In Defense of the Constitution
Doug Nolan
Somehow, it staged a remarkable comeback.
“Transitory” was spoken five times during the post-meeting press conference, twice by Chair Powell:
“As I’ve mentioned, it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us, if it’s transitory.
And that can be the case in the case of tariff inflation.
I think that would depend on the tariff inflation moving through fairly quickly and critically, as well on inflation expectations being well-anchored, longer-term inflation expectations being well-anchored.”
We’ll have more information to decipher on April 2nd, though it may take a few months to have a clear grasp of President Trump’s intentions.
Markets, the business community and American households still hold out hope that instability and economic weakening would force the administration to retreat from its aggressive tariff regime.
But we’ve seen enough to make some baseline assumptions.
Tariffs are the centerpiece of a radical plan of U.S. reindustrialization and self-sufficiency – fundamental to MAGA.
Such a strategy of transformative structural change would unfold over years, marking a momentous reversal of the forces of globalization that have been instrumental in containing consumer and producer prices in the face of historic monetary inflation.
From this analytical perspective, the resurrection of “transitory” would seem optimistic, if not imprudent.
“Transitory,” though, retains an outside shot at redemption.
Evidence builds by the week that the world is transitioning between cycles.
The multi-decade global super boom cycle is faltering, with historic Credit and speculative Bubbles hanging in the balance.
Uncertainty is at its most extreme.
The current environment is characterized by an extraordinary interplay of highly complex systems.
Acutely fragile global market Bubbles have turned highly unstable.
The odds of panics, financial crashes, and crises are uncomfortably high.
Bubble economies are increasingly vulnerable to shocks in confidence and disruptions in market-based finance.
Wild unpredictability has engulfed politics and geopolitics.
The nature of policy responses to market dislocations is highly uncertain.
With already elevated inflation at risk of a tariff and trade-war acceleration, central bankers and their QE cure-all will confront much greater challenges than those previously faced.
Will central bankers be slower to respond, providing crisis dynamics a favorable window for strengthening?
And are they prepared for the massive QE that would be necessary in the event of a major speculative deleveraging episode?
Adding another important layer of complexity, how might today’s weakened global bond markets respond to powerful reflationary QE in an environment prone to upside inflation surprises?
On the subject of unstable markets, it was another interesting week.
While the S&P500 rallied 2% from Tuesday’s lows to Wednesday’s intraday highs, equities missed an opportunity for an expiration-assisted rally.
Global bond yields dropped.
Treasuries again appeared on the receiving end of safe haven flows.
And while nothing to write home about, the weakened dollar mustered a gain for the week.
The “periphery” – at home and abroad – is the realm of important developments.
The emerging markets (EM) have been bolstered over recent weeks by drops in Treasury yields and the dollar.
This respite might have largely run its course.
As always, the “periphery” is vulnerable to shifts in market sentiment (risk aversion), waning liquidity, contagion, and crisis dynamics.
Moreover, many EM countries suffer festering social and political instability at this perilous super cycle juncture.
March 19 – Financial Times (Ayla Jean Yackley and Andrew England):
“For months, events at home and abroad appeared to be moving in Turkish President Recep Tayyip Erdoğan’s favour.
Years of fraught relations with Europe were warming as Ankara’s importance as a Nato ally was reinforced by US President Donald Trump’s pivot to Moscow; Turkey’s runaway inflation was cooling; and interest rates, long the bane of Erdoğan, were finally falling…
But the darker side of Erdoğan’s rule was simmering in the background as the authorities launched a months-long crackdown against his political opponents, while the veteran leader raged against an ‘opposition problem that poisons democracy’.
That reached an extraordinary climax on Wednesday with the arrest of Ekrem İmamoğlu, the popular mayor of Istanbul who is widely considered the most potent politician to challenge Erdoğan since the president came to power in 2002…
‘He has crossed the Rubicon,’ said Suat Kınıklıoğlu, a former MP.
‘There is no going back from here for him.’”
March 20 – Bloomberg (Beril Akman):
“President Recep Tayyip Erdogan’s escalation of the campaign against his most prominent political rival came at the expense of Turkey’s market stability.
It may be a price he’s willing to pay to clear the path to a third term. Investors took fright at the development…
Authorities said banks sold as much as $9 billion to support the lira…
‘What happened is a coup attempt,’ Ozgur Ozel, chairman of the main opposition Republican People’s Party, the CHP, to which Imamoglu belongs, told a rally…
‘This is no longer a case of Ekrem Imamoglu, it is a case of all our people.’”
Political instability erupted in Turkey at the hand of its autocratic and antidemocratic president.
The Turkish lira immediately collapsed 12%, though record ($9bn) intervention reduced the day’s loss to 3.2%.
Turkey’s central bank boosted short-term rates two percentage points to 46%.
Yet the lira’s 3.1% loss was the largest weekly decline in almost two years.
Turkish stocks were slammed 16.6%, with “banking stocks experiencing their worst weekly drop since at least 2001” (Bloomberg).
Turkey’s local currency bond yield spiked 293 bps to 29.16%.
“Turkish Lira Rout Sours Lucrative Carry Trade.”
“Turkey’s Erdogan Warns Opposition Over Calls for Mass Protests.”
While contagion impacts were generally subtle, some key EM currencies reversed lower.
For the week, the Mexican peso declined 1.5%, the Colombian peso 1.1%, the Polish zloty 0.9%, and the Indonesian rupiah 0.9%.
Brazil’s real (up 0.2%) was supported by a 100 bps increase in the main policy rate to 14.25% - the high back to October 2016.
EM CDS spiked to the high since August 6th.
“Chinese Stocks in Hong Kong Cap Worst Two-Day Drop Since October.”
“Trump’s ‘Big One’ on Tariffs Has Emerging Market on Edge.”
Important developments continue to unfold at the U.S. “periphery.”
Leverage loans remained under pressure, with prices Thursday trading at lows since last August.
After recent significant widening, junk bond spreads this week narrowed only marginally.
High yield CDS prices traded again this week to highs since August.
The clouds enveloping our nation darkened this week.
Whether you support it or detest it, a troubling reality has begun to sink in: This President and his administration are radical and willing to risk social, financial and economic meltdown as they doggedly pursue their far right agenda.
My thoughts this week returned to waterboarding.
In the post-9/11 environment, our nation was understandably possessed by the war on terror.
Most believed that tormenting terrorists holed up in Guantanamo into providing intelligence was in the best interest of United States security.
We were willing to tolerate a bending of the rules - and a compromise of our values.
Our government used “terrorist” loosely, while torture was not who we were as Americans.
I worried that we might be on a slippery slope of compromises.
Today it’s snowballing.
Avalanche watch justified.
I don’t see this administration as trustworthy.
They are masters of misinformation, deceit, and dangerous propaganda.
There is an overarching malevolence that I find deeply disturbing.
I fear they see advantages in spurring divisiveness and social instability – that it’s in their interest to stoke already intense distrust of our institutions.
At this point, our societal tinderbox seems rather conspicuous, yet they revel in flicking matches.
We are witnessing frightening autocratic use of fear tactics against their perceived enemies and anyone they see in the way of their agenda.
I won’t ignore issues of great importance when there is a systematic effort to deceive the public and tarnish our most critical institutions.
March 17 – Wall Street Journal (Editorial Board):
“Americans won’t miss the Venezuelan and MS-13 gang members dispatched by the Trump Administration to El Salvador on the weekend.
Most of them are criminals who were in the U.S. illegally.
But it’s still troubling to see U.S. officials appear to disdain the law in the name of upholding it.
President Trump ordered the deportation of nearly 300 alleged members of Venezuela’s Tren de Aragua gang, as well as several from MS-13, the ruthless Salvadoran gang.
They were apparently deported without a hearing in an immigration court, much less a criminal conviction.
The Administration didn’t release their names or their offenses.
They were flown to El Salvador, where strongman Nayib Bukele had them sent immediately to his notorious gang prison.
News reports say they have no access to phones or the ability to contact families.
The Administration invoked the Alien Enemies Act of 1798 to justify the deportations without need for due process.”
March 21 – New York Times (Alan Feuer):
“A federal judge in Washington expressed skepticism on Friday about the Trump administration’s policy of using a powerful and rarely invoked wartime statute to summarily deport immigrants from the country.
The judge, James E. Boasberg, suggested at an hourlong hearing that the White House had stretched the meaning of the statute, the Alien Enemies Act, by applying it to scores of Venezuelan immigrants the administration accused of being members of a street gang and flew to El Salvador last weekend with little or no due process.
The act, which was passed in 1798, is supposed to be used only in times of war or during an invasion against people in the United States from a ‘hostile nation.’
Judge Boasberg said he was concerned not only that President Trump has sought to use the law when there was neither an invasion taking place nor a declared state of war, but also that the people the government has sought to deport have no way of contesting whether they are actually gang members.
‘The policy ramifications of this are incredibly troublesome and problematic and concerning,’ Judge Boasberg said.”
President Trump has unleashed fury upon the “radical left”, “crooked” “lunatic” Judge James Boasberg, respected chief judge of the United States District Court for the District of Columbia.
“We have bad judges — we have very bad judges — and these are judges that shouldn’t be allowed.
I think at a certain point you have to start looking at what do you do when you have a rogue judge?”
The President’s call for impeachment was joined by, of course, Elon Musk.
Elon went so far as to make (maximum) $6,000 donations to Republican members of Congress that sponsored impeachment bills.
Outrageous.
Question from Fox News’ Will Cain (March 19th):
“Let’s start, if we might, on the decision by Judge Boasberg. Tomorrow is your deadline to answer questions.
Those questions include the following: what time did the plane take off from U.S. soil, where did it leave from, what time did it leave U.S. airspace, what time did it land in a foreign country.
You have four, five, six questions the judge wants answers regarding the details of those flights over the weekend.
How will you respond at the Department of Justice?”
Attorney General Pam Bondi:
“Our lawyers are working on this.
We will answer appropriately, but what I will tell you is this judge has no right to ask those questions.
You have one unelected federal judge trying to control foreign policy – trying to control the Alien Enemies Act, which they have no business presiding over and there are 261 reasons why Americans are safer now.
That’s because those people are out of this country.
The judge had no business, no power to do what he did…
This judge had no right to do that.
They’re meddling in foreign affairs, they’re meddling in our government, and the question should be why is the judge trying to protect terrorists that invaded our country over American citizens? …
These activist judges are trying to control our entire federal government.
They’re trying to control our money…
They will not prevail because Donald Trump’s agenda is what people wanted to make America great again; to make America prosperous again; to make America safe again.
They’re attacking us at all fronts, and they will not be successful.”
From the Department of Justice website:
“The Attorney General represents the United States in legal matters generally, and gives advice and opinions to the President and to the heads of the executive departments of the Government when so requested.”
The lady doth protest too much – while sounding much the political hack playing fast and loose with the stature and credibility of her important position.
The administration has been hankering for this fight.
The Justice Department refused to answer a few straightforward questions, choosing instead to excoriate Judge Boasberg and district judges more generally.
Of course, everyone wants members of the Tren de Aragua gang out of our country.
But does the Alien Enemies Act of 1798 have legal legitimacy in this circumstance?
Are individuals apprehended in the administration’s deportation efforts afforded even minimal due process?
Is it legal for the administration to load up planes of individuals and transfer them to El Salvador’s notorious Terrorism Confinement Centre – and not so much as even provide the names of the individuals on the flights?
March 21 – New York Times (Zolan Kanno-Youngs, Hamed Aleaziz, Adam Goldman and Eileen Sullivan):
“The Trump administration fired nearly the entire civil rights branch of the Department of Homeland Security on Friday, gutting a government office responsible for conducting oversight of President Trump’s immigration crackdown.
The more than 100 staff members were told on Friday they would be put on leave for 60 days to find another job in the administration or be fired in May, according to five current and former government officials.
Mr. Trump also closed the ombudsman for Citizenship and Immigration Services, another office responsible for scrutinizing the administration’s legal immigration policies.”
March 22 – Bloomberg (John Harney):
“President Donald Trump intensified his scrutiny of the American legal system by directing Attorney General Pam Bondi to ‘review conduct’ by lawyers and firms who engage in ‘frivolous, unreasonable, and vexatious litigation’ against the US.
‘Accountability is especially important when misconduct by lawyers and law firms threatens our national security, homeland security, public safety, or election integrity,’ Trump wrote in a memorandum released late Friday.”
We’re witnessing a brazen effort to discredit the judicial branch of our government, our sacred judicial system, whose oversight of an autocratic executive branch will be the most consequential in our nation’s history.
I’m no legal expert.
A so-called “constitutional crisis” is in the eye of the beholder.
But if we’re not there already, it’s coming.
Our Constitution is being soiled.
Our sacred freedom of speech, including to express our views through protest, is under assault.
Today on Truth Social, it was back to “Maggot Hagerman” and “The Fake News is the ENEMY OF THE PEOPLE.”
Threats against the media are intensifying.
I personally cherish the First Amendment, knowing I would be sitting in a cold jail cell in many countries.
March 21 – New York Times (Stephanie Saul):
“The Trump administration moved early Friday to detain an international student at Cornell University who has led protests on its Ithaca, N.Y., campus, in what appeared to be the latest effort to kick pro-Palestinian activists out of the United States.
A lawyer for Momodou Taal, a doctoral student in Africana studies, said in court papers that he had been notified by email early Friday morning that U.S. Immigration and Customs Enforcement was seeking Mr. Taal’s surrender.”
March 21 – New York Times (Chris Cameron):
“President Trump escalated his threats against people who vandalize Tesla cars, musing in a social media post on Friday that those convicted of damaging or destroying the vehicles — including U.S. citizens — could be sent to notorious prison complexes in El Salvador.
‘I look forward to watching the sick terrorist thugs get 20-year jail sentences for what they are doing to Elon Musk and Tesla,’ Mr. Trump said, adding, ‘Perhaps they could serve them in the prisons of El Salvador, which have become so recently famous for such lovely conditions!’”
“Sell your Tesla” signs are legitimate protest; vandalizing property is a crime.
But how could Musk, Trump and his inner circle not see this coming?
Isn’t it time to recognize that this whole Elon thing poses serious risk to social stability?
One of the most divisive figures in the world today, running roughshod in our Nation’s Capital.
Sunglasses and a big chainsaw?
Calling for judge impeachments, while donating to Republicans sponsoring impeachment legislation?
The world wealthiest individual is craving to use some of his fortune to “primary” members of Congress that display even a modicum of dissent against the President’s agenda.
Unelected and unconfirmed, yet seemingly unchecked power over the gamut of governmental agencies.
He’s President Trump’s ultimate device for rattling the cages – exactly what society doesn’t need at this critical juncture.
March 19 – The Hill (Al Weaver):
“Sen. Lisa Murkowski says that few Senate Republicans are willing to speak out against actions by the Trump administration and Elon Musk because most fear for their political lives.
Murkowski, one of the foremost centrists in the GOP conference, told reporters… many of her colleagues are scared of the attacks she and others who have been willing to buck Trump and the party have faced.
That is why they are unwilling to take steps that put them out of line and in the crosshairs of Trump supporters and conservatives.
‘I get criticized for what I say, and everybody else is like, ‘How come nobody else is saying anything?’
Well, figure it out, because they’re looking at how many things are being thrown at me, and it’s like, ‘Maybe I should just duck and cover,’’ Murkowski said… ‘
That’s why you’ve got everybody just zip-lipped, not saying a word because they’re afraid they’re going to be taken down — they’re going to be primaried, they’re going to be given names in the media,’ she continued.
‘We cannot be cowed into not speaking up.’”
MAGA, the markets and the Supreme Court.
There is today little standing in the way of the President’s unparalleled power grab blitzkrieg.
There seems no hope that the President’s base will stand up and demand a different approach.
It could get very interesting with the Supreme Court.
March 18 – Wall Street Journal (Jess Bravin and Jan Wolfe):
“Chief Justice John Roberts decried calls from President Trump and his supporters to impeach judges who have ruled against administration policies, saying that the courts should be left to resolve legal disputes through the traditional system of litigation.
‘For more than two centuries, it has been established that impeachment is not an appropriate response to disagreement concerning a judicial decision…
The normal appellate review process exists for that purpose.”
I have a difficult time believing there’s not shock and consternation for a majority of Supreme Court Justices.
Surely expecting disruption, they now confront the reality of an unhinged executive branch.
Has the Supreme Court ever faced such a monumental challenge in protecting the integrity of the United States Constitution and our system of separation of powers and checks and balances?
And that leaves us with the markets.
In a few short weeks, sentiment abruptly shifted from confidence the President wouldn’t do anything to rattle the markets - to fear that he might not care much.
In the back of people’s minds must the old (Winston Churchill) adage, “Never let a good crisis go to waste.”
Financial and economic crises would offer opportunities to further consolidate executive branch power unavailable in normal circumstances.
It's definitely a fascinating market environment.
Markets rarely go straight down.
Crash dynamics typically unfolded from failing rallies, often following significant post-speculative melt-up selloffs.
Euphoria, sudden fear, fleeting hope, and then panic.
A vulnerable stock market could nonetheless muster an end-of-the-quarter rally.
And then there’s April 2nd tariff announcements.
The administration would certainly prefer to get through that period without an accident.
But it sure appears this unfolding incredible environment will be prone to accidents.
Higher inflation may prove transitory, but the same can’t be said for instability.
For Posterity:
“Let me speak very directly, David [Westin].
We are not there yet.
But every week for the last two months the risk of an attempt to impose authoritarianism in the United States has gone up.
The dismissals that you mentioned (at the FTC) are one example.
The lawless cutbacks of spending are another example.
The impositions and threats to universities with no process, nothing of what is required in Title 6 law, is another example.
The steps with respect to expelling people who are here without the process protections contained in law are another example.
Assertion that if the President does it to help the country – to save the country – it can’t be illegal, is another example.
The flirtation with fascist abroad such as the AfD in Germany by the vice president is yet another example.
And there are many more.
We have not crossed the Rubicon yet, where court orders are being defied.
That hasn’t happened yet.
But we’re getting much closer to that Rubicon.
The so-called Overton Window of things that are seen as possible and imaginable has broadened.
And, ultimately, that is going to be alarming for what America is and therefore potentially going to do grave damage to our economy and the world’s.
We are not there quite yet, but I have to say what was a possible concern two months ago now seems to me to be a genuinely alarming prospect.
That should disturb and worry every investor and our country’s leaders in the business and financial community, who know how much they have depended on the rule of law, should be organizing to resist what could be an extraordinarily damaging long-term change in policy.
It takes decades to grow a forest and a few minutes to burn it down.
Something like that is true with respect to our nation’s credibility and commitment to rule of law.
I do not remember in the last 50 years a more alarming moment in terms of the approach that the U.S. government it taking to our democratic institutions.”
Former Treasury Secretary Larry Summers, Wall Street Week, March 21, 2025
Fareed Zakaria (CNN, March 9, 2025):
“What is your reaction, just as a Ukrainian, as a European, to what has happened in America – this transformation of policy?
Do you understand it?
What do you think is going on?
Former Ukraine Foreign Minister Dmytro Kuleba:
“America came to Europe 108 years ago amidst the first world war.
For slightly over a century, Europe forgot how to live without America.
Now it’s time to remember those days.
Now it’s time to learn how to live – not only on the assumption that America will not be in Europe – but also that America may openly be against Europe.
But the biggest lesson that we all learn, I believe, is that there is no one you can genuinely rely on in this world in a long-term perspective.
Because the moment will come when your interests and the interests of that other you had relied on will come into conflict – which will push countries to self-sufficiency to the limit which is very hard to comprehend at this point.
This will be a global trend.
And, of course, this will all result in the growth of China’s influence over the world.
It’s regrettable to see how America dismantles [the] America-led world.
But that’s the choice the people of America made by casting their votes, and we have to learn how to live with it.”
Anderson Cooper (CNN March 19, 2025):
“It’s the strength of this country that we right wrongs – and that we correct injustices - or try to, at least.
The horrible things that have happened to Americans from other Americans in the past, recognizing them is not a sign of weakness.
It’s a sign of strength, acknowledging it and correcting it.”
Former Congressman Adam Kinzinger:
“If we want to be a color-blind society… it’s important to look back at the challenges people have had to overcome.
In school, we teach stories of people that have overcome challenges to do good things.
I would say joining the military is a good thing.
We think of the Tuskegee airmen – personal heroes of mine as pilots – they basically were told that they couldn’t even fly airplanes.
Black men could not fly airplanes.
They went and showed not just that they could fly them.
They were one of the best performing fighter wings in the whole of World War II.
It is important for a young black male or female, in challenging circumstance today, that may think they don’t have any hope, to see that story and say ‘I too could go fly for the United States Airforce – I could fly for United Airlines’…
This is about showing people that may think they don’t have an opportunity to – or think they don’t qualify – and saying look, people have overcome some of the same challenges you have, and you can too.
We should be celebrating that…, not spending staff time looking through and trying to hunt down the word ‘black,’ or ‘gay’, or ‘woman’ or ‘whatever.’”
Cooper:
“If you suddenly label the Tuskegee airmen something like DEI, it’s implying that somehow they were given planes to fly and were incompetent, but they were black and so they were just given planes.
It’s… ludicrous – it’s offensive, it’s very disturbing.”
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