It's Do-or-Die, Deep State: Either Strangle the Stock Market Rally Now or Cede the Election to Trump

With only 56 trading days and fewer than 80 calendar days to the election, the Deep State camps seeking to torpedo Trump's re-election have reached the do-or-die point.

Back in June I speculated that the only way the Deep State could deep-six Trump's re-election was to sink the stock market rally, which the president has long touted as evidence of his economic leadership.

Deep State to Powell: Stop Goosing Stocks Higher Or You'll Re-Elect Trump (June 9, 2020)

Since then, stocks have lofted ever higher, with the Nasdaq index hitting new all-time highs and the S&P 500 reaching its pre-pandemic heights of euphoria.

So far, there's nothing to support my thesis other than the Federal Reserve's balance sheet, which has declined modestly over the past 11 weeks, from $7.165 trillion on 6/3/20 to $6.957 trillion on 8/12/20, more or less idling in neutral. This same neutral stance set up the late-February crash.

The context here is the Deep State is far from monolithic. Rather, it has fractured into warring camps that reflect the nation's profound political disunity. I have written about the Deep State's disunity for many years.

Historian Michael Grant identified profound political disunity in the ruling elites as a key cause of the dissolution of the Roman Empire. Grant described this dynamic in his excellent account The Fall of the Roman Empire. The chapter titles of the book illuminate the mutually reinforcing dynamics of profound political disunity in the ruling elites:

The Gulfs Between the Classes: a.k.a. soaring income/wealth inequality: check.

The Credibility Gap: The Mainstream Media and the Big Tech platforms laud their monopoly powers and the self-serving, failing elite they serve: check.

The Partnerships That Failed: the SillyCon Valley tech titans were supposed to "save" the neoliberal elite by managing social media the way the MSM managed broadcast propaganda/"news": check.

The Groups That Opted Out: nobody "important" noticed those who opted out of the neoliberal Kool-Aid: check.

The Undermining of Effort: if I don't get my way, I'll block yours. There is no common ground left. Only pseudo-reforms are possible, as the bureaucratic thicket is impenetrable.

Is there any doubt about the profound political disunity in America's ruling elite? I have addressed this many times, for example Profound Political Disunity Is Now Pitting Rising Elites Against Fading Elites (November 24, 2015).

Historian Peter Turchin explored the dynamic of social disintegration in his new book Ages of Discord. The cycle of social disintegration and integration is essentially universal to complex societies--a reality I discussed in Ungovernable Nation, Ungovernable Economy (October 11, 2016).

The globalist, neoliberal, neoconservative consensus in the Ruling Elite has splintered, reflecting the splintering of the Deep State, the unelected government that continues on regardless of which party or elected politico is currently in office.

I explored this years ago in Is the Deep State Fracturing into Disunity? (March 14, 2014).

Reading between the lines, the Imperial Project is being challenged and perhaps even sabotaged by a Deep State camp fearful of Imperial Over-Reach. Recognizing the over-reach, this camp understands that the Imperial Project's expansion will lead to collapse, and to save the core assets the Imperial pretensions have to be jettisoned.

This is far from the only fracture in the Deep State, of course. The best description of the Deep State's disunity may well be Byzantine.

In the larger Imperial scheme, the Federal Reserve's only job is to maintain US dollar hegemony. In terms of the Imperial Project, the Fed's constant goosing of the stock market is only useful to the degree it serves dollar hegemony. But the Imperial Project has survived financial crises and downturns; the stock market is only one of many signaling mechanisms of interest, but it isn't the end all to be all. The Fed serves the Imperial Project, not the other way around.

The Deep State camps seeking to grease the skids of Trump's defeat have zero interest in defending Bezos' billions, or anyone else's billions. To the degree that a stock market crash discombobulates the warring factions, it can be viewed as an excellent opportunity to slip a blade between the ribs of weakening rivals.

The benefits of a stock market crash that tarnishes Trump's financial luster would be of unique value to these Deep State camps. The Fed whining about the need to prop up the economy via the stock market's melt-up is an annoyance that these camps can no longer tolerate.

With only 56 trading days and fewer than 80 calendar days to the election, the Deep State camps seeking to torpedo Trump's re-election have reached the do-or-die point: either reverse the stock market melt-up and begin a crash into late October, or hand Trump the potentially decisive narrative of a V-shaped recovery and a stock market relentlessly notching new highs.

Who knows, there may even be a few disaffected Deep Staters who want to see Bezos, Zuckerberg et al. go down as much as the rest of America.

All of which is to say: the next 11 weeks might become, well, interesting. (This essay was posted at 7:30 pm Pacific Standard Time, August 16.)

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