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Two top White House advisors may leave over tensions with Donald Trump

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However, all the officials were quick to add that the tensions could blow over, at least for now, as have previous episodes of discord between the president and other top officials who have fallen out of favor, including Secretary of State Rex Tillerson and Attorney General Jeff Sessions.

Asked about sources saying that either National Security Adviser McMaster or Chief of Staff Kelly, or both, might be leaving, White House spokesman Raj Shah on Thursday did not address the possibility.

He said: “The president has full confidence in each member of the team.” Press secretary Sarah Sanders said on Tuesday that Trump “still has confidence in General McMaster.”

Neither Kelly nor McMaster responded to requests for comment on whether they would remain in the administration.

Trump swatted McMaster in a Twitter post after his comments at a European conference last weekend that he was certain Russia meddled in the 2016 U.S. election campaign, which Trump has been reluctant to acknowledge.

Kelly and McMaster have chafed at Trump’s treatment of them in public and in private, which both at times have considered insulting, said all four officials, speaking on condition of anonymity.

The current and most potent irritant, they said, is Kelly’s effort, supported by McMaster, to prevent administration officials who have been unable to obtain permanent high-level security clearances from having access to the government’s most closely held secrets.

Under pressure to act last week, Kelly strengthened the security clearance process in response to a scandal involving Rob Porter, a former official accused of domestic abuse by two ex-wives. Staffers whose interim clearances have been pending since June would have them revoked on Friday.

That would bar Trump’s son-in-law and adviser Jared Kushner from reading the president’s daily intelligence brief, which often contains information on covert operations and intelligence collected from spy satellites, spies, and close U.S. allies.

“There have been running battles between Trump and his generals,” said one of the officials, speaking on the condition of anonymity. Kelly is a retired Marine general and McMaster an Army lieutenant general.

“But the clearance business is personal, and if Trump sets special rules for family members, I’m not sure if Kelly and McMaster would salute,” the official said.

White House officials were working to find a compromise that would allow Kushner to continue his work as a senior adviser to Trump, another source familiar with the situation said, also
speaking on the condition of anonymity to discuss internal White House matters.

Under current law and regulation, the president has authority to grant any level of clearance to anyone he chooses, but officials wanted to avoid that option, this official said.

There was no sense that Kushner would be leaving his job. Kelly declined to comment on anybody’s specific security clearance. He said in a statement that he had told Kushner days ago that he had “full confidence in his ability to continue performing his duties in his foreign policy portfolio.”

Kelly said those duties include overseeing the Israeli-Palestinian peace effort and serving as an integral part of the U.S. relationship with Mexico.

McMaster’s support for Kelly on the security clearance issue is only his latest difference with Trump. Officials in the Defense Department said there have been discussions about him returning to the Army, possibly as head of the Forces Command at Fort Bragg, in North Carolina. McMaster, 55, previously served as deputy commander there.

Although he has been supportive of Trump on many issues, including threatening North Korea with military action, McMaster has taken a harder stance on Russia than his boss.

After U.S. Special Counsel Robert Mueller charged 13 Russians, a Russian propaganda arm and two other firms on Feb. 16 with tampering in the election to boost Trump, McMaster said the evidence of Moscow’s meddling was “incontrovertible.”

Trump publicly chastised McMaster in a Twitter post, saying McMaster “forgot to say that the results of the 2016 election were not impacted by the Russians.”

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85 Americans have left Afghanistan since U.S. completed its withdrawal

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Afghan passengers are pictured in-front of a Qatar Airways airplane at Kabul International Airport, in Kabul, Afghanistan September 19, 2021.

Qatar’s Ministry of Foreign Affa | via Reuters

WASHINGTON – A commercial flight carrying 21 Americans and 48 lawful permanent U.S. residents departed Kabul, Afghanistan over the weekend, the State Department confirmed on Monday.

In total, at least 85 American citizens and 79 lawful permanent residents have left Afghanistan since the U.S. ended a massive humanitarian evacuation and completed the withdrawal of its troops in August, according to State Department figures.

“We are thankful to Qatari authorities, who continue to coordinate these flights with the Taliban,” State Department spokesman Ned Price said Monday. The Biden administration is still working to help American citizens, lawful permanent residents and vulnerable Afghans leave, Price added.

The Taliban’s rapid takeover of Afghanistan last month prompted a chaotic effort by the U.S. and its allies to get their citizens and vulnerable Afghans out of the country. By Aug. 31, approximately 125,000 people, including about 6,000 U.S. citizens and their families, were evacuated out of the country.

However, not everyone was able to make it out in time. Secretary of State Antony Blinken told lawmakers last week that approximately 100 U.S. citizens are still seeking evacuation from Afghanistan.

Blinken blamed the Trump administration for America’s chaotic exit from its longest war saying: “We inherited a deadline; we did not inherit a plan.”

“There had not been a single interview in the Special Immigrant Visa program in Kabul for nine months, going back to March of 2020. The program was basically in a stall,” Blinken said on Sept. 13.

“We made the right decision in ending America’s longest war, we made the right decision in not sending a third generation of Americans to fight and die in Afghanistan,” Blinken said.

President Joe Biden has defended his decision to withdraw U.S. troops from Afghanistan, despite the Taliban takeover. Biden was forced to order the temporary deployment of thousands of U.S. troops to Kabul in order to help with evacuation efforts last month.

Thirteen U.S. service members and dozens of Afghans died in an ISIS-K suicide bombing at Kabul’s airport during the evacuation. A subsequent U.S. drone strike in Kabul killed as many as 10 civilians in what the Pentagon has described as a tragic mistake.

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Washington gridlock and a debt ceiling showdown are weighing on the market

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U.S. Senate Majority Leader Chuck Schumer (D-NY) talks with Speaker of the House Nancy Pelosi (D-CA) on the steps of the U.S. Capitol.

Drew Angerer | Getty Images

The U.S. stock market is on track to post its worst day in months. And U.S. politics are in part to blame.

As the Dow Jones Industrial Average fell 614 points on Monday — its worst day since July — and the S&P 500 shedding 1.7%, strategists say gridlock on Capitol Hill is starting to send shutters through the market.

The S&P 500 on Monday notched its worst session since May.

Dan Clinton, head of policy research at Strategas Research Partners, wrote Monday that Wall Street is increasingly convinced lawmakers won’t address the debt ceiling anytime soon.

“Much of this is short-term risk and headline risk, but the framework of Washington policy is shifting to more risk after 18 months of unlimited fiscal and monetary policy,” he wrote. “Consensus now believes that the debt ceiling will be raised in the second half of October, meaning a last-minute move, and another month of talk of debt ceiling breaches and prioritization of government spending if the debt ceiling is not lifted.”

If Congress fails to suspend or raise the borrowing limit before the so-called drop-dead date, the U.S. government will default for the first time. The Treasury Department doesn’t have a precise “drop-dead” date right now, but estimates that it’s likely some point in October.

House Democrats plan to hold a vote this week on a piece of legislation that would suspend the limit and fund the government for a matter of months beyond the close of the fiscal year when it ends Sept. 30.

Republicans have said they won’t help Democrats lift the borrowing limit as a sort-of protest over the trillions of dollars in new spending the Biden administration has proposed.

“This week, the House of Representatives will pass legislation to fund the government through December of this year to avoid a needless government shutdown that would harm American families and our economic recovery before the September 30th deadline,” House Speaker Nancy Pelosi, D-Calif., said in press release Monday.

“The legislation to avoid a government shutdown will also include a suspension of the debt limit through December 2022 to once again meet our obligations and protect the full faith and credit of the United States,” she added. “The American people expect our Republican colleagues to live up to their responsibilities and make good on the debts they proudly helped incur in the December 2020 ‘908’ COVID package that helped American families and small businesses reeling from the COVID crisis.”

The bigger hurdle is likely the Senate, where lawmakers will need to muster 60 votes to pass such a bill that isn’t tied to the separate reconciliation legislation.

Raising or suspending the debt ceiling does not authorize additional fiscal spending. Instead, raising the ceiling is more like increasing the country’s credit card limit.

Importantly, even if the Biden administration hadn’t authorized any spending — even if Congress had passed zero bills in 2021 — lawmakers would still need to lift the ceiling to pay for legislation passed in prior years.

“The U.S. has never defaulted. Not once. Doing so would likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency,” Treasury Secretary Janet Yellen wrote in an op-ed over the weekend.

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“Default could trigger a spike in interest rates, a steep drop in stock prices and other financial turmoil,” she added. “Our current economic recovery would reverse into recession, with billions of dollars of growth and millions of jobs lost.”

Even if lawmakers ultimately avoid a technical default, a lengthy last-minute fight over the debt limit could lead to another downgrade of the U.S. debt rating, akin to what happened in 2011. The mere specter of default led Standard & Poor to downgrade U.S. sovereign credit, which in turned whacked demand for Treasurys and pushed yields up.

But investors fears aren’t exclusive to the borrowing limit.

Instead, the added angst over the debt ceiling adds to growing fears about the delta variant of Covid-19, pesky inflation and the end of easy Federal Reserve policies, according to Art Hogan, chief market strategist at National Securities.

Hogan explained that markets are keeping a close eye on the bipartisan effort to pass $1 trillion in infrastructure spending and Democrats’ effort to add on another $3.5 trillion to revolutionize the country’s social safety net.

But, he said, it’s not necessarily surprising to see the $3.5 trillion bill curtailed as it makes its way through Congress.

“It feels like consensus is that we will get some but not all of the spending proposals passed,” Hogan wrote in an email. It’s likely we see some “increased taxes but certainly not in an order of magnitude that is currently being discussed.”

September is often a choppy month for markets, Hogan added, and 2021 is proving no exception.

“When we think about things that are driving markets, it certainly feels like we have turned from complacent to concerned about a plethora of potential headwinds,” he wrote. “None of the concerns that market participants have in the here and now are necessarily new, but are being viewed through the lens of what historically has been a rough month for markets in general, as such they seem to be hitting a crescendo.”

The Dow and S&P 500 have each lost more than 3.5% in September.

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China’s Evergrande crisis could inflict pain on the world economy

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A man walks in front of unfinished residential buildings at the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 15, 2021. Picture taken September 15, 2021.

Carlos Garcia Rawlins | Reuters

A liquidity crisis at a large Chinese property developer has shaken global markets, and strategists say it could send ripples across the global economy.

But they also say the issue will likely be contained by the Chinese government before it wreaks damage in the banking system and it is not expected to lead to a broader global financial contagion.

The critical question for investors is how and when do leaders in Beijing handle the situation, and whether they launch a restructuring of China Evergrande Group as many market pros expect.

Investors have worried that Beijing is likely to let the company fail, wounding stockholders and domestic bondholders. Evergrande faces a debt payment on its offshore bonds this coming Thursday, after it said last week it was facing unprecedented difficulties.

“Everyone was expecting the government would have some kind of resolution given that Evergrande is a systemically important company,” said Jimmy Chang, chief investment officer at Rockefeller Global Family Office. “It has $300 billion in outstanding debt. There is a contagion issue if China Evergrande is not resolved. I think it will end up having some deep-pocketed state-owned enterprises to take over.”

Market pros don’t think that Evergrande could lead to the next financial crisis, but it could lead to more volatility.

“The hard thing about particularly understanding China is that it is an opaque system and oftentimes you don’t have answers until you get answers,” said Rick Rieder, chief investment officer of global fixed income at BlackRock.

“The banking system tends to be controlled by the government,” Rieder added. “There is government intervention that presumably would come in. I think for a period of time, when you wrap this into everything else there, there’s near-term financing questions around some of the other property entities and when that happens then it can create some volatility, and some financial contagion. My sense is the government will act and my sense is it will stabilize.”

Rieder said there could be some caution around Chinese property companies and multi-disciplinary companies for a period of time.

There is concern the already slowing China economy affected further and that could flow into other economies.

Chang said the Chinese government needs to act quickly since Evergrande is beginning to affect sentiment, after being ignored by global markets.

“It could be a self-fulfilling prophecy. This liquidity issue, real estate is so important to the Chinese economy and the financial well-being of so many Chinese families. Homeownership is over 90%,” said Chang. “So many people buy apartments as an investment, so if it this thing is not contained, it could become a real black swan.”

The fact that China’s economy is so large could affect the rest of the world, Chang added. “If China were to have a serious economic issue because of China Evergrande, the rest of the global economy would have contagion from it.”

The Dow Jones Industrial Average ended Monday’s trading session down more than 600 points, after steep stock market declines in Europe and Hong Kong and other parts of Asia. The 10-year Treasury yield, which moves opposite price, slid as low as 1.297% as investors sought safety in bonds.

Protecting the broader financial system

“I think ultimately the Chinese authorities will step in to make sure at least the wider financial system doesn’t run into crisis,” said Mark Williams, chief Asia economist at Capital Economics. “If you’re a property developer you’re facing a few bleak months ahead. The key distinction I think is policy makers will allow property developers to suffer considerable pain, but they’ll step in to make sure the banking system is okay.”

Jim Chanos, president and founder of Kynikos Associates, said it’s a critical moment for the Chinese leadership, which has been carrying out a regulatory crackdown on internet companies, education companies, gaming and other industries.

Chanos said it will be key to see how Beijing responds to Evergrande.

“We are seeing a different change in tone… the way the government is treating business, business leaders, western investors. How will they handle a bailout that everyone thinks is coming, in some way, shape or form?” he said on CNBC. “Will Western bondholders be bailed out? Will it only go to property owners who are owed apartments that are not yet constructed by Evergrande? Will banks take a haircut?”

Pain in the Chinese property market?

China has tried to stem the speculation in its property market four times since 2011, Chanos noted. “In each of those cases, the economy hit stall speed really quickly, and the authorities took their foot off the brakes and hit the accelerator again,” he said.

He said that the residential property market equals 20% of China’s GDP while real estate activity in general is about 30% of GDP. “These are just the off-the-chart kind of numbers, and they’ve gotten worse under President Xi, not better. We don’t think it’s systemic to the Western financial markets,” said Chanos, who has shorted China stocks.

Capital Economics’ Williams said there are about 1.4 million property owners who have paid deposits and await delivery of Evergrande properties. “We don’t know whether they can build the houses, but it seems unlikely,” he said, noting that some residences are already under underway and at different stages of construction.

The risk is if there is also trouble at other property companies, property values will suffer and there could be turmoil in the housing market. The consumer is a large factor in the Chinese economy, and a hit on housing could hurt consumption.

That would also bleed into other regional and global markets through a weakening in the Chinese imports market as well as a slowing of demand for all sorts of raw materials.

“When you couple it with some of  the regulatory changes in China, the clear slowdown in growth, the clear slowdown in commodity demand alongside that growth, there’s some reason to pause and be patient about what’ happening  in the region,” said Rieder. “But the growth of China economically and the intertwined nature of China in the global economy is massive, and so China as an important focus of the markets isn’t going away any time soon.”

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