Absurd Idea of the Day: US Could Split Into More Than One Country

Mish

Let's discuss fat tails and fat tales.

Sheer Lunacy

I typically do not comment on sheer lunacy but do so this time because the person who said it, Jeffrey Gundlach, is DoubleLine Capital CEO.

Gundlach says The U.S. Could Split Up. He also explains how to invest for that outcome, and he predicts Trump will win the election.

Donald Trump is most likely to win re-election, but no matter the outcome of the presidential race, the U.S. could find itself broken into more than one country as unrest and acrimony grip the electorate, noted investor Jeffrey Gundlach said Monday.

Could America lose faith with democracy? “People are strongly committed to the concept of democracy and yet China has had massive growth and way better infrastructure under totalitarianism,” Gundlach mused. “What are we doing when our outcomes are inferior? Is it possible we could change in that regard? Yes, it is possible. I think we are going to see substantial changes in the next six years.” That might even include the U.S. breaking into more than one country, he said.

Now, Gundlach said, “I think we’re going to move into an area that has fat tails.” Skyrocketing inflation is just as likely as disinflation or outright deflation, he thinks.

“I hate long bonds, but I still think you’re supposed to own some, and in a deflationary environment, you would want your portfolio to have that hedge,” he said.

No Constitutional Provision

There is no provision for states to declare independence. 

Nor would the US allow for that outcome if a state did declare independence.

We can debate whether a state should be allowed to break away, but there is no way to invest for an outcome that has no chance.

Fat Tails vs Fat Tales

I agree with Gundlach on the likelihood of substantial change and fat tails but not the fat "tale" that he proposes.

Interestingly, the subject of fat tails came up twice today.

The author of Black Swan, a book about fat tails, brought up the subject today as noted in Nassim Taleb Accuses Trump of Incompetence and Denial.

Mish

Comments (59)
No. 1-32
Tollsforthee2
Tollsforthee2

Highly unlikely that the US would split, but let’s play along with Gundlach.

Dollars would be instantly void and US bonds would be worthless.

silverdog148
silverdog148

There are a lot of dog whistles going on from Wall Street/Billionaires no matter the political stripes, the electoral acrimony will present challenges for the status quo, a completely new country ? Doubt it, but a less federalized country may be in the cards due to extremely ideological splits may be in the cards.

The majority of the judicial/legislative/executive establishment both Dem and GOP is for the most part focused on ridding themselves of Trump at the moment, even the judges he appointed will not rule favorably for him if it means destabilization for the status quo as their livelihood and safety depend on a functioning republic where political issues are solved via a political process rather than the alternatives. None of these judges is going to put themselves on actual line for ideology. This is not Bush V. Gore, that verdict is not politically possible in 2020, I'm sure the supremes are praying for the election not to be close, because if it comes down to it , they are going to hand it to Biden.

Even if Trump loses it's going to be real hard to put the horse back in the barn as the advent of social media is driving tribalism/conspiracy theories to new levels, this is something truly unprecedented in a Republic, expect some heavy regulation to come down on social media companies with regards to politics no matter the political party, but even this won't really work as the personal is now political in the U.S.A. A lot of work is going to need to be done in order to keep this country "ideologically together".

Augustthegreat
Augustthegreat

There was no provision in the Constitution of the Soviet Union to break down the union. But it still broke down.

Tengen
Tengen

He seems to be referring to an orderly split, which is definitely absurd. An eventual US breakup is entirely possible, but it could only happen in a chaotic financial/social collapse in the midst of a global crisis. The whole central banking network would fall with us.

A split wouldn't be anything simple like red/blue, it would much more likely be a splintering into numerous pieces. It would be a total meltdown and is definitely not something to strive for. If people are upset with "the other side" I suggest they look at how people are being intentionally driven apart into ideological silos. The little people aren't the root cause of the problem, the perpetrators are at the top of our hierarchy.

guidoamm
guidoamm

I have not read or listened to the Gundlach interview so I don't know whether or not he has put a time line to his prediction.

Given the fiscal impasse the West finds itself in however, why discount the possibility, if not the probability, that the current composition of federated states in the USA should change significantly in the near future?

Political geography has never been static.

BullSitting
BullSitting

I believe Abraham Lincoln has already addressed this possibility.

caradoc-again
caradoc-again

2020 has illustrated one thing.
The absurd can soon become the norm.

Doug78
Doug78

I am sure that Gundlach knows what some leaders and some billionaires think because that is the group which he frequents. It's also the group that is in constant hubris mode . Some like Gavin Newsom have hinted at a split up if their candidate is defeated and they probably fantasize about it at home in bed. Unfortunately they have little idea of what the person on the street thinks about a split. Perhaps they talked to some taxis drivers, a doorman of two and of course their gardener and poolboy. They have certainly read reports written by experts on what the common man thinks. When you get down to it they are pretty much clueless but it does help the conversation along in cocktail parties and gives them something to say in talk shows.

FromBrussels
FromBrussels

Let's face it, our debt bloated western model was already at the end of its wits way before the pandemic, just imagine the beyond proportion economic disaster that has been generated in recent months ! Keeping up appearances with out of the blue created helicopter money, cannot and will not go on for ever, our financial system is reaching a critical point, not to say that it is on the brink of collapse, a total meltdown is in the cards, when we reach that point ANYTHING is possible : the end of democracy, civil wars, world war etc...Pfffff, too pessimistic probably, it is a cool sunny morning here in Belgium, better go out for a walk, that s about all we can do, locked down as we are....

Doug78
Doug78

Correction. The currency of the secessionists becomes worthless and their bonds voided.

Sechel
Sechel

Gunlach is one of the most intelligent investors out there. These guys often speak in hyperbole. There's no video so its hard to read his body language

Herkie
Herkie

Edit function not working

ROGO1
ROGO1

Most shit weasels flock together and spew whatever bullshit they think you will believe just like Trump the king of bankruptcy & King of nothing!..His shit stinks like all the rest and he should stick that thumb right up his ass, Bloviating buffoons only care about themselves and increasing the debt service of others and our country!.. Digital Assets are the new game! Better buy Bitcoin!..

Six000mileyear
Six000mileyear

Actually Gundlach isn't the only one to propose such an idea. Elliott Wave International has been studying patterns of social behavior that span thousands of years and alerted people to the very real possibility of a US fracture near the end of the next great global bear market. The election won't be THE event that causes a fracture, but it has already been one of many steps in a long process.

Realist
Realist

The fact that “splitting up the country” talk is becoming more common is a result of electing a president who has actively been dividing the country for the last four years. A president who is openly for the “red states” and only rewards the people who supported him. A president who talks about withholding support for “blue states” and those who don’t support him. A president who encourages “the liberation” of blue states, the removal and incarceration of governors, and supports and applauds violence against his opponents.

It has been fascinating to watch this play out over the last four years as Trump encouraged it.

It will be interesting to watch how this plays out over the next four years. This election may turn out to be a tipping point in this process.

Captain Ahab
Captain Ahab

Has anyone tried drawing the probability distribution of a singular event. like the nation splitting? Call me stupid, but I believe it is a DISCRETE EVENT, not a continuous distribution of possible outcomes. If so, there are NO tails, fat or thin! Incidentally, the same is true of black/white swans.
The probability may be infinitesimally small (absurd?), but it exists.

Next, the impact of such a tiny event is likely to vary from very bad to very good, in terms of GDP, for example. Those outcomes would have a continuous distribution, with tails. It is likely to be skewed (kurtosis)--ie 'fat tailed'.

Let's get it right. Nation division is highly unlikely, with possible dramatic results.

Henry_MixMaster
Henry_MixMaster

"China has had massive growth and way better infrastructure under totalitarianism"

And lots of genocide and murder and concentration camps - all built for less than Hitler's Germany.

CEOoftheSOFA
CEOoftheSOFA

There might not be any provision for states to secede, but there also is no law against it. Why would there be a law against secession when the US was born through a secession? It may not be likely to happen, but we need it to happen.

Siliconguy
Siliconguy

The Declaration of Independence predates the Constitution. Furthermore Congress gets to allow new states into the Union and change the borders between the states, and even subdivide individual states. Therefore it follows that Congress could let a State leave the Union as well.

The Recent Courts have held that the Federal Government is not limited to those powers explicitly mentioned in the Constitution (abortion and gay marriage being two examples) so I don't think they would stand in the way of Congress allowing a State or States to depart.

And if they did, the final authority is a Constitutional Convention, which overrules everything.

Where Mish is right is that a State can't just declare they are out of here and start shooting and not expect a military response.

KidHorn
KidHorn

The democrats occupy little islands in a sea of red. Where would the dividing line be? The cities depend on the country for everything they consume. How are the island cities going to get food and energy?

A more likely outcome is states splitting up. Split California up in 2. A blue California and a red one. Would be a huge disaster for the democrats.

davebarnes2
davebarnes2

First, we send all the Trump voters to FEMA reëduction camps where they get Covid and die.
Second. Oh, wait. No need for Step 2.

RonJ
RonJ

"Absurd Idea of the Day: US Could Split Into More Than One Country"

In 1861...

Martin Armstrong has been talking about that idea for some time, now.

No one expected the Soviet Union to break up.

Lately, the biggest demonstrations in Los Angeles have been Armenians, opposed to the recent attacks in Nagorno-Karabakh. The demographics of the U.S. are constantly changing.

Democrats are engaged in tearing down our historical common culture. The mayor of Washington D.C. says the Washington Monument, Jefferson Memorial, etc., should be torn down. Socialism should replace capitalism.

It is not an absurd idea that the U.S. could split into different countries, regardless how unlikely it may seem today. One year ago it was unlikely that U.S. GDP would drop some 30% in one quarter and a quarter of U.S. workers would be unemployed.

Wyoming1
Wyoming1

Not quite right. Article V of the Constitution states that the States can call a Constitutional Convention (34 of 50 states have to say yes to this) and a dissolution of the Union can be proposed at that convention. If, once again, 34 states vote to dissolve then the US ceases to exist. Unlike when an amendment to the constitution is proposed to change something specific, in a full constitutional convention everything is back on the table. If we get there the odds of dissolution rise dramatically.

Augustthegreat
Augustthegreat

tRump may turn out to be the Gorbatchev of the USA. That would be the great revenge of the Soviet Union.

Eddie_T
Eddie_T

The US will fall apart one day....but that day is not going to happen this week or this year....it will only happen after a very bad global credit and money crash that renders the great powers that be irrelevant.......as the money stops flowing to pay the military and the federal dole. We aren't close to that.

ItchyAndScratchy
ItchyAndScratchy

Respectfully think you missed the boat on this issue. Two things could cause a fracture: some states recognizing a Biden victory while other states recognizing a Trump victory; or, some for of split based upon repudiation of Federal Reserve debt. - Just for for thought.

csayler
csayler

Is the mathematical probability zero? No. But it's MORE likely that Jeffrey Gundlach and those like him will be "split up" when the revolution comes...

Rico44
Rico44

Fools. You have already split. The politicians with the big boy pants (the senate) have devolved into partisan BS, including setting the precedent of using the nuclear option for pretty much anything. There is no path to success in your failed republic.
Blow it up and start over.

Zardoz
Zardoz

I think it would suit us to either split up, or greatly weaken the federal government. The melting pot is full of angry chunks that need their own pots. We have this military monkey though, and dismantling that would destabilize the whole world.

k-rits
k-rits

Mish is right......about entire states breaking off. But that isn't what Gundlach said.
But why couldn't areas within states try to split? How about Portland? Or how about the non-Chicago part of Illinois tries to join Missouri or Iowa? Very plausible.

Jsalter80
Jsalter80

I think it will happen, but it doesn’t have to be an exact, clean split on current state borders, nor just 2 new countries. It can be 4 or 5 or 6, with new borders depending On the populous. California can have a border between the costal areas and the inland areas, and extend north into Oregon. Also, both political parties should be disbanded, just retire the term (Democrat and Republican for good) for the new countries, and a 3 or 4 party system adopted. So each new country can vote on a far left, moderate left, moderate right, and far right politicians to lead them. That way, it’s not a huge chasm between liberal cities and conservative country surrounding the city. The president down to mayors will have a better chance of representing their constituents properly. I see a referendum to split up happening in my lifetime.

2001Tim
2001Tim

Rome, USSR, India, Hapsburg Empire, Yemen, Czechoslovakia etc. All split in half or into many parts. One state would probably not leave, but a group of states would be unstoppable. All states have large populations, arms and military bases that have a ready made air force. Most countries are smaller and poorer then any of our individual states so economically it is very feasible. If Portugal can made it why couldn't Texas? All our media thrives on division and hate. The next time your smile with glee when your favorite news outlet vilifies and condemns millions of people they disagree with remember that a house divided cannot stand.


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