November 13, 2020
Beware the Interregnum
“It’s fat-tail time” might sound like a marketing tagline for a rodent pet shop, or a slogan for a malt beverage blended with spaghettoni (that’s what thick spaghetti is called).
A fat tail is an event that’s highly unlikely – but if (when) it happens, it results in very extreme and highly unpredictable consequences. (In statistician-speak, it’s an event that falls outside three standard deviations of the average.)
A global pandemic, a Category 5 hurricane, a magnitude 8.0 earthquake, and a nuclear power plant meltdown are fat-tail events that we know will happen sometime… but we don’t know when. We hope it doesn’t happen on our watch/when we’re in town/when we have to pay for it/when we’d share the blame for not being ready.
And in the worlds of investing and geopolitics, fat tails can be a chance to make a lot of money if you’re a professional investor who eats risk for breakfast, lunch, and dinner – or, for the rest of us, to lose sleep (as well as money).
Over the next nine weeks and four days, fat tails are front and center, as an angry and vengeful lame-duck President Donald Trump – convinced that he won the presidential election – may take the opportunity to (in his mind) get even and settle scores… and, for good measure, break lots of toys for President-elect Joe Biden to fix.
In the meantime, other countries may sense a historic opportunity to make mischief while Papa America is doing the geopolitical equivalent of taking a Vicodin vacation. Some may take advantage of their chummy relationship with the American president to play with matches, take a few shots of Jägermeister, and check to see if Dad’s gun has bullets.
“The transition of power between presidents has long been a weakness of the U.S. political system. But never more so than now,” Foreign Policy magazine presciently opined in September.
There’s a long history of American presidential lame ducks cranking the foreign policy jack-in-the-box during the interregnum.
For example, in December 1992 – six weeks before the end of his term in office – George H.W. Bush sent around 25,000 troops to Somalia in what was a humanitarian mission with no clear objective. It culminated in an October 1993 mission (the subject of the 2001 film directed by Ridley Scott, Black Hawk Down) that left 18 U.S. soldiers dead – and the incoming administration of Bill Clinton with a big black eye.
Similarly, during his final months in office, President Dwight Eisenhower in 1960 gave the green light for the ill-fated Bay of Pigs covert operation against Fidel Castro’s Cuba. Planning was ramped up even following the defeat of then-Vice President Richard Nixon in the November 1960 presidential election.
Newly minted President John F. Kennedy succumbed to overambitious groupthink – and relied too heavily on his Castro-hating military advisors – and allowed the disastrous “invasion” by a CIA-sponsored ragtag gang of Cuban exiles to go ahead in April 1961. Barely three months into his term in office, JFK provided fodder for case studies of failure by successive generations of students of international relations and political science, while laying the groundwork for the (far more dangerous) Cuban missile crisis.
Today, Trump – once he and his enablers recognize that he’s lost the election and decide to make (or burn) hay while they’re still running the farm – won’t feel bound by the one thing that’s held him back (to the extent that Donald Trump has been restrained at all…).
As the New Republic explains,
Perhaps the greatest constraint on [Trump’s] behavior over the past four years was the knowledge that he would need to run for reelection this year. Now that burden is lifted. Trump is, in some ways, freer to act without fear of political consequences than at any other point in his tenure. The consequences from that flexibility – or perhaps impunity – could be profound.
What could Trump do? The New Republic continues…
Trump may reignite the U.S. trade wars with China and the European Union, claiming that he was carrying out his America First trade policies… The president could follow through on his threats to withdraw U.S. forces from Europe or even pull the country out of NATO entirely. And he could give Israeli Prime Minister Benjamin Netanyahu a parting political gift by sanctioning the formal annexation of large swaths of the West Bank, a move long forestalled by U.S. diplomatic opposition.
(And that’s just part of it… see below.)
The stage for lame-duck military adventurism has been set with the recent firing of Secretary of Defense Mark Esper and the replacement of some high-level officials at the Pentagon.
Shenanigans involving the world’s biggest military are a lot easier when the people whose fingers are on the trigger respond with something along the lines of, “Exactly how far back into the Stone Age shall we blast them, sir?” rather than “We need to seek congressional approval for this, sir” or “That could cause a world war, sir.”
The risks of the interregnum don’t stem only from a nothing-to-lose lame-duck president… It’s also what others may do while the U.S. is distracted – and while their friend Donald is still in office.
For example, there’s no time like now through the American presidential inauguration on January 20 for North Korea – Trump at one point said that he and North Korean leader Kim Jong Un “fell in love” – to fire a few missiles… or push the envelope with South Korea.
Turkey – whose authoritarian President Recep Tayyip Erdogan is on Trump’s speed dial – might sense it’s a good time to push its advantage in the conflict between Armenia and Azerbaijan in the Caucasus region, following the disgraceful silence of the United States.
Russian President Vladimir Putin has never been much bothered by the West raising a fuss over what he does. But if there’s a political opponent to be poisoned or a journalist to be shot, best to do it when the Americans, under Trump’s wandering eye, will raise less of a fuss.
Russia’s invasion of Georgia – the country by the Black Sea, not the home of sweet peaches and Coca-Cola – and its takeover of a piece of the Ukraine both happened when the then-American president was perfectly alert. For now, keep an eye on Belarus, the former Soviet state where a longtime president recently (successfully) stole the presidential election.
(Parts of the American government may well be aware of what’s brewing… But according to Yahoo News, the president’s public schedule “hasn’t included an intelligence briefing since Oct. 1.” And the White House “hasn’t provided a ‘readout’ of any call between the president and a foreign leader in weeks,” suggesting that there hasn’t been any.)
The real danger, though, may come from a President Trump who – once he realizes that his time is up – goes General Sherman and scorches the Earth for President-elect Joe Biden… and for the American people (and everyone else).
Most presidents are concerned about their legacy. But it’s long been clear that on Trump’s list of priorities, how history will view him falls somewhere between perusing Rousseau’s cogitations on the enslavement of man to his base desires – and doing some cardio on the presidential elliptical.
And in coming weeks, Iran is an obvious target for the president’s ire. The early January U.S. drone strike that killed a senior Iranian general (when he happened to be in Iraq) showed Trump’s appetite for going after Iran. The American withdrawal under Trump from the Iran nuclear deal was a serious poke in the eye of a major achievement of the Obama administration. A one-for-the-road broadside on Iran would be a nice way to revisit American disdain for the country. And helpfully, Secretary of State Mike Pompeo harbors a special hatred of Iran.
What’s more, attacking Iran – whether it’s a missile or something more serious – would reinforce Trump’s credentials with his friends in the Middle East, as he considers potential exile destinations. Flicking a match into the tinderbox that’s the Middle East would provide a nice distraction from the media’s focus on that annoying coronavirus (number of new cases in the U.S. on Wednesday: 142,856… number of meetings between the president and his coronavirus task force – such as it is – in recent months… zero) during the final days of the Trump presidency. And lastly, lobbing something explosive at Iran would also be handing President-elect Joe Biden a hot mess of a flaming dumpster fire to deal with.
Worse, the scope for Trump to cause trouble for America, and the rest of the world, doesn’t end when he becomes Citizen Trump (whether he’s behind bars, in a nice penthouse flat in downtown Moscow, or elsewhere). Even if he hasn’t paid much attention to security briefings, Trump has been privy to the most highly classified information. And that’s dangerous, as the Washington Post explains…
As president, Donald Trump selectively revealed highly classified information to attack his adversaries, gain political advantage, and to impress or intimidate foreign governments, in some cases jeopardizing U.S. intelligence capabilities. As an ex-president, there’s every reason to worry he will do the same…
Not only does Trump have a history of disclosures, he checks the boxes of a classic counterintelligence risk: He is deeply in debt and angry at the U.S. government, particularly what he describes as the “deep state” conspiracy that he says tried to stop him from winning the White House in 2016 and what he falsely claims is an illegal effort to rob him of reelection.
“How many state secrets is Trump going to sell to pay off his debts?” asks Vanity Fair. Or it might not even be for money (especially if Trump can’t offer much in the way of specifics)… it might be just to screw over the country and the incoming Biden administration.
Donald Trump is a walking fat-tail generator right now… with scope and self-motivation to create trouble – just because – on an unprecedented scale.
Investors often ignore geopolitical risk… until risk becomes reality. We’ll see how real it gets over the next 69 days.
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Editor, American Consequences
With P.J. O’Rourke and the Editorial Staff
November 13, 2020