While the White House is in chaos, the US markets are calm – but it might not last long

Growth is solid and widespread but the stresses that such growth eventually generates, particularly showing in inflation, have yet to become evident

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The Independent Online

US politics is raucous, but US markets are calm. Can that be right?

The raucousness first. Even from the distance of London it is clear that America faces some sort of constitutional crisis. That is not to say that heads of the FBI, or holders of other leading offices, should never be dismissed. Remember that the then wildly unpopular President Truman sacked the war hero General MacArthur in 1951, a decision that now seems both inevitable and right but at the time caused outrage among the populace.

But the dismissal of James Comey, its timing and its manner, speaks of something else: disorder within the fledging administration. The US Constitution is both flexible and robust. I can’t pretend to have any feeling for how this story will end, but it has coped with more serious challenges than this. What is abundantly clear however is that the White House is in a mess. One sign of this is the leaks, whereby one faction briefs against another. Another sign is the reports of Donald Trump’s rages. Yet another is the drip-drip of stories that this or the other official is about to be fired – ironically the dismissal of James Comey was one of the few “about to be fired” stories that wasn’t leaked.

It goes deeper. The White House people are either very inexperienced or just not there yet. I was speaking last month in DC with a former staffer who pointed out that normally, at this stage of the handover, many of the appointments would have been made and a core staff would have stayed on to ensure continuity. That hasn’t happened this time. Just about everyone apart from security staff cleared out, either because they were told to or because they did not feel comfortable about staying and refused to do so when asked. This is not a policy issue. It is simply an operational one: this has been a shambolic handover.

Yet no one outside of the political bubble seems to care. The classic measure of concern among the financial community is the Vix, the volatility index traded on the Chicago Board of Exchange, aka the “fear index”. That is at a 23-year low; indeed it is within a whisker of its all-time low. Volatility everywhere is low, with the markets not expecting shocks of any sort anywhere. Maybe there won’t be, but my reaction to this is that line from old Western movies – according to Professor Google first heard in The Lucky Texan (1934), with John Wayne, Barbara Sheldon and George “Gabby” Hayes:

“It’s quiet, too quiet.”

A few seconds later all hell broke loose.

Why did Donald Trump fire James Comey?

It may be that broad macro-economic forces are more important that US political ones. If so, that would be testimony both to the robustness of the US Constitution and to the inventiveness and energy of American commerce and industry. But the danger is that we have all been lulled into a sense of calm because at last the recovery has broadened and deepened enough to float off almost all ships. It is at this stage of the economic cycle when we drop our guard. Growth is solid and widespread but the stresses that such growth eventually generates, particularly showing in inflation, have yet to become evident.

But governments everywhere make mistakes. This decision to sack Comey feels, from 3,500 miles away, to be a middle-ranking mistake, though that may be cutting The Donald too much slack. It is also an indication of chaos and confusion in the White House, and in particular a President who is finding it difficult to do this job and not eager to learn. Economies can run fine despite such chaos, provided nothing goes seriously wrong. But on the law of averages something will go wrong with the US economy in the next couple of years and we just have to hope that Donald Trump and his colleagues will cope with it well enough. Of course it may be another president by then – but that is another story for another day.

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