Research by Chronological Order
Christopher P Casey

Christopher P Casey

October 2020

No, the general election on November 3rd will not be postponed, but the future President of the United States may be elected by a different group of voters on a much later date – and it may happen after the new Congress convenes on or around January 3rd.  This election may be as close as it is disputed, and given the complexities and vagaries of election laws, the House of Representatives could very well elect the next President.

Several scenarios provide for this possibility.  Since 538 Electoral College votes exist, the winner must secure 270 of them – a majority – to win the election.  The 2000 Bush-Gore election illustrates just how close this election may be: Bush won with only 271 votes (to Gore’s 266).

For those adding together that election’s votes, one will notice only 537 Electoral College votes were submitted.  One elector (from a state won by Gore) abstained.  It is the first time an elector abstained, but not the first time one has refused to vote for the candidate for whom they pledged their vote (an action known as being a “faithless elector”).  Absent a third-party candidate, the existence and actions of faithless electors represent one of two possible scenarios by which an election could fail to produce a majority winner.1

The other possibility would be the failure of a state’s votes to be counted since they lack certification.  To understand either scenario requires a review of the Electoral College process as governed by the Constitution and state and federal law.1 2

Before the general election, electors for the Electoral College are chosen by each state for each candidate.  Under a typical, two-party election, at least two “slates” of electors exist – each one consisting of electors pledged to vote for a particular party’s candidate.  After the election, each state mandates its own processes to verify the integrity and completeness of the election.  For example, certain canvassing (similar to auditing) procedures take place.  Each state has its own procedures and timelines.3

The problem arises in the fairly short timeline between the general election and the Constitutionally mandated new terms for President and Vice President beginning at noon on January 20th.  According to federal law, the electors must meet and cast their ballots (in their respective states) 41 days after the general election (or December 14th for this year).  It is these ballots which are sent to Congress for the official tally taking place on January 5th.  In order to avoid any controversy about the legitimacy of the votes, a “safe harbor” period exists under federal law: if the slate of electors is certified by the state six days before the electors meet (or December 8th for this year), the slate is considered “conclusive” and will not be disputed in Congress.

If the “safe harbor” timeline is not met, both houses of Congress determine which slate of electors will be recognized from a state.  This almost happened in the 2000 election.  Many misremember the Supreme Court as “deciding the election” in favor of George Bush.  In reality, Florida’s slate of electors pledged to Bush was to be selected (certified by its Secretary of State) when various lawsuits culminated in a Florida Supreme Court ruling to recount the ballots in four counties and all ballots throughout the state which did not select a Presidential candidate (under the assumption this was done in error).  Such measures would have been physically impossible before the expiration of the “safe harbor” period, and Congress would have decided the issue (for which the only precedent, the 1876 Tilden-Hayes election, offers little guidance).  The U.S. Supreme Court ruled the recount as unconstitutional for various reasons, and thus allowed Florida to certify its results in time to meet the “safe harbor” provision (actually, on the last possible day).  Presumably, if Congress cannot resolve the matter, the electoral votes may simply not be counted (thus preventing a majority winner).

In another scenario, all of the states’ electoral results may be certified, but a faithless elector may not honor the majority vote from their state.  There are 33 states (as well as the District of Columbia) which have laws compelling (e.g., via the threat of fines, removal from office, etc.) electors to honor their pledge.  These laws were recently upheld as constitutional by the unanimous Supreme Court decision in Chiafolo v. Washington (concerning the 2016 election).4  Therefore, 17 states, including the swing states of Pennsylvania, grant electors the ability to vote their conscience.  Other states, including swing states like Ohio, Florida, and Wisconsin, have laws against faithless electors, but still allow the vote to be counted as cast.  While a faithless elector has never impacted an election, a Republican’s discomfort with an “outsider” like Trump or a Democrat’s concern about Biden’s cognitive ability probably heightens the likelihood of wayward votes (or abstentions).5

What happens on January 6th if, according to the official reading of the electors’ votes, neither candidate secures a majority?  According to the 20th Amendment to the Constitution, the House of Representatives “immediately” elects the President and the Senate elects the Vice President.  Such a scenario seems to suggest a President Biden and a Vice President Pence (assuming the political control of Congress remains the same).  But two nuances imply a different, or at least uncertain, outcome.

First, the House does not vote in the same manner as it does with matters of law or procedure (with each Representative casting one vote).  Rather, each state casts one vote as determined by a majority of their Representatives.  If such a vote was taken today and cast along party lines, Republicans would control the outcome by a vote of 26 to 23 (as Pennsylvania’s Representatives are equally split and Michigan, assuming Libertarian party member Justin Amash does not squash his disdain for President Trump, would vote Democrat – otherwise the vote would be 26 to 22).6

Second, the circumstances dictating this scenario’s result may not exist since the new Congress based upon November’s general election is sworn in on January 3rd.  A change to a mere two states could swing the election in the House to Democratic control.

And what if the House of Representatives is deadlocked in a tie?  Who becomes President on inauguration day?  Vice President Pence would assume the Presidency.  As the Senate can only vote for the two Vice Presidential candidates receiving the most votes (Pence and Harris) and since one cannot hold both offices, Kamala Harris would become Vice President by default.

President Pence and Vice President Harris.  The acrimonious political landscape of the next four years may supersede that of 2020.  Just another risk the financial markets have yet to consider.

 

 

 

1.  Maskell, Jack and Rybicki, Elizabeth.  “Counting Elector Votes: An Overview of Procedures at the Joint Session, Including Objections by Members of Congress”  Congressional Research Service.  https://crsreports.congress.gov/product/pdf/RL/RL32717/12 

2.  Tokaji, Daniel.  “An Unsafe Harbor: Recounts, Contest, and the Electoral College”  Michigan Law Review First Impressions.  Vol. 106, Article 14.  https://repository.law.umich.edu/mlr_fi/vol106/iss1/14/ 

3.  Ballotpedia.  “Election Results Certification Dates, 2020” https://ballotpedia.org/Election_results_certification_dates,_2020

4.  Peter B. Chiafalo, Levi Jennet Guerra, and Esther Virginia John, Petitioners v. Washington.  Supreme Court of United States. 140 S.Ct. 2316 (2020) https://scholar.google.com/scholar_case?case=12842404716922482514&q=Chiafalo+v.+Washington&hl=en&as_sdt=400006&as_vis=1

5.  FairVote.  Faithless Elector State Laws.  7 July 2020.  https://www.fairvote.org/faithless_elector_state_laws  

6.   Electoral Ventures LLC.  2020 House Election: Party Composition by State https://www.270towin.com/2020-house-election/state-by-state/consensus-2020-house-forecast 

 

 

Saturday, 22 August 2020 15:50

Who Wins? Jeff Deist on the Election

This election arrives during a unique period of social unrest, political division, and economic deterioration.  Its results will generate dramatic implications for the political landscape for years to come. 

Jeff Deist, former chief of staff for Congressman and presidential candidate Ron Paul, joins WindRock to discuss:

  • Why today’s polling may not accurately reflect the likelihood of election results;
  • What each candidate should do to win the election;
  • Which scenarios may generate a contested election;
  • How a Democratic victory could result in a “New Reconstruction” against “red” states; and
  • Why Trump could be the last Republican president.

August, 2020

 




Saturday, 22 August 2020 15:50

What Stops the Stock Market Rally?

August, 2020

In terms of magnitude and shortness of time, the stock market rally since its March lows has been unparalleled.  Yet it is especially notable given negative economic reality (an annualized second quarter GDP plunge of 32.9%) and diminished company earnings (S&P500 earnings down 50%).1  Will this rally continue?  If not, what stops the stock market rally? 

Numerous threats exist: continued economic deterioration (a case can be made a recession hit before the lockdowns) and bankruptcies, trade and geopolitical strife with China, civil unrest and mass unemployment, renewed lockdowns due to a Covid resurgence, the loss of hope for a timely vaccine, and a negative economic viewpoint of a very possible Biden presidency.

Either mitigating or masking these risks stands the Federal Reserve’s unprecedented actions since March.  Although it intervened with numerous programs and purchased a multitude of assets, its actions can be neatly summarized as having massively increased the money supply.  Measured in M2 (a commonly cited definition of money) year-over-year growth since the end of the last recession, the money supply has exploded.
Monetary expansion is singularly responsible for the stock market rally.  As such, to ask what stops the stock market rally is to question what stops the Federal Reserve.

Chairman Powell is unlikely to voluntarily withdraw monetary stimuli.  He learned that lesson (it is no coincidence that the late 2018 stock market decline occurred after a long-term slowdown in monetary growth).

So short of this development, what external factors may prevent the Federal Reserve from pursuing its current monetary course?  Theoretically, why is it that central banks cannot forever increasingly print money to ensure ever higher equity prices?

Murray Rothbard, the Austrian school economist and monetary expert, addressed this issue:3

. . . the boom is kept on its way and ahead of its inevitable comeuppance, by repeated doses of the stimulant of bank credit.  It is only when the bank credit expansion must finally stop, either because the banks are getting into a shaky condition or because the public begins to balk at the continuing inflation, that retribution finally catches up with the boom.  As soon as the credit expansion stops, then the piper must be paid . . .

The “shaky condition” of banks may derive from low absolute interest rate spreads and unsustainable financial leverage alongside increasing bad loans.  It will develop with sustained negative real rates (as it has in other parts of the world).

Assuming a banking crisis is averted, what about inflation?  Few under 50-years old can remember, let alone experienced, an inflationary environment as a consumer, but could one be starting now?  According to the August 14th issue of Barron’s magazine:4

A trifecta of inflation numbers came in hotter than expected this past week, with consumer prices, producer prices, and import prices for July all rising at faster paces than economists anticipated.  Notably, consumer prices – excluding the more volatile food and energy categories – rose at the quickest clip since 1991.

It may not be starting now, but it could be.  And unlike the 1970’s, the Federal Reserve will be unable to deflect blame at greedy business owners or higher oil prices.  What they once could play off as coincidence will now reek of causality.  And if they stop inflating, then any rally could turn to rout.

 

1.  S&P500 Down Jones (95% of companies reporting)

2.  Federal Reserve Bank of St. Louis

3.  Rothbard, Murray N.  Economic Depressions: Their Cause & Cure.  Ludwig von Mises Institute.  2009.

4.  ‘Stagflation’ Looms Over This Market.  Why Some Analysts are Worried.  Bellfuss, Lisa.  Barron’s.  14 August 2020

 

 

Tuesday, 30 June 2009 19:49

Only Criminals Use Honest Money

Wednesday, 17 June 2015 19:35

Velocity Lacks Veracity

Friday, 08 May 2020 17:01

What if This Time is Different?

Tuesday, 28 April 2020 17:25

The Kitchen Sink

April, 2020

By late January, the die was cast: the virus had a name, it had reached our shores, travel screenings and restrictions were in place, and while not yet declared a pandemic, the World Health Organization declared COVID-19 a “Public Health Emergency of International Concern.” 

Yet complacency reigned within financial markets.  The stock market continued its march to new highs (reached on February 19th).  The Federal Reserve, in its January 29th press release, failed to mention coronavirus in the list of variables it “will continue to monitor” save for a generic nod to “global developments.”[i]  It began the missive by mentioning recent data “indicates that the labor market remains strong and that economic activity has been rising at a moderate rate.”  Famous last words.

It was not until a full month later, and only after the U.S. stock market suffered its worst week since the Great Recession, did the Federal Reserve act.  It was rather weak work.  On February 29th they issued a statement describing how they were “closely monitoring . . . the evolving risks of the coronavirus to economic activity.”[ii]  On March 3rd, they cut interest rates by a not uncommon 50 basis points.

But on March 15th, the Federal Reserve completed its year-to-date journey from satisfaction to concern to sheer panic.  That Sunday’s emergency announcement marked the first of several major measures meant to stop the bleeding on Wall Street and stem the tide of anticipated economic hardship.

The Federal Reserve’s actions are unprecedented in both magnitude and breadth and will generate serious repercussions for investors down the road.

While the financial media widely reported how the March 15th actions lowered the federal funds target rate to 0.00-0.25%, it missed the far more drastic action of eliminating bank reserve requirements.  Previously, banks had to retain 10% of demand deposits which meant they could theoretically increase the money supply by ten times.  Now no limit exists to their monetary expansion.

March 23rd brought more unprecedented action when the Federal Reserve announced it was buying $375 billion in Treasuries and $250 billion in mortgage backed securities that week.  For comparison, 2008’s QE1 was $700 billion (comparable in size) and it took months to deploy.  It also announced it would continue buying assets “in the amounts needed” to support the economy.  It started buying, for the first time ever, corporate and short-term municipal bonds.

Then, on April 9th, the Federal Reserve announced $2.3 trillion in loans to “support the economy.”  Not content with corporate and municipal, it started buying junk bonds.  It could have saved itself the trouble of buying various bond sectors by simply writing a check for most of the office real estate ($2.5 trillion), farmland ($2.7 trillion), or multi-family housing property ($2.9 trillion) in the U.S.

The Federal Reserve’s substantial and sustained efforts to pull the economy out of the 2008 Great Recession increased its balance sheet by $3.6 trillion in just over six years.  It just added $2.3 trillion to its balance sheet in a month.[iii]   This isn’t throwing the kitchen sink at a problem – it’s lobbing in the entire kitchen.

Even if the Federal Reserve stopped further actions and ceased its announced programs, its balance sheet will continue to swell as it finances proliferate spending by the U.S. Treasury.  Given such actions as the CARES Act and its Paycheck Protection Program, the Congressional Budget Office estimates the 2020 deficit will reach $3.7 trillion – a multiple of anything seen in the wake of the 2008 Great Recession.[iv]  This estimate will only increase with any additional spending initiatives by Congress.

Money supply has already exploded and is at the fastest rate in 92 months.[v]  It is just getting started.

In response to 2008, the Federal Reserve increased the money supply dramatically, but much of that was held by commercial banks in excess reserves at the Federal Reserve where they earned some small, yet risk-free, interest.  This time is different.  Not just in magnitude, but in breadth, which is to say by recipient.  No longer will money be injected into banks and primary dealers, but to companies and individuals who make up the economy as whole.

Inflation will ensue.  Not right away, for the deflationary forces of loan repayments and defaults will counteract and potentially overwhelm inflationary forces.  But that will be somewhat temporary.

Until then, it is an opportune time to build up inflation protections for an investment portfolio: certain types of real estate (e.g., farmland and some residential rental property), precious metals, and cryptocurrencies. 

 

 

[i]      Federal Reserve Bank of St. Louis.  Timeline of Events Related to the COVID-19 Pandemic.  https://fraser.stlouisfed.org/timeline/covid-19-pandemic#14

[ii]  Federal Reserve Press Release.  29 Jan 2020.  https://fraser.stlouisfed.org/title/federal-open-market-committee-meeting-minutes-transcripts-documents-677/meeting-january-28-29-2020-585165/content/pdf/monetary20200129a1

[iii]    Federal Reserve Bank of St. Louis.  Federal Reserve Total Assets.  https://fred.stlouisfed.org/series/WALCL

[iv]    “Coronavirus Relief Pushing U.S. Deficits to Staggering Heights” Associated Press.  https://www.pbs.org/newshour/politics/cbo-says-deficit-to-reach-3-7-trillion-in-economic-decline

[v]     “Money Supply Growth Surges to 92-Month High”  McMaken, Ryan.  Mises Institute. https://mises.org/wire/money-supply-growth-surges-92-month-high

 

 

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