On December 4, Jerome Powell sat for a fireside-style chat with Andrew Ross Sorkin for The New York Times DealBook summit.
By and large, it was a pointless exchange, but I covered it because I felt obliged. I gave short shrift to most of the banter, but I did highlight Sorkin’s question about DOGE. Not the meme coin (whose mascot, Kabosu, passed away recently) but rather Elon Musk’s Trump-blessed initiative to trim government payrolls and, where “necessary,” eliminate federal agencies.
“Do you think the Fed could come under some kind of DOGE-like program?” Sorkin asked Powell. He didn’t elaborate, but the implication was that Musk might attempt to cull the Fed’s army of economists and staffers.
As it turns out, the answer to Sorkin’s question is “yes.” Or at least “probably.” Because on Monday, Musk said Powell has too many employees. “The Fed is absurdly overstaffed,” he declared, in a short response to “SPAC King” Chamath Palihapitiya, who was in the process of regaling his 1.7 million social media followers with a list of the news stories he read over the past week.
That might seem like an innocuous remark, but remember: A lot of Musk’s “best” (read: worst) ideas originate as short replies to other people. Think: “How much is it?”
It’s not difficult — at all — to imagine a sequence of events wherein Trump and Musk embark on a quest to gut the Fed in the name of “efficiency” (after all, if hundreds of staffers and economists can’t accurately forecast inflation, then what good are they?) then backfill key, newly-empty positions with loyalists.
Part of Powell’s defense against such an encroachment is the contention that the Fed’s a self-funded, profit-making institution which writes big checks to Treasury. In other words: A revenue generator for the US government (by way of what — forgive me — is a glorified Ponzi scheme). But that defense is undermined these days by the very large operating losses the Fed ran as it raised rates. In 2023, that loss was $114.3 billion.
As a quick reminder, the Fed started running a loss late in Q3 2022. The figure shows, for the most part, remittances to Treasury. This is the first time those remittances were suspended due to paper losses.
Trump likely doesn’t understand the mechanics of this, and I doubt Musk does either. The Fed can’t “lose” money. Any loss is a “deferred asset” — a de facto IOU to Treasury. But facts are at best irrelevant in the right-wing echo chamber. At worst, facts are persona non grata, particularly if they’re an obstacle to achieving some end, in this case the commandeering of US monetary policy. If Musk’s paying attention, the social media platform he runs is a veritable wellspring of Fed conspiracy theories and anti-Fed rhetoric just waiting to be amplified.
Trump regularly berated the Fed, and Powell personally, during his first term, and in an October interview with Bloomberg, he all but called the Chair superfluous (“It’s the greatest job in government. You show up to the office once a month and you say, ‘let’s say flip a coin’ and everybody talks about you like you’re a God.”). Expect more of that. A lot more.
In his remarks to Sorkin earlier this month, Powell reminded anyone who cares (a group with most assuredly doesn’t include Trump, nor Musk) that the Fed enjoys “strong legal independence.” Asked specifically if he’s worried about challenges, overt or otherwise, to that independence going forward, Powell said, “[I’m] not concerned.”
Somebody should remind Musk that it is very inefficient for the economy to have wealth so concentrated, and actually unproductive.
I’m quite sure that treasury and the American people could use some of that wealth and put it to good efficient economy.
Wealth of nations should prevail. Not wealth of the greasiest individual.
I’m so glad to hear that Mr. Trump took a shot at the one time illegal alien that Musk may have been.
DOGE seems like Project 2025 to me, as I’m reasonably confident that it will be those that are deemed insufficiently loyal that get the axe first or they’ll plan to over-cut, with the intention of saying we had to hire a few back, and those will be loyalist.
When Musk paid for Trump’s presidential election he did it to try to buy his prospective power as well. What he vastly under-estimated was Trump’s desire to be number one among all the twos and below. All these news items showing up in the last fortnite or so that quote what Musk plans to do and how he is the shadow POTUS or the Prime Minister are straws that will soon break the master camel’s back. He will not accept anyone getting more attention or professing bigger britches than himself. Musk has X but little else of any interest to Trump these days.
Mr. Lucky — don’t forget about Musk’s $450 billion. That is catnip to a con man who, for the time being, is hawking his own cologne.
The related issue is that staffing at BLS, Census, etc will be cut back and politicized so that economists, policymakers, and investors have less, and less reliable, data on how the economy is actually doing. A page from the Xi playbook.
The extremely wealthy can pay for their own data collection. Everyone else will be in the dark.
Meanwhile, a friend who is an occasional poster here asked me a while back about the impact of Tesla’s “gigafactory” on US policy towards China. Now that Musk is Trump’s Rasputin it looks like it was a prescient question.
https://www.marketwatch.com/story/did-elon-musk-kill-a-bill-blocking-investments-in-china-to-help-tesla-1bcdec2a?mod=home-page
Derek,
exactly that was the main reason for Musk’s outburst. Another win for him.
Technically, Chamath Palihapitiya is known as “SPAC Jesus”.
After the Virgin Galactic deal, Muddy Waters research asked “What SPAC Would Jesus Do?”
And it kinda stuck
I was not aware that there is such a thing as “Muddy Waters Research”. Amazing. So far I had only been aware of the late blues musician of the same name. Thank you for this new bit of information on Christmas day! ?