The Fed's almost certain decision today to leave the funds rate at 4.75% for the time being is not necessarily a bullish sign by itself. But coupled with the Fed's unusual behavior in the past week, we can again imagine the revival of the secular bull market in bonds. We thought we might be dreaming last week, seeing the Fed pass up opportunities to pump cash into the system, but this has carried over into this week. With federal funds trading tight at 4 13/16 this morning and an analysts' consensus calling for a cash infusion, the New York open market desk stood pat during the 11:30 a.m. intervention period. Shortly afterward, without any Fed manipulation, funds dropped to 4 11/16. After the FOMC passed on a rate boost, funds dropped to 4 1/2%!! If Alan Greenspan is behind this, putting a toe in the water, he may in this way develop a consensus for tightening by making dollars scarce rather than hiking the funds rate. The Wall Street Journal editorial on gold this morning may have helped encourage Greenspan in this direction.
WILL CLINTON RUN FOR RE-ELECTION?
With Democrats facing humiliating losses in the mid-term elections as Republican House and Senate candidates run against an unpopular President, speculation is already rampant on the Washington grapevine about which Democrats may be thinking of running against Bill Clinton for the 1996 presidential nomination. Sen. Bob Kerrey of Nebraska, who tried and failed in 1992, is the first buzz out of the box. Let us suppose that at some critical juncture Clinton withdraws his name from consideration, opening the way for the candidacy of Vice President Al Gore -- who is the preferred choice of the Democratic Establishment; Kerrey, who has his idiosyncrasies, is not considered reliable. The party elders have just about given up any hope of Bill Clinton rebuilding the confidence of the American electorate in a way that would enable him to govern for a second term. They are now saying so privately, which in politics gets it onto the grapevine and makes it public enough for us to report.
Remember, the Democratic Establishment's primary interest is not "liberalism," but political power. They have been seeing it dribbling away in the off-year elections, as Republicans pick up one seat after another. They now expect to see power whooshing away in the mid-term elections, with Democratic insiders now writing off the Senate and seeing a genuine possibility that Newt Gingrich will become Speaker of the House. Except perhaps for the District of Columbia, the President at the moment could not win a Democratic primary race against serious opposition anywhere in the nation. Will it look any different in January 1996, with the approach of the Iowa caucuses and the New Hampshire primary? This is what the Democratic elders are now doubting, horrified at the prospect of watching Clinton's coat-tails drag down their entire political apparatus. As the Chinese would put it, Bill Clinton has lost the mandate of heaven, with a maladroit performance in both domestic and foreign affairs these last two years, coupled with a relentless stream of scandal, whether real or imagined, in his personal and financial life. Gore, who is the Mr. Clean on the team, would supposedly regain the confidence of the national electorate and beat all GOP hopefuls. Gore, though, is trapped, as Vice President Hubert Humphrey was until LBJ saw the handwriting on the wall and gave way. How will the establishment persuade Clinton to take a powder?
The New York Times, the voice of the Democratic establishment, is clearly exhausted after two years of trying to find good things to say about the President. His performance in Haiti may have pushed it over the edge. The Times will continue to defend their moribund quarterback against unnecessary roughing or piling on by the Republicans. There is no need for that, however. The electorate would obviously prefer to have the President serve out his four years than be drummed out of office. We note Senate Minority Leader Bob Dole, in his Saturday interview with John McLaughlin, graciously allowing that Clinton will surely be a better President in his last two years than he was in his first two. Dole charitably chalked up the President's poor standing to inexperience in dealing with an opposition party in one-party Arkansas. We can be sure that if the Republicans believed they still felt a pulse, they would not be lining up to pay him tribute, as Democrats did at Nixon's funeral. In the last few days, as I tried out my Clinton-won't-run scenario, the instant reaction from Republicans is one of dismay at the thought: "What? He has to run!"
This metaphysical death in the Democratic family is clear enough in the media. We note Newsweek pulling Eleanor Clift, a shameless Clinton fan, off the White House beat, while columnist Joe Klein, who used to be a shameless Clinton fan, now beats him up with impunity. At Time, columnist Michael Kramer, another former Clinton booster, has thrown in the towel. Ruth Marcus, White House correspondent for The Washington Post, a month ago felt comfortable writing: "The White House Isn't Telling Us the Truth," detailing the list of little white lies that have been added up in the press corps like straws on a camel's back. Tina Brown at The New Yorker is not about to take her magazine down with the ship. She has taken Sid Blumenthal, a shameless Billary buff, off the Billary beat, giving the job to Michael Kelley of the Times, after Kelley demonstrated a surgical skill in carving up the Clintons in the NYTimes Magazine. (In his first TNY offering this week, the October 3 issue, Kelley tells us "Jimmy Carter's second term may already be over.")
There is still the rejoinder to my Clinton bailout scenario which suggests he could reform himself, especially after confronting horrific losses in Congress. He was, after all, supposed to be the "New Democrat" conceived by the Progressive Policy Institute, a "moderate" who would get along with the business and financial community, who would not kowtow to the traditional interest groups that have comprised the liberal coalition -- organized labor, the welfare lobby, blacks, browns and gays. Sort of a Democratic George Bush, a Beltway centrist. The problem is that when Clinton has tried to adopt the New Democrat model of cutting a deal with the Republicans, a la George Bush with the Democrats, he has confronted a GOP that would not play that game. Dole set the tone at the outset, not when he said he was prepared for bipartisanship, but when he observed that he experienced both the Reagan years and the Bush years, and the Reagan years were better. He also said he probably erred in the role he played in the 1990 budget deal. The Clinton people didn't hear that part, or they would have realized all along that they might have to compromise with Reaganauts, not Bushies.
Can Clinton make an adjustment when the 104th Congress comes to town, not only with a lot more Republicans, but also with a lot more of a Reaganaut fervor? The GOP event on the steps of the Capitol today, "a contract" with the American people staged by House Minority Whip Newt Gingrich, was totally Reaganesque in spirit. After Rep. John M. Spratt, Jr. [D-SC] looked it over the other day, saying "It looks like Reagan redux to me," Bill Kristol, the GOP strategist, commented: "He apparently meant it as criticism. We take it as high praise." We of course have been observing, ever since President Bush broke his "read-my-lips" promise, that the Reagan counter-revolution had begun, and only when it had been spent would the Reagan revolution revive. The next two years will have a Reaganesque smell to them, but only because 1997 will be in the air. We can't expect much by way of policy change as long as we have a Clinton administration.
Policy is personnel, which tells us it is not likely that the Clinton administration will be able to do much to shift gears in a way that can satisfy the new Congress. The Clintons went as far as they could in that direction when they brought David Gergen, a status quo Republican, into the White House a year ago last May. The country is in a mood for fundamental change, for a post-Cold War revolution, a revival of individualism over collectivism, Main Street over Wall Street, the grass roots over the Beltway. The President can't even replace Dee Dee Myers as press secretary -- for fear of irritating the feminists? How could he possibly change enough to replace his Oxford pals? Theirs, and his, is a European view of America -- rooted in a matriarchal quest for security at the expense of enterprise.
Suppose this scenario plays out, yet the President refuses to quit at the appropriate time? My guess is that if the Democratic Establishment does not want him to run, he won't, as the Democratic Establishment has a way of making its muscle felt. This is not an observation of disparagement. It is a recognition that all powerful institutions have defense mechanisms that enable them to expel threats to their survival. We have plenty of Whitewater left, and plenty of Paula Jones. As history seems to be unfolding, the GOP need do nothing at all to hasten this process. The Democrats know how to do it themselves.