In Brief
- President Trump’s UN speech on Tuesday was forceful, well-delivered and historically important. Few in the press have reported it accurately.
- Last week Trump took on battles with what seemed like the entire planet. Battles are raging with N Korea, China, Venezuelan socialism, the NFL and extremist Christian evangelicals in Alabama.
- N Korea’s test of an H-bomb as well as ballistic missiles has created an international crisis. For 25 years this crisis has been brewing but a real solution was always kicked down the road with diplomatic nonsense. It is not likely to be allowed to fester much longer this time by either the US or China. UN Ambassador Nikki Haley has suggested that UN sanctions have done about as much as they can, meaning the ball is now in the hands of China. Next in line after China is a military solution. On Wednesday, a Trump Executive Order essentially created a situation where China either solves the problem or forces a trade war with the US. Such a trade war with the US with likely throw China into recession and jeopardize the continued rule of the communist regime.
- The German election results are being portrayed as a major shift but don’t expect much change in German domestic or foreign policy.
- Obamacare repeal and replacement is once again likely to be decided, up or down, by a vote or two. A flurry of deal-making is under way as you read this.
- The NFL is killing its Golden Goose with its support of some players disrespecting the flag and national anthem. But, the genie is out of the bottle and there is no way to go back to the status quo. This new fight will rage on…
In-Depth
Forecasts
I see no cause to modify my political forecasts this week but facts are starting to emerge that will justify changes. Watch the Republican Senate nomination run-off in Alabama and the VA gubernatorial and legislative races for clues.
Current POLITICAL Forecasts
- The chance the Rs will lose at least a few seats in the 2018 House elections is 80 to 90 percent.
- The chance the Rs will lose their 241-194 House majority in 2018 is 10 to 20 percent.
- The chance the Ds lose two or more of their 48 Senate seats in ’18 is 85 to 90 percent.
- The chance that Donald Trump will be the 202o R nominee is 90 to 95 percent.
- The chance that Trump will win a 2nd term is 80 to 85 percent.
Media
Don’t forget the Tuchfarber 30 Day test—when you get upset about something in the news ask if it is likely to be IMPORTANT IN 30 days or so. Only seldom will it be so and you can usually ignore it.
Elections
Trump’s Neck out in Alabama
Trump travelled to Alabama for a large Friday evening rally, inserting himself personally into a Republican primary battle for the Alabama Special Election for US Senator. He is supporting Luther Strange, the appointed incumbent, versus Roy Moore, the radical favorite of the evangelical Christian right. VP Pence will follow next week with rallies also supporting Strange on the day before the Tuesday election.
The winner is nearly certain to be whomever gets the R nomination, as Alabama is a deeply red state [pun intended].
Trump’s neck is out because Moore holds an 8-10-point lead in the polls making Strange the underdog. Should Strange win or lose by just a point or two Trump will get credit for his political clout. But, if Moore wins by 5% or more as the polls suggest, Trump will be evaluated as having limited political “coat-tails” which will weaken him in DC and around the country.
This is but one of many high-stakes gambles Trump has taken recently.
He will no credit in the press for this but in Alabama Trump is taking on the extreme evangelical Christian right. Think about that as he also takes on the leftist social justice tendencies in the NFL and NBA.
2017 Elections
Only two states have elections for governor this year. One is NJ where Chris Christie[R] is term-limited and will almost surely be replaced by Democrat Phil Murphy.
In VA, Terry McAuliffe [D] is also term-limited and the betting had been that Ralph Northam [D] would easily defeat Ed Gillespie [R] as VA has been trending strongly toward the Democrats—witness easy wins there for Obama in 2008 and 2012 as well as Clinton last year.
The conventional wisdom was also that Gillespie would suffer from the extreme controversy over the Charlottesville tragedy where a right-winger killed a young woman with his car. But, politics is often unpredictable. Northam’s polling lead of 6 to 8 points disappeared between the period before that disaster and now. All major polls reported in the last week or so show the race as a tie.
We’ll watch this election carefully as an example of where identity [racial/ethnic] politics moves voters in unexpected ways.
Global Politics
North Korea blusters, the US strikes financially and China blinks
The vast majority of the attention on the crisis with N Korea this week in the press has been on the blustering back-and-forth between the N Koreans and the US, especially Trump himself.
But when the history of this crisis and period is written I predict that by far the most important event was President Trump’s Wednesday Sept 20th’s action in issuing an Executive Order empowering the Treasury Dept. to sanction any financial institution, corporation or individual trading or commercially dealing with N Korea.
Stopping N Korea’s nuclearization and its missile development are the direct targets but the other central targets are financial institutions, corporations and individuals in China. Short of a conventional or nuclear war, only China can stop and potentially reverse the nuclearization of the Korean peninsula. The Trump administration made that analysis months ago and has step-by-step ratcheted-up the pressure on both N Korea and China.
Party Secretary/President Xi knew this was coming as early as April when he met with Trump in Florida. The Chinese were also alerted before the order was made public, or at least that is the report.
The Chinese Central Bank immediately ordered all Chinese financial institutions to cease creation of new arrangements supporting trade or commercial activity with N Korea and to wind down existing deals or contracts.
In effect, China blinked and for the first time, assuming they follow-through, N Korea is in a truly untenable situation. Without trade with China their economy stagnates or even collapses.
All should recognize that this is a risky step by the US. It sets a precedent for using US control of many of the levels of international finance to sanction dangerous regimes. Iran and Venezuela…take note.
But, a big risk here is that many countries, both enemies and allies, will resent the use of such power. There will be backlash, have no doubt about that.
German Election Results
As expected, Angela Merkel’s CDU/CSU moderate conservatives cruised to an easy victory in the German election Sunday. The left-leaning social-democratic SPD finished a very weak 2nd. The weakening of the mainstream parties in Europe continues.
The big news is that the rightist AfD finished 3rd and enters the German parliament as a significant opposition party. The business-friendly FDP finished 4th followed closely by the Greens and Die Linke [the radical left] essentially tied for 5th and 6th.
Merkel did not win enough votes to govern alone and must craft a coalition to have a majority in the Bundestag. That coalition will include the CDU/CSU and some combination of the SPD, FDP, and Greens.
The more moderate co-leader of the AfD bolted from the party in dramatic style at a press conference celebrating the party’s assent into the Bundestag. Expect a great deal of maneuvering over the next few months.
In any combination, German foreign policy toward the US, NATO or Russia is unlikely to change markedly.
Kurdish Independence Referendum
The Kurds are an ethnically distinct people of about 25-30 million folks spread across Turkey, Iraq, Iran and Syria. They are Sunni Muslims and probably the largest ethnic group in the Middle East without their own country. About 5 million Kurds live in Iraq, in its northwest provinces. They are fierce and effective fighters [the Peshmerga] and staunch US allies.
Today the Kurds in Iraq are voting on whether to declare independence from Iraq. The US, Turkey, Iran and Iraq all oppose that move. The US because it guarantees more civil wars in the region. Turkey because it has a huge Kurdish population that will want to have the eastern part of Turkey join a Kurdish state and there is already a civil war in Turkey between the Turkish people and the Kurds. Iran has a similar problem, although on a smaller scale and for Iraq, Kurdish independence severely threatens the tri-polar Shite Arab-Sunni Arab- Kurdish Muslim state that is modern Iraq.
The referendum is likely to pass easily.
As I have written previously I doubt very much that the map of countries in the middle-east, especially Iraq and Syria, is likely to look like it does today by 2030 or so. Recall the demise of the Soviet Union and of Yugoslavia.
Stay tuned.
Zapad
Many in NATO feared the Russians would use the recent Zapad wargames to launch an attack on the NATO Baltic countries or to take political control of Russian ally, but independent country, Belarus. Zapad ended on Sept 20 and neither has occurred.
Republicans
One more time with pain and suffering on Obamacare repeal and replace
Once again, the Republicans are trying to repeal and replace Obamacare in the Senate. It failed a month or so ago when a grandstanding John McCain defeated a bill almost single-handedly. He is still grandstanding by demanding a bipartisan approach. Bipartisanship on this issue is a pipedream. On Obamacare, the Democratic leadership wants no repeal and replacement, just capitulation from Trump and the Republicans.
As in the last go-around the outcome is unknown. Both conservative and moderate Republicans are maneuvering to get a bill they can support and one that helps the states they represent.
Threats over the week-end by Cruz and Lee on the right and Murkowski and Collins in the center are more about deal-making than deep principles. But, deals do not always work out so no one knows if Graham-Cassidy will pass or not.
As I write this blog negotiations are underway and votes are being legally bought with extra money for states like Alaska and Maine. This is nothing new for DC. It is a fact that the last two Democratic Senate votes necessary to pass Obamacare in 2010 were bought with extra money and concessions for Nebraska and Louisiana.
Failure to repeal and replace is likely to guarantee the gradual collapse of Obamacare. It is fiscally unsustainable for both the federal and state governments. The premiums charged for its 9 million recipients are astronomical and rising rapidly. Few insurance companies will write Obamacare policies because those policies lose billions for them.
We’ll see what happens.
China’s Politics and Economy
China’s politics and economy are so important to the global economy and the general situation around the globe I am adding a regular section on it to the newsletter. The section will periodically include detailed articles on specific things but will also list each week evidence that suggest an economic soft landing for China—a controlled slowdown to “normal” economic growth levels—or a hard-landing—a more rapid, extended and dangerous bursting of China’s asset bubbles.
I WILL ADD AND DELETE ITEMS TO THIS SECTION AS RELEVANCE DICTATES. “NEW” ANALYSES WILL BE SO LABELLED AND REVISED SECTIONS WILL BE LABELLED “CHANGED”.
New or Major Evidence for Soft Landing
- The WSJ reports that Chinese regulators removed emergency measures they put on the Chinese stock exchanges in support of equities following crashes in 2015 and 2016. This is a sign of confidence and stability.
- The political leadership, including President Xi, and the financial regulators have promised to rein in excessive speculation and credit growth. [We’ve been promised that for many years and the debt has continued to sky.]
New or Major evidence for Hard Landing
- NEW—See GLOBAL POLITICS—N Korea, China and the US [above]
- NEW—S&P has joined Moody’s and Fitch in downgrading China’s debt because of excessive and growing levels of that debt. They do not see a short-term crisis but caution against the future situation.
- Two quotes from separate stories in a recent WSJ accurately describe where things are with China’s economy. “China’s economic mandarins are unlikely to permit an overly sharp slowdown in investment that could tank commodity markets right ahead of the twice-a decade Communist Party leadership shuffle kicking-off in mid-October.” “An all-powerful leadership can likely keep the forces of disruption at bay for some time. But they haven’t disappeared…”
- China is preparing for the start of its every five-year 19th Party Congress in the middle of October. At the meetings, General Secretary Xi will be re-elected as General Secretary, the Party’s official leader, and most of the ruling members of the Politburo will retire as they have reached the official retirement age of 68. Xi has been maneuvering for years to pack the new Politburo with his allies and will probably succeed setting himself up to continue his rule after his new 5-year term ends in 2022. Most experts think that is his goal and that he will set the stage for it at this fall’s Party Congress. This will also set the stage for major economic and financial reforms likely to slash China’s high growth rate which has been “bought” with a massive accumulation of debt. Such reforms are almost sure to be accompanied by a long, slow economic hard-landing and much social and political unrest. Thus, Xi feels he must have total control for himself and the country to get through the coming crisis. Stay tuned…
- A WSJ story reads— “…China has been reeling in some of its biggest deal makers on mounting concerns about capital leaving the country and debt loads posing a risk to its economy.”
- The WSJ’s Heard on the Street [Sept 8] wrote…” This doesn’t mean China’s bad loan problem has gone away, it just has been swept under a convenient nearby rug.”
- If the US imposes major trade sanctions on all nations still trading with N Korea it will create a global trade war and send China into an economic tail-spin. Three numbers tell the tale. China exports about $600B to the US—about 5% of its total GDP. The US exports less than 1% of its GDP to China. China exports less than $3B to N Korea—1/200th of China’s exports to the US. A global trade war would be devastating for all and probably send the global economy into recession or at least stagnation. But, keep in mind the balance-of-power and magnitude of the economic and financial damage here and that General Secretary/President XI is up for re-election to those two posts this fall and next spring. MUCH MORE ON THIS IN COMING WEEKS.
- WSJ article points out that the yield curve in China has flattened—the prices of 3-year bonds are essentially the same as 10-year bonds. Such flattening is often, but not always, indicative of an economic slowdown on the horizon. The article also mentions the mantra that I have been preaching…that the government of President Xi is manipulating the economic and financial system to assure no major problems before he is re-elected as party leader this fall and President next spring.
- Several weeks ago, the IMF raised its projections for Chinese growth but sternly warned that rapidly increasing Chinese debt will hit 300% by 2022. Others like the Institute for International Finance [IIF} asserted in June that Chinese debt already totaled over 300% of GDP, a high percentage for a developing country.
- China is now officially and publicly instructing its companies that they must stop foreign investments in areas like insurance, hotels, other real-estate, gambling facilities, etc. Foreign investments are to be directed to two areas. The first is into strategic areas, as defined by the government, such as technologies where the intellectual property gained fits with government plans for China to become a major, worldwide competitor in various fields. [Sound like Japan in the 1970s and 80s?] The second area is into investments consistent with China’s One Belt-One Road strategy to tie it more completely with all of Asia as well as Europe and Africa.
These all indicate concern that economic, financial and political risks are rising.
Opinion and Commentary
Trump and the NFL
The battle between the NFL players and owners and Trump is of far more consequence than it appears at first blush.
It is a microcosm of the identity politics Democrats have planned their political future around and it is part of a culture-war being waged in many ways across the country. The root question is… “Are we Americans first and foremost or are we part of some demographic [racial, ethnic, religious, etc.] group”?
Before getting into the murkiness of where this will go in the future let’s establish some hard facts.
- The NFL is first and foremost a $14 billion-dollar business run to make big profits. For the owners and players, the sport is a secondary concern.
- For the fans, the sport is the priority.
- Every American has a constitutional right to freedom of speech and expression, as well as freedom of association and action.
- But, you can give away or sell those rights in a business deal. That is what the NFL requires its players and other employees to do. NFL players and coaches can be punished with fines, suspensions and firings for excessive violence, confronting a referee, doing something the league doesn’t approve of in your social life [like excessive drinking or league defined improper speech] or performing an NFL-defined-illegal dance in the end-zone after a touchdown. NFL players, owners and staff have sold their free-speech rights and other rights to the league.
- The fans have not sold their free speech or association rights to the NFL. They are free to say and do as they please.
The bottom line is the bottom line…money… for the league, owners and players. Almost all of what they are doing now is about money, not about sport or patriotism. The exception is that a few social justice warriors among the players have created and are extending this crisis.
For the NFL, there is no simple way out of the growing crisis they have furthered by not shutting it down when Colin Kaepernick started it. They could have easily done so then as Kaepernick sold his free speech rights for millions of dollars. He made the choice to sell his rights. The NFL made its choice not to punish him for jeopardizing the golden goose.
Along comes Trump…
Polls show that most Americans detest the mixing of sports and politics but also dislike a few players disrespecting the flag and the veterans being honored by the national anthem.
Trump agrees with majority public opinion here and instinctually knows he is on safe political grounds getting involved as he has. The left will attack him bitterly and others will say he has bigger fish to fry. But, the truth is he need spend only a few minutes a week on this to solidly align himself with the people and most sports fans.
So where do we go from here. Interestingly, that is up to the people and especially the fans who attend games or watch them on TV.
Remember that this is all about money for the NFL and the players.
If attendance drops and stays down and TV ratings drop and stay down the owners and players will panic. The owners will start fighting each other. The players will start blaming each other.
And, in the end, financial decisions will rule the day.
American sports have entered the culture wars.
So, stay-tuned as the great American experiment in democracy plays out in an unexpected way.
Tidbits, interesting facts and Insights
Menendez and McCain
Senators John McCain[R-AZ] and Robert Menendez [D-NJ] are wild cards in the Senate for the next few months in a way that may well influence crucial votes. McCain is being treated for brain cancer but still single-handedly and shockingly defeated the repeal and replacement of Obamacare. He is active now but the future is unknown. He has pledged to vote against the Graham-Cassidy Obamacare repeal. Over the weekend he revealed that the prognosis in his fight against cancer is not good.
Menendez is involved in a multi-month criminal trial over potential political corruption by him. The judge has ordered him to be in the courtroom which means he cannot be in the Senate participating on most votes.
With the partisan split in the Senate being 52R-48D even one vote can make the difference on a major issue. Stay tuned…
Until next week…
Al Tuchfarber
Professor Emeritus of Political Science, University of Cincinnati