Elon Musk’s so-called Department of Government Efficiency, is “blowing up significant parts of the US government”, in the words of Paul Krugman. Oddly, however, this is passing with barely a mention from financial market analysts.
I paraphrase, but “don’t worry about it” was the line from Barclays a week ahead of Donald Trump’s January 20 inauguration.
“Doge likely faces legal, process and political obstacles,” the bank’s analysts wrote at the time. “Doge itself cannot cut government spending, rescind regulations, eliminate departments or agencies, or terminate federal employees. In our view, the change Doge can drive through executive action is likely less (and slower) than many investors anticipate.”
Peter Tchir at Academy Securities is focusing on the “headline after headline of waste that is being reduced”. He went on:
Even if a fraction of the headlines are accurate, the ability to cut spending seems high. That is without focusing their attention, yet, on some of the big-ticket items in the budget. Doge alone seems able to help with the goal of reducing the deficit.
So far, I think Doge has been helping support Treasuries. Doge provides some element of hope that bigger chunks of the deficit can be trimmed without major repercussions to the economy or markets, than previously thought. The excitement about what Doge can do to the bigger line items is real.
As Tchir says, Doge has made blunders. But he certainly appears to be right that markets are focusing on the cost cuts and not the US’s institutional resilience, for now at least…. Stock and bond vigilantes remain supremely relaxed about Trump 2.0 and all it entails.
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