Elon Musk, the optimists and the pessimists – Commerzbank

The future US president will appoint Elon Musk (along with Vivek Ramaswamy) to head a new government efficiency office (independent of the Office of Management and Budget). Mr. Musk had announced during the election campaign that he would reduce US federal government spending by $2 trillion (that is, by almost a third). It doesn’t take a rocket scientist to realize that this would have catastrophic economic consequences for the US economy, says Ulrich Leuchtmann, Head of FX and Commodities Research at Commerzbank.

USD consequences of an expansionary monetary policy reaction to prevail

“Recently, Mr. Musk very publicly celebrated the acquisition of a media company, demonstrating that he does not believe in a gradual and cautious approach. The optimist might argue that Musk should behave more cautiously in view of the fact that it is now a matter serious for a country of 335 million people. But I do not trust him to take that intellectual step. Perhaps it is precisely this point that distinguishes the Westphalian pessimist from the currently optimistic currency market.”

“Furthermore, one could argue that the proposals that Musk and Ramaswamy will develop will only be proposals. The US president and the US Congress are ahead of implementation in actual policy. But one might wonder why they are is creating such an agency if his proposals (which Musk and Ramaswamy certainly won’t keep to themselves) are not implemented. In this case, the president would appear indecisive and establishment-like, exactly what he does not want to be.”

“By the way, it would be quite smart to use such a radical austerity program to create a positive case for the USD. After all, this would significantly reduce the capital requirements of the US Treasury and therefore the economy.” US as a whole. US T-Notes would become scarce and therefore expensive. However, I believe that the USD consequences of an inevitable expansionary monetary policy reaction would probably prevail, at least initially.”