US: The Impeachment Tail Risk

Published on May 17, 2017

We had previously tended to take the chatter of President Trump’s possible impeachment with a huge grain of salt. But after yesterday’s latest political bombshell, a tail risk of impeachment, however low, has been catapulted to the forefront of market concerns in a sharp selloff in stocks, fixed income rallying, and Federal Reserve rate hikes quickly rolling out of fed funds pricing.

Risk off, courtesy chaos in the Trump White House.

*** While impeachment speculation is the fevered question of the moment, we think its likelihood or even the start to such an elaborate and extended political process is still some ways off and will require major new bombshells (always possible, even probable the way things are going to be sure). Above all, it will require a dramatic, and unprecedented trigger of a GOP majority on Capitol Hill turning on its own president. It can happen, but the political dynamic seems to be still some way off from that historically loaded moment. ***

*** Instead, the more likely base case is more of the media frenzy and new political revelations through the coming months of likely hearings and media leaks. The main risk, we now believe, is the political uncertainty spilling over in further delaying or even derailing the Republican legislative agenda on Capitol Hill, whose timeline is already seriously slipping. On the crucial tax reform bill, we think even more now that a best-case scenario is a limited tax reform and tax cuts late this year, but with the odds rising of no tax reform at all this year. ***

But at least the latest maelstrom may lead the President, to the relief of his own people, to stop tweeting so much.

Impeachment a Lengthy, Political Process

The allegations about revealing intelligence to Russians, however damaging, is not in itself germane to impeachment, as it is not illegal. But if it proves to be true that President Trump did seek to press former FBI Director James Comey into ending the investigation into the allegations surrounding former National Security Advisor Michael Flynn, or worse yet, into his own campaign ties to Russia, then enough Republicans could tip the political balance to opening the door for impeachment proceedings.

An actual impeachment of a sitting President is a lengthy, mostly political process. The risk is not zero, and will depend on what further details emerge in the coming days and weeks. But the process of impeachment is very tightly defined by the US Constitution and is largely a political not just legal process started and finished by Congress, which is now of course controlled by Republican majorities in both the House and Senate.

Starting an impeachment process, in other words, will only be triggered when a groundswell of Republicans on Capitol Hill feel they have no choice but to turn on their own President.

It could happen if, and only if, the Republicans fear the loss of their House majority if they remain glued to Donald Trump in the public mind more than they fear losing that same majority if they abandon him. The 2018 election forecasters had already projected that the House majority was in play, or at least within range, before the President’s most recent controversies. But again, we are some way off from that inflection point.

If it were to come to that critical inflection point, the impeachment process would start in the House with a motion for specific crimes defined in the Constitution. In the coming weeks, an obstruction of justice charge that would fall under the “High Crimes and Misdemeanors” required by Constitution is the most likely trigger to impeachment proceedings.

The House has to vote for impeachment with a majority, and if the Republican-controlled House did so, the process then goes to the Senate, which begins an actual trial with the Supreme Court Chief Justice presiding. The Senate would eventually vote yea or nay for removal of the President with a 2/3 majority required for impeachment.

Senate and House Hearings Start Next Week

But first, there must be the initial round of Capitol Hill investigations and hearings. There are in fact already a half dozen investigations by various committees underway, among them Iowa Senator Chuck Grassley’s Senate Judiciary Committee and Utah Congressman Jason Chaffetz’s House Government Operations Committee. For our money, the one to follow is the Senate Intelligence Committee, chaired by Sen. Richard Burr of North Carolina who works well with ranking Democrat Mark Warner of Virginia.

The GOP will make a point of following through with Democrats very deliberately and publicly on investigations into the “Comey Affair” now that the genie is out of the bottle, and there are invariably already some grumblings of an “OJ Simpson searching for the real killer” aspect to the Republican-led hearings.

But the key to the committee questioning, be it Comey or anyone else who receives a subpoena, is that there is no clear legal bar per se for initiating obstruction of justice charges if it should ever get to that. Instead it is driven by an interpretation of “actions and intent” that is already being heavily laden and spun by Republicans and Democrats alike with obvious agendas.

Republicans, for instance, have already threatened to ask for documents that could intimate an “equivalence” to similar past “obstruction of justice” actions taken by the Democrats – starting with Bill Clinton’s now infamous meeting last year with then Attorney General Loretta Lynch on her private plane in the middle of the Department of Justice investigation into his wife Hillary Clinton’s email affair.

But perhaps even more importantly, Comey has been attacked so much already that his testimony – including what are promised to be explosive private notes of his conversations with Trump – and some Republicans will aggressively follow through on those attacks to challenge and discredit his testimony whatever he asserts. There will be plenty of drama, for sure.

The “25th Amendment” Solution

Another path, by the way, is the “25th Amendment solution.” It is a bit out there, and would literally require a revolt by a majority of the President’s cabinet, and the Vice President, in declaring that President Trump is “unfit to carry out the duties of the Presidency.”

Who knows how President Trump will react or deal with either an impeachment process or invoking Section 4 of the 25th amendment to the Constitution. But by any reasonable account, any movement for impeachment of President Trump or forcing his removal by invoking the 25th Amendment will almost certainly never go that far.

In 1974, for instance, when the embattled President Richard Nixon was facing impeachment proceedings, the Capitol Hill Republican leadership instead paid a visit to Nixon to ask that he resign rather than put the country through the turmoil of a lengthy impeachment trial. Which he did, his tearful wave goodbye from the helicopter forever etched into history.

For now, it is fair to say the political dynamic in Washington is still several major tripwires away from a forced removal of President Trump. But then again, the very fact all of this is being discussed so widely in the hyper-ventilating 24/7 cable and social media, and its risks being weighed by the markets, is telling in itself.

Back to list