Energy & Environment

A referral to the Justice Department would be a serious escalation of the reviews of multiple allegations of ethical lapses by Zinke.

Interior Secretary Ryan Zinke has not been contacted by the Justice Department, a lawyer for the secretary said today amid reports that Interior’s internal watchdog had sent criminal referrals related to its investigations into his conduct in President Donald Trump’s Cabinet.

The statement came after the Washington Post and CNN cited anonymous sources who said Interior’s Office of Inspector General had referred investigations to DOJ. Interior’s IG has been conducting several probes into Zinke since last year including one involving a Montana land deal — first reported by POLITICO — tied to the secretary and the chairman of the major oil services company Halliburton.

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News of the referral comes two weeks after a botched announcement that a Trump administration political appointee would be brought in to lead the Interior inspector general’s office.

“The Secretary has not been contacted or notified of any DOJ investigation or Inspector General referral,” said Stephen Ryan, a partner at McDermott Will and Emery acting as counsel to Zinke. “It is disappointing that unsubstantiated and anonymous sources have described an IG office referral to members of the media, as this violates DOJ and IG policy direction. The Secretary has done nothing wrong.”

A referral from the Interior IG to DOJ would be a serious escalation of the reviews of multiple allegations of ethical lapses by Zinke.

One of the IG probes is examining Zinke’s ties to a real estate project in his hometown backed by Halliburton Chairman David Lesar, whose company stands to benefit from Interior’s decisions on oil production. Another is investigation, looking into whether Zinke bowed to political pressure in blocking requests from Native American tribes to open a Connecticut casino, was requested in response to POLITICO’s report on lobbying by the tribes’ business rivals.

It was not immediately clear which of the multiple investigations underway at the Interior IG had been referred to DOJ. The IG’s office is also looking into Zinke’s role last year in shrinking Grand Staircase–Escalante National Monument, a 1.9-million-acre stretch of land in Utah that President Bill Clinton declared off limits to drilling and mining in 1996.

Democrats on the House Natural Resources Committee said referring the case to Justice would provide them more ammunition for oversight hearings they plan to hold if their party takes the House in next week’s elections.

“If Democrats are given the opportunity to hold a congressional majority next year, Secretary Zinke will be called to testify in February on why his conduct in office merited referral to the Justice Department, whether that referral was related to the recent attempted firing of his inspector general, and his many other failures and scandals,” ranking member Raúl Grijalva (D-Ariz.) said in a statement to POLITICO. “He has abused the people’s trust and lost any presumption of innocence or good faith.”

A spokeswoman for the IG’s office said she could not confirm or deny any potential referral. A DOJ spokesman said the department generally does not confirm or deny investigations. Spokespeople for Interior did not immediately return calls for comment.

Government ethics experts said a referral wouldn’t bode well for Zinke.

“What I can say is, Inspectors general don’t tend to refer matters to the Department of Justice unless they think that it’s likely there’s been a criminal violation,” said Walter Shaub, a former Office of Government Ethics Director in the Trump administration who is now a senior adviser at Citizens for Responsibility and Ethics in Washington. “There are some missing puzzle pieces here, but the fact that the IG referred it suggests to me they feel they have those puzzle pieces.”

Zinke’s position as Interior secretary puts him in a position to make or change rules that could benefit Halliburton and other companies in the oil industry.

That raises red flags in light of Lesar’s involvement in the Whitefish, Mont., real estate development that Zinke discussed with the developers last year. A nonprofit foundation now run by Zinke’s wife, Lola, agreed to let a Lesar-backed development group build a parking lot on foundation land, and the project will likely increase the value of other nearby properties the family owns.

The project also includes plans for a microbrewery that city officials had said they expected to go to Zinke, who has spent years lobbying the city to allow him to build a brewery in the neighborhood. The secretary has denied that he or his wife are involved in building the microbrewery.

The IG probe into Zinke’s role in the casino project stems from Interior’s decision in September 2017 to not approve plans from the Mashantucket Pequot and Mohegan tribes to jointly open a casino in Connecticut. Interior’s decision followed intense lobbying from Nevada Republican lawmakers and Las Vegas-based MGM Resorts International, which this year opened a competing property 12 miles away from the tribes’ proposed locations.

A federal judge recently agreed to dismiss a lawsuit from the Mashantucket tribe challenging the decision, but the tribe this month asked the judge to revive the suit, alleging that Zinke illegally bowed to political pressure.

Zinke has been the subject of multiple IG investigations for most of his tenure at Interior.

The office earlier this month released a report faulting Zinke for trying to skirt or alter department policies to justify his taxpayer-funded trips with his wife. Among the actions the IG flagged was Zinke’s pressuring Interior staff to look into possibly designating his wife as a volunteer at the agency, a move Interior employees said would have enabled her to travel with him at taxpayer expense.

Interior’s IG office faced confusion earlier this month over who was in charge after reports that the administration planned to replace Mary Kendall, Interior’s deputy inspector general who has led the office since 2009. A leaked Oct. 12 email from Housing and Urban Development Secretary Ben Carson said HUD Assistant Secretary Suzanne Tufts would lead Interior’s IG office.

Critics charged that placing a political appointee to lead the IG’s office was meant to disrupt investigations into Zinke. HUD ultimately said Tuffts had resigned, but the incident sparked a round of finger-pointing between HUD, Interior and White House as to who initiated the move.

The move to place Tufts as head Interior watchdog could point to Zinke’s wanting a politically friendly person in the office as the investigations into him took a more serious turn, Chris Saeger, executive director of conservation group Western Values Project, said in a prepared statement.

“The mere possibility that an Interior Secretary’s behavior could result in a federal criminal investigation is deeply disturbing,” Saeger said in a statement. “One thing is clear: no one is above the law and Secretary Zinke needs to be held accountable for any wrongdoing or misconduct.”

White House

The president looks to blame Democrats and the Fed for declines in the stock market. Analysts cite many other explanations.

President Donald Trump is setting up a simple strategy if markets and the economy cool over the next two years: Blame Democrats and the Fed.

In recent days, Trump and his senior advisers have repeatedly argued that recent turbulence in the stock market reflects investor fear that Democrats will retake the House in the midterm elections next week. “If you want your Stocks to go down, I strongly suggest voting Democrat,” Trump tweeted Tuesday. And he has repeatedly bashed the Federal Reserve in recent interviews for its modest campaign of rate hikes.

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The Trump campaign’s closing ad of the midterm cycle — using footage from the 2008 financial crisis — suggests that handing power to Democrats would bring back sky-high unemployment. “I think election risk is a big part of this correction,” Larry Kudlow, Trump’s top economic adviser, said in an interview. “The market doesn’t want to see an overturning of the business tax cuts or the deregulation or the energy boom. Until this is settled, it’s going to be hard.”

Economists and market analysts say these arguments bear little connection to reality.

Instead, they note that the economy is following a pattern many predicted when Trump and Congress slashed corporate tax rates last year: a period of faster growth followed by a return to the pace of around 2 to 3 percent that has persisted for nearly a decade with annual deficits rising.

Market analysts and traders also attribute much of the recent volatility in stock prices to fear over Trump’s bitter trade war with China and concern that corporate profits have hit their high point for the current economic expansion, which is now in its tenth year and approaching the longest expansion on record. Panic over Democratic gains in Congress does not rank high on the list of worries.

“Markets aren’t dumb. They can read the same polls as everybody else,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “They know that at the moment there is a very high probability that Democrats will take the House. I think from a rational market perspective, that news is pretty much in the price at this point.”

Trump once again on Tuesday attributed recent stock market declines to the Fed’s campaign of rate hikes as well as fear over the midterm outlook. But the sharp decline that took place Monday afternoon directly followed a report that Trump could slap tariffs on an additional $260 billion of imports from China as soon as December. That would entail putting tariffs on just about everything the U.S. imports from China, from clothing to electronic goods.

Tariffs on China currently at 10 percent are scheduled to rise to 25 percent in January unless a deal is struck. A reduction in exports in the third quarter dragged down overall economic growth by the largest amount in over three decades, adding to investor fear.

Corporate earnings remain strong but many large firms are now warning that tariffs on imports and exports threaten their long-term profits. That’s left markets concerned that the U.S. economy could be headed south, though not because of the Fed or Democrats.

Instead, there is more concern in the recent report showing economic growth decelerated to a still strong 3.5 percent pace in the third quarter. In that reading, capital investment was up a disappointing 0.8 percent.

“The worry you now have is you look at GDP and you have seen quite a surprising slowdown in capital expenditure,” said Torsten Slok, chief international economist at Deutsche Bank. “Maybe this slowdown is temporary. Or maybe there is something more worrisome going on and the trade war could expand and we could be in a situation where we may have a more extended slowdown.”

Trump’s comments about the stock market sinking under Democrats also contradict history. In every midterm cycle since 1946, the Standard & Poor’s 500 has risen in the year after the election, regardless of the partisan outcome.

So the president’s claim doesn’t explain what’s going on in the stock market, which is now flat for 2018. In 2017, the first year of Trump’s tenure, the S&P rose about 23 percent. The president prefers to date the market rise to Election Day of 2016. Since then, the S&P is up 24 percent. (In the first year of President Barack Obama’s tenure, the market rose around 43 percent.)

“I don’t think market volatility is all about the midterms,” said Steve Massocca, managing director at Webdush Equity Management. “If we get into a four-year, slug-it-out battle with the Chinese where they wait to see if a new president comes along, that’s not going to be good news.”

Administration officials reject the idea that the third quarter numbers suggest any real slowdown from the faster pace of business investment under Trump. White House Council of Economic Advisers Chairman Kevin Hassett noted in an interview that capital goods orders and shipments remain strong. “The story of the tax cuts is they cut the cost of capital, which should lead to higher capital spending,” he said.

And Hassett rejected the idea that the economy is running on a tax-cut infused sugar high. “If we continue to see a capital spending boom, then productivity goes up and wages go up and you can sustain higher consumption because you increase supply. And all that can happen without causing runaway inflation.”

Economists are less convinced that the third quarter slowdown was a one-time event. “In terms of business spending, I was a bit concerned about that,” said Beth Ann Bovino, chief U.S. economist at S&P Global. “You do have to say, ‘it’s one quarter and let’s see what happens.‘ But it’s worth watching particularly what happens with equipment spending.”

On the Fed, economists say the central bank is doing exactly what it should be doing — especially with unemployment near historical lows, inflation running near the Fed’s 2 percent target and tariffs running the risk of driving up consumer prices at a faster pace. This makes Trump’s bashing of the central bank look more like scapegoating.

“We have 2 percent interest rates and 2 percent inflation, so real interest rates are zero,” said Shepherdson. “I could quite happily make the case that they are actually a little bit behind. You can’t wait until inflation pokes you in the eye before you do something about it.”