply, it may be that he fears that the markets and economy are turning against him. Perhaps Trump fears a Republican ‘Brutus’ will smell his weakness (stripped of his market-raising ‘magic’), and plunge the dagger in his back?…

It is Trump’s misfortune that his Presidency seems to be coinciding with the end to not just ‘any’ super-cycle, but to a turbo-charged, global debt super-cycle, fuelled by radical interest rate suppression, and massive credit creation (which may explain its ‘longevity’). ‘Doubly unfortunate’, perhaps, because at the same time – for related reasons – the US simply is running out of fiscal ‘space’. The Treasury has a big (a repeating, dollar, Trillion-plus) borrowing requirement, in this and coming years, and foreigners are no longer buying US debt. In short, for the first time in seventy years, the Reserve Currency holder is finding it hard to finance itself – and in the current atmosphere of Washington polarisation – the US cannot reform itself, either. It is stuck….

What does all this mean? It means that Trump, whose entire business acculturation favours debt – more debt and low or zero-based interest rates – will hope to get his way – and he may partially. The signs are that the Fed will raise rates this month, but may slow the pace of rises next year. (At least, this is what the shape of the futures curves would imply).

But the auguries are adverse: World trade is slowing; China is slowing; Japan is slowing; Germany and Europe are slowing – and the first shoots, hinting that the US has peaked in 2Q18, are poking through the soil. Trump may end with neither a roaring stock market – nor, more ominously, a bond market, painlessly digesting the Trillions of US debt.

In terms of foreign policy, the Hawks run it: Pence, Navarro and Lighthizer will pursue their ‘all-government’ cold war with China, but who knows what will be the state of the US market in 90 days. I would not bet on those additional tariffs and 25% rates emerging in April. Xi has played it perfectly: Sun Tzu would be proud.

And Mr Bolton will continue to press Russia at all points of its border; to disrupt it economically, through a regular diet of sanctions; trouble-raising in Ukraine, and trying to diss Russia’s political process in Syria (the Astana Process).


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