Having established himself as prime minister, the Yankee reflects on the primitive state of affairs in Camelot, devoid of any inventions or useful objects. He's gonna change all that.
Everyone in the kingdom wants to see him, forcing him to address the gathered crowds a dozen times a day. Apparently celebrity lookee-loos exist no matter what the era.
The people begin asking for a repeat miracle, something the Yankee can't immediately produce; Clarence reports that Merlin is starting rumors that the Yankee is a fraud.
The Yankee has Merlin thrown in the dungeon—presumably for the crime of general jerkiness—then comes up with a plan: He claims that in two weeks, he will destroy Merlin's tower.
He enlists Clarence for help and the two conspire to build a lightning rod, wiring, and several bushels of gunpowder. They plant the powder in Merlin's tower at night—scattered in batches throughout the walls—then embed the lightning rod. Then they wait for a thunderstorm to arise, which naturally takes its sweet time in showing up.
A crowd gathers on the appointment day, and Hank the Yank calls for Merlin to be sent to him so he can tell him he's going to blow up his tower.