Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 17 August 2016 at 12:30 GMT

Clinton's status quo is not fit to rule

Editor / Saxo Bank
Last week, managing editor Martin O'Rourke argued that US presidential contender Donald Trump is unfit for office, citing his inflammatory rhetoric and unpredictable behaviour and policy shifts. This week, editor Michael McKenna weighs in on the opposite side, claiming that Democratic candidate Hillary Clinton is offering a "more of the same" approach that will lead the world into dangerous territory on multiple fronts.

Hillary Clinton
Hillary Clinton offers many a reassuring, "status quo" alternative to the wild antics 
of Donald Trump, but just how defensible is the status quo? Photo: iStock

By Michael McKenna

It is difficult to speak of this year’s US presidential election without getting sidetracked by the latest Donald Trump outrage, but difficult things are often necessary ones. Trump’s opponent is, of course, former New York senator and secretary of state Hillary Clinton. Because Clinton largely remains within the norms of contemporary discourse, her candidacy is generally covered as if it is the buttoned-down yin to Trump’s pro wrestling-style yang.

This is misleading.

A restrained personal style is not the same as a restrained political platform. While Clinton may be running on a “status quo” platform, the status quo is anything but static. In fact, it has led us into a toxic cloud of war, terror, and economic stagnation, and appears determined to continue on this path.

Like the Brexit vote, the Trump/Clinton contest has come to represent a referendum on the post-World War Two order. This is why the Hitler analogies are so prevalent. The postwar order derives much of its legitimacy from the horrors of that regime, and is not above employing them in its own defence.

There are times, lately, where financial media readers might assume that political history presents us with one continual, binary choice between Economist-style global liberalism and 1939 itself.

When complex and varied phenomena are phrased as binary choices, I begin to suspect that someone is trying to sell me something.

When someone tries to sell me something, I wonder why it requires a salesman.

The sense of an ending

In April 2015, Saxo Bank chief economist Steen Jakobsen penned a editorial calling our present circumstance a “new nothingness”. According to Jakobsen, the post-financial crisis economy is an apathetic and stagnant one in which the need for reform is ignored and monetary policy is used to obfuscate reality.

“Every country I visit has terrible macro policies, and features a political class who are mainly interested in maintaining the status quo,” said Jakobsen.

Just over one year later, when I sat down with Saxo’s head economist this past May, he reiterated this claim, stating that “the world has become elitist in every way […] people understand that zero interest rates are a reflection of zero growth, zero inflation, zero hope for changes, and zero reforms.”

Beyond its repudiation of 1939’s horrors, the postwar western order derived a lot of its legitimacy from its wealth and economic opportunity. It is from this Cold War-era comparison that we get our half-apocryphal tales of Nikita Khruschev being bowled over by the offerings of an average US supermarket or Mikhail Gorbachev flying over the swimming pools of suburban America in stunned amazement: Westerners believed in their order because it provided personal freedom, wealth, and hope for the future.

As these things diminish, so too does faith in the worldview. Whatever the Marie Antoinette-like utterances of people like European Commission president Jean-Claude Juncker (“EU leaders think too much about their voters”) and German president Joachim Gauck (“The elites are not the problem, the people are the problem”), populist politicians are not the cause of the current unrest but rather a symptom.

The status quo isn’t coming through. It’s not posting the numbers, and worse still, it appears to be cooking the books.

While media outlets were incredibly quick, in the wake of Clinton’s speech at the Democratic National Convention, to contrast her “upbeat” message with Trump’s “dark” message of an America in decline, I would propose that bland optimism is among the worst responses possible to “the new nothingness”.

Trump's dark headlines
When great minds think exactly alike.

We live in a world of zero and negative rates, a broad reluctance to enact even token reforms, and one in which the US hides a profoundly unstable economy – one in seven US households has a negative net worth – behind a series of banner macro prints.

It is not unhealthy to be fearful when one’s circumstances are frightening. It is not immoral to see darkness when major problems are continually ignored, or addressed with strange and unsustainable schemes. Instead, I propose, it is most dangerous of all to respond to the new nothingness with more… nothing.

Banking on more of the same

The fixity of the “new nothingness” comes from avoiding reform in favour of what Jakobsen termed “the worst monetary experiment in history”. When much-needed reforms are overlooked in favour of smoke, mirrors, and quantitative easing, one can only suspect that entrenched interests are to blame.

One of the most controversial responses to the 2007-8 financial crisis was the US Emergency Economic Stabilization Act of 2008, which authorised the federal government to use up to $700 billion as direct aid to big US banks. In July 2015, Forbes reported that the total paid out so far is closer to $4.6 trillion.

The spectacle of large-scale collusion between Washington and the banks whose subprime lending practices arguably caused the crisis has made “Wall Street” a dirty word on the 2016 campaign trail. Although the Republicans are normally considered the party of Wall Street, bankers have responded negatively to Trump’s call to revive the Glass-Steagall Act, among other things.

"We believe the Obama-Clinton years have passed legislation that has been favourable to the big banks, which is why you see all the Wall Street money going to [Clinton]”, said Trump campaign manager Paul Manafort in July.

Clinton, of course, faced calls to release the transcripts of multiple speeches to Goldman Sachs throughout the primaries, when she was being challenged from the left by Vermont Senator Bernie Sanders. In October 2013, reports Politico, Clinton was paid $225,000 to give a speech to Goldman Sachs that an attendee described as follows:

It was pretty glowing about us […] it was like a rah-rah speech. She sounded more like a Goldman Sachs managing director.”

According to the New York Post, Clinton collected $21.5 million in speaking fees between April 2013 and March 2015. Glenn Greenwald’s The Intercept reports that $2.9m of that total came from speeches made to big banks, including, says the Post, “multiple trips to Goldman Sachs, Morgan Stanley, Deutsche Bank, Kohlberg Kravis Roberts, [and] UBS Wealth Management.”

In his intro to “the new nothingness,” Steen Jakobsen stated that “we have zero growth, zero inflation and zero hope [and this has created] total apathy as zero rates are being interpreted as meaning that no reforms are needed”.

Given the above, Clinton’s Wall Street history cannot be encouraging to anyone desiring reform.

The fog of war

One of the stranger aspects of this election year has been watching my fiercely anti-war (during the George W. Bush era) contemporaries align behind a candidate who has pushed the regime-change line in Kosovo, Iraq, Libya, Ukraine, and Syria.

In Europe, conventional wisdom holds that Trump is a dangerous warmonger who cannot be trusted with control of the US military. But personal style is not the same as policy. 

In fact, it is Trump that is calling for rapprochement with Russia, home of the world's largest nuclear stockpile. It was Trump who, when campaigning in the South Carolina primary, made the bold step of lambasting Bush’s Iraq war; “it was a big, fat, mistake,” he said to boos and hisses in the heart of what CNN called “Bush country”.

Trump won that primary, of course, and went on to win the nomination on a platform that critics and champions alike have termed “isolationist”. Clinton, by contrast, characterised her toppling of Libya’s government by chortling “we came, we saw, he died” on television.

While the authoritarian regimes of Gaddafi, Iraq’s Saddam Hussein, and Syria’s Bashar al-Assad were and are gloomy, unenviable, and brutal, Clinton/Bush-style “intervention” has managed in each nation to create something even worse.

The Middle Eastern wars of the 21st century have produced total chaos at civilisation’s ancient heart. The warlord groups that have emerged amidst this chaos, with ISIS being but one of many, have murdered tens of thousands of people, both in the region and in terror attacks across the West.

These wars are not isolated campaigns or intermittent reactions. They are a structural component of the current order and there are millions of voting-age Americans who have never known anything but continuous war in the Middle East.

Voters who favour Clinton’s “progressive” domestic policies must balance their appeal against the barbarisms of ISIS and similar. For even as the status quo celebrates its commitment to liberal modernity at its centre, its outer ring is a place of lawless, atavistic suffering, and this does not appear set to change.

Clinton has helped to create this situation, and her preferred policies would likely “progress” things even further in this direction. Her opponent, by contrast, stated Tuesday that "our current strategy of [...] regime change is a proven failure. We have created the vacuums that allow terrorists to grow and thrive."

But what about Trump?

Whatever the temperament of its inhabitant, the US presidency is not a dictatorial office. Its powers are limited and judiciously balanced against those of the Congress and the Supreme Court.

Were Donald Trump to be voted into office, he would face immediate and sustained opposition, not just from Democrats but also from establishment Republicans who often have more in common with Clinton than they do Trump on matters economic and military (indeed, the neoconservatives who enjoyed such prominence under George W. Bush have largely defected to Clinton’s camp).

There is no legislative scenario in which it would be possible for Trump to pass “Trumpism” by fiat. In terms of the issues outlined above, from war to trade to financial regulation, any move to retreat from the status quo’s bleeding edge would instantly expose deep divisions among America’s elites and its people.

Homs, Syria
The ruined city of Homs, Syria: One of the status quo's many bleeding edges. Photo: iStock

This would be a good thing. It would be good for America to have what Clinton calls a “divisive” president, particularly one like Trump whose opposition comes seemingly from all sides.

The only way out of the new nothingness is for America and the western world in general to have a new conversation about war, a new one about trade and regulation, a new one about reform and growth and monetary policy.

These conversations would be loud, unruly, and bitter. This, again, would be a good thing.

While I doubt, and am happy to doubt, that “Trumpism” would emerge victorious an all fronts, its isolationism would force the architects of the Middle Eastern situation to justify the chaos they have created. Its economic protectionism would require free traders to address the “losers” of globalisation. Its nationalism would help members of transnational organisations to defy the haughty directives of people like Juncker and listen to voters at home.

The legitimacy of democracies comes from the fact that our votes are meant to connect us to our leaders. They are meant to lie at one end of a long string that signifies our consent to the policies enacted by our governments.

In a zero-bound world of endless central bank intervention, financial sector bailouts, and interminable war, though, it can sometimes seem as if these widely disliked policies have taken on lives of their own.

My view is not a popular one here in Europe, but I believe it is justified. Behind the bluster, Donald Trump’s platform is a rather unexceptional form of civic nationalism. The parts of it that overspill that container are largely the same as the ones that he could never singlehandedly bring to pass.

This November, I hope that Americans give the long string that is meant to be connected to Washington a good, hard, pull.

Donald Trump
"Just give it a yank. See what happens." Photo: iStock

Michael McKenna is an editor at
17 August
Michael O'Neill Michael O'Neill
Great article Michael.The only thing going for Hillary is that she is not Donald. American's may be screaming for a political saviour, someone not seen as political insider but Trump isn't it. Having a new conversation, exploring new ways of doing old things is a great idea, but Trump couldn't make it work. If Trump wins, I hope he builds the wall between Canada and the US :)
17 August
Michael S. McKenna Michael S. McKenna
Thanks Michael, I'll admit that there are many fronts in which "not Donald" can be seen as a terrific advantage, but it remains my view that the current policy orthodoxy is barreling towards some very unpleasant outcomes and a determined break is required, even if the available instrument is less-than-ideal.
17 August
Martin O'Rourke Martin O'Rourke
A great article Mike. I think one of the important themes running through this and indeed my piece last week is to stress that ruling one of the candidates as unfit is not necessarily a ringing endorsement of the other. It's been stressed by quite a few of the commentators that neither are particularly palatable and this piece demonstrates exactly why so many of us have misgivings about the ambitions of Hillary Clinton.
17 August
Michael S. McKenna Michael S. McKenna
Whatever your preferred outcome, this election seems very emblematic of the sorts of things than can happen to republics late in their histories. The dynamics being exposed and the realignments that are occurring are very fresh and interesting, though, however uneasy it can all seem. It's somehow very avant-garde, which is something I never thought I'd say about US politics.
17 August
Juhani Huopainen Juhani Huopainen
Yes, everyone knows racist-crazy populism is, well, crazy. But until the too-big-to-fails, , Wall Street vs Main Street, growth, deleveraging, euro, migration and many, many other problems get better handling in media and policy than TINA (there is no alternative), an alternative will rise.

If the mainstream cannot create an alternative, or the mainstream quickly assimilates any newcomers, the next newcomer will be crazy-populist. It will keep getting crazier until the problems are solved satisfactorily.
17 August
Juhani Huopainen Juhani Huopainen
A splendid article, Michael.
18 August
Susan McDonald Susan McDonald
What scares me about Donald Trump is that he is unpredictable, he obviously lacks policy depth and, more importantly, he seems to have no sense of moral duty or empathy. But what scares me even more is that there are thinking people (who can write extremely well) who are willing to take the undeniable risk that such a demagogue represents. (Sorry Michael - that's my backhanded compliment on your article)
18 August
Anthony Marks Anthony Marks
The part about the elite and the central banks is so true.
19 August
Michael S. McKenna Michael S. McKenna
Thank you Juhani, and yes, Susan, I can certainly see the other side of the argument re: Trump but I wonder, were we on a different course, just how crazy the status quo would actually seem if it was proposed out of left field. "Let's print money, depress rates, and level country after country, creating entire populations of warlord groups and refugees"; this, too, comes up short on the moral duty and empathetic fronts.
25 August
Robo63 Robo63
Great article Michael! You put my feelings into words better than I could myself. If we want capitalism to prevail the establishment has to go.
25 August
Michael S. McKenna Michael S. McKenna
Thanks Robo63, I too feel like we are on a bad path.


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