WASHINGTON -- Hillary Clinton has positioned herself as the heir to the Obama administration, with the central argument for her candidacy being that she’ll guard against any attempt to roll back her predecessor’s accomplishments and work within the system to make incremental improvements.
She leaned in hard to that strategy after New Hampshire, with the goal of yoking herself to President Barack Obama so that his support within the black community would transfer to her rather than Bernie Sanders, an independent who identifies as a democratic socialist and who has been critical of Obama for at times being too friendly to the business community.
To combat Sanders' more aspirational and hopeful politics, Clinton has counseled caution, lest the party's enthusiasm for utopia cost it in the general election against Republicans. Only Clinton, her argument goes, can stave off a GOP win in November.
"Long story short, she's electable in the general. Originally, I was leaning towards Bernie. A lot of what he says resonates, but I don't think he can win," one Clinton voter said at a rally in South Carolina Friday, aired live on HuffPost Politics' Facebook page.
Clinton is poised to dominate in South Carolina, setting herself up for what could be a decisive win three days later on Super Tuesday.
But the candidate's case for herself does leave a potential vulnerability. And it is appearing increasingly likely that Donald Trump could become the Republican nominee, altering the calculus of whether Clinton is truly the most electable.
Clinton has withstood decades of GOP attacks, she argues, yet she remains popular enough to win, while Sanders hasn't had a red glove laid on him -- and in fact, Republicans have been boosting him where they can, suggesting they agree with Clinton's analysis of her own strength.
But there is one scenario in which Sanders might actually be more electable in November against whichever Republican they put up: an economic crisis.
Sanders has drawn strength from the fact that the economy, while better than it was at the start of the Obama administration, is still fragile in its fundamentals. The younger voters who have flocked to his campaign have an innate understanding of the precariousness of the economy at the moment. Many are underemployed relative to their level of educational attainment -- and indebtedness -- leaving them well in the wilderness of economic insecurity, with a latent skepticism about whether the Obama economy is working for them. But things are much better for them than they could be.
What Could Go Wrong?
There’s no immediate indication that a 2008-level seismic event is in the offing. (Then again, crises do not typically announce themselves, even if their causes appear clear in retrospect.)
But if you’re looking for worrying signs of a drastic downturn to come, you need look no further than the oil market. Right now, oil prices are bouncing around and bottoming out. Most Americans at the moment feel this as a benefit -- they’re paying less at the pump than they have in years. Who doesn't love $2-a-gallon gas? But there’s immense downside risk to the financial system if the trend continues.
The oil business is one of long-term investments -- people are hired and extraction and refining infrastructure is built well in advance of pulling any crude out of the ground. Investors have made, essentially, a lot of bets on the future, and those bets could turn sour if low prices make it impossible to earn a return. Beyond that, lower revenues for oil producers make it harder for them to make good on their debts, which in turn leaves the banks holding the bag. Suddenly, the biggest banks find themselves in a credit crunch -- their profit reserves have to go to cover capital requirements, which in turn makes them less likely to lend money.
As Michael Corkery at Dealbook reports, “Banks of all sizes are marking down the value of loans and setting aside reserves to absorb additional losses as oil producers struggle to pay their debts.” Bank of America, for example, has been forced to move $264 million to cover these losses. As Corkery notes, the good news is that this problem hasn’t yet eaten away these banks’ big “capital cushions,” which is in itself a tribute to Obama-era financial reforms.
But could things get worse yet? The Week’s Jeff Spross says the answer is yes:
Plenty of banks have been trying to avoid cutting off oil companies from financial support as long as they can. If a company just sits dormant, it's a lot easier to restart the real-world economic activity that company engaged in than if it goes bankrupt entirely. But the oil price plunge happened over a year ago now, so banks are running out of room. On top of that, oil companies hedge in the financial markets like anybody else to protect against these sorts of price drops. But plenty of those hedges — and the revenue to the oil companies they provide — are scheduled to expire early this year.
In other words, oil companies guard against wild price swings by hedging their bets. Without getting into too much detail, there are a variety of financial products companies in the oil business can hold -- it's basically like buying insurance -- so that if they lose too much money in one direction, they make money in the other. But these products all have expiration dates that have either hit or are fast approaching. And nobody wants to sell them a new round of insurance against catastrophically low prices -- since prices are already catastrophically low.
Again, none of this necessarily presages a 2008-style cataclysm. But oil producers are not just big companies. Entire nations rely on oil money to get by. On top of the obvious Gulf states like Saudi Arabia and the United Arab Emirates, places like Venezuela, Norway and Russia are taking a beating.
As those countries suffer, the risk increases that some interconnection they have with the global financial system will trigger a broader panic. This time, those starved of capital won't be able to turn to the sovereign wealth funds that acted as an early buffer in 2007, since those funds are getting whacked by the oil crash, too. (The UAE's ambassador to the U.S. has already had to tell Washingtonians accustomed to an endless spigot of cash for think tanks and charity dinners that some belt-tightening is coming.)
Crashes are unpredictable, and on any given day, they're highly unlikely. But what if it happened?
Post-Financial-Crisis Politics
American voters -- and those across the world, for that matter -- are less ideological and orthodox than we assume. If the economy is going well, they will reward the incumbent party, whether it's stacked with socialists, fascists or libertarians. If it's going south, they'll reward the opposition party. Even dictators know the score: the Arab Spring had more to do with runaway food prices and economic frustrations than it did with anything else.
In 2008, Democrats were the beneficiary of this impulse. Two years later, the public hadn't undergone an ideological transformation, but voters brought in a wave of tea party Republicans as the economy teetered.
So if the economy suddenly tanks -- and we're talking a significant downturn, several hundred thousand jobs lost a month, the Dow crashing hard -- voters will be looking for "change."
Hillary Clinton is many things, but even though she is running to be the first female president in U.S. history, her strategy to run for Obama's third term means that by definition, she is not the candidate of change. Donald Trump, whatever else he is, would represent change. In the event of a major economic crisis, it's awfully difficult to see how Trump doesn't beat Clinton in a landslide.
But in this one unusual scenario, Sanders' lifetime spent as an independent democratic socialist may be his biggest asset. He would still pay a price among some voters for being the candidate of the Democratic Party, the one that, in this scenario, had brought them the most recent crisis, but he would be spared the full-throated rage that would be leveled at Clinton as 401(k)s vanished, jobs were shed and credit seized up.
With capitalism flatlining for the second time in a decade, the people might be ready to try a little democratic socialism.
Ben Walsh and Zach Carter contributed reporting. Sign up here to join Ryan Grim's email list, and get a note when he publishes a new story.
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