Chaos Grips Washington; Musk Calling the Shots
Author: Greg Valliere
December 19, 2024
WASHINGTON DESCENDED into total chaos yesterday, as Republicans in both houses were blindsided by Elon Musk and Donald Trump, who signaled that they’re prepared to shut down the government this weekend.
THERE ARE SEVERAL MAJOR ANGLES TO this story; we’ll focus on five big ones:
1. Musk was calling the shots yesterday, blasting out rants to his followers and intimidating Republicans who don’t support him. Mainstream Republicans realize that Musk could go too far, but they’re scared of him; Musks’ threats yesterday were extraordinary.
2. Most members of Congress just want to go home for the holidays and will accept any deal that can defer this mess until early January; a temporary deal might last until March 14, but more fireworks are certain. We still think there eventually will be a deal, but there isn’t much time left to read the 1,500-page budget bill.
3, House Speaker Mike Johnson has lost control of his members. He wants a face-saving deal; they don’t want one. Can Johnson hang on next year? That’s increasingly unlikely — and there’s no logical successor, just as there was no logical successor to Kevin McCarthy in 2023.
4. Fiscal policy is headed for a major change — nothing will pass next year unless it cuts or freezes spending; new hikes in outlays are unlikely, and uncertainty will grip every sector — defense, technology, agriculture. etc. — that has depended on Washington spending for decades.
5. Democrats are sitting back, unwilling to offer much help as the Republicans bicker, and there will be political consequences. At some point in the next year — probably soon — voters will begin to have buyers remorse because the cuts that Musk wants are not the cuts that the public wants. As for tax cuts, they’re not even on the horizon yet.
AS IF THIS CHAOS WASN’T ENOUGH, Federal Reserve Chairman Jerome Powell picked a bad day to confuse the markets with a shaky performance yesterday afternoon. With new tariffs coming and a shutdown possible, the Fed needs to offer assurances to the markets, but Powell most definitely did not offer assurances in his unsteady press conference.
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