America’s Political Woes

Howard Baker’s famous question, uttered in the days of the Watergate hearings, is now being echoed in reference to Benghazi and other matters: “What did the President know and when did he know it?” A series of revelations seems to be damaging the Obama White House. These revelations and their aftermath mean trouble for the President’s economic and fiscal agenda.

We also see widespread discussion concerning the Internal Revenue Service (IRS) and its targeting of specific conservative groups and their charitable affiliations. Revelations seem to indicate that the IRS had a one-sided approach to scrutinizing organizations seeking tax-exempt status.

We see the Secretary of Health allegedly soliciting corporate contributions in order to facilitate the roll out of ObamaCare.

We see ongoing debate about whether or not the US Department of State and the White House attempted a cover-up in connection with the Benghazi affair.

And we see more and more suggestions that the US Department of Justice confiscated, examined, or otherwise probed journalists’ records and files. The Associated Press probe is just one of the examples.

Each of these issues will be dissected politically by investigative committees. The press will inquire, as it should. Obama supporters will claim that the attacks on the President are persecution. Obama detractors will quickly say, “See, I told you so” – and the vitriol will intensify.

We are not taking a public stand on any of these issues. We have our personal views. Indeed, our firm’s 29 members have diverse personal views. But what we are all seeing is that these developments make a lame-duck President lamer. The current situation also means that the markets have to reprise the evolution of Obama’s economic agenda.

A weakened President distracted by revelations that are embarrassing and perhaps illegal does not have the clout he would otherwise have when it comes to negotiating the outcomes of an economic agenda. Obama is distracted by the defensive activity he must now engage in.

His cabinet positions are weakened at the same time. Congress is energized in its continuous probing. The result is that there will be less economic intervention ahead. Markets like that. They like to have less government, not more of it.

I remember when the revelations started with Richard Nixon’s presidency. One can note that one of the articles of impeachment passed by the House of Representatives at that time included IRS misuse allegations. In those days, of course, it was a Republican President facing a Democratic House.

The point of this is that current markets are driven by low interest rates and by an economic recovery that appears to be taking hold in the US at a gradual pace. Markets are focused on the lack of inflation now and on the expectation that we are unlikely to see a quick resurgence of inflation for some time to come.

Markets are not responding to the allegations about the President, his cabinet members, and his administration. If that changes, and the administration becomes truly wounded in a political sense and truly consumed by having to defend the actions of some of its departments of government, then market reaction could become negative and intense. We do not see that happening today, but that possibility has now been introduced, given revelations about the IRS, the Associated Press, and others.

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