Big Beautiful Mess

The Credit Strategist Blog

The break-up (if that’s what it turns out to be) of the bromance between President Trump and Elon Musk is a losing proposition for everyone involved. It no doubt brings joy to Democrats, other detractors of the two men, Tesla-haters, and those who predicted this very predictable outcome. But there’s nothing to celebrate about the end of what could have been a very productive collaboration for America.

Musk’s behavior should raise serious questions and concerns in view of his role as chairman of TSLA, a public company, and Space X, a company with billions of dollars of highly sensitive government contracts. Any other senior executive who behaved like this would be immediately fired (or at least placed on leave pending an investigation) by his board of directors because his behavior reflects signs of mental illness and/or substance abuse (the latter of which has been amply documented in press reports). For his own protection as well as his shareholders’, basic corporate governance requires action be taken immediately. Of course, the odds of that happening are virtually zero since his companies don’t have independent boards, leaving his shareholders at the mercy of his erratic behavior. If nothing is done to address his behavior, it will be the latest example of Musk’s behavior eroding the norms of corporate governance. With TSLA trading at a valuation that nobody can explain or justify except by reference to businesses and profits that don’t exist, this latest episode should alarm regulators and institutions who claim to stand for high standards of behavior and governance on the part of our corporate leaders. Musk is making a mockery of the system and someone needs to stand up and say “enough!”

As for the Big Beautiful Bill (BBB), Musk is correct that it doesn’t make a dent in the deficit and that the United States is going bankrupt. He omitted to mention a much harsher truth, however, which is that it’s too late to do anything about it. A hard look at the budget numbers shows that only radical changes in non-discretionary spending and/or taxation requiring austerity and large tax increases (which would trigger a severe recession or worse) could change the arc of insolvency. And neither of those are going to happen in our political system - no politician will vote for them because they will be voted out of office if they do. So whether the BBB increases or decreases the deficit by a few trillion dollars is irrelevant; those projections are variances from projected $2.0 to $2.5 trillion annual deficits every year in the future, taking the total federal deficit to close to $50 trillion by 2030 and over $70 trillion by 2040. We already lost the ability to control the deficit. That doesn’t mean we shouldn’t try, but as we see from the resistance to DOGE, there are too many forces inside the government opposed to cutting spending to produce meaningful results. The deficit reduction game is great in theory but impossible in practice.

So investors (and everyone else) better start preparing to deal with the consequences (they should have started a while ago). That means buying gold as a bare minimum and paying down their debt.

But however the BBB turns out, it isn’t going to change the outcome. It’s already too late.