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It's Official, Musk is Now the Senior Co-President

Yesterday, we briefly mentioned a new executive order that empowers Elon Musk to de facto run the federal government. It is so important that it deserves a bit more attention.

In a way, it was to be expected. Donald Trump has no interest in actually governing. It is too much work and requires a vast amount of knowledge he doesn't have. By contrast, Musk is a hard worker and is very detail-oriented. He is also power hungry. He is not content to be only the world's richest man, but he also wants to be the world's most powerful man. Whole government agencies live or die at his command. It is not the first time in American history that an unelected man had so much power. King George III did, too. That didn't work out so well, though.

Here are some of the key items in the XO:

The XO ends with this obscure sentence: "This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person." This appears to state that it does not give any party the right to sue the government over the XO. Of course, it also doesn't take away rights that already exist, either due to statute or previous jurisprudence.

One little fact here that doesn't seem to be getting much attention is that cutting the federal workforce by 25% would cut the budget by about 1%. Most tax money goes to Social Security, Medicare, and the military, all of which are exempt from the cuts. It is not about saving the taxpayers' money. The whole project is about crippling the government so it can't go after tax cheats, companies that violate environmental laws, banks that defraud their customers, and the like. The main goal seems to be making it easier for big companies to escape any consequences for breaking the law because the agencies that are supposed to regulate them have been decimated. As we pointed out Monday, Musk's companies have had run-ins with five cabinet departments and six independent agencies for violating various laws. It has probably occurred to Musk (and Trump) that stripping departments and agencies of their personnel will, as a practical matter, force them to focus only on the most egregious violations, which will result in their dropping investigations not deemed absolute top priority. This is probably a compromise most oligarchs can live with. In theory, what you are doing is illegal, but in practice, nothing happens to you for doing it. (V)

Senate and House Are Now on a Collision Course

Both chambers of Congress are working on a budget resolution and they are on a collision course. The budget reconciliation process, which the Republicans plan to use to avoid the budget being filibustered, starts with a budget resolution. Both chambers need to pass it. It serves as an outline directing each committee to draw up a budget for its jurisdiction and tells the committee how much they can spend. The committees then need to put together an actual budget that comes in at or under what the resolution says. They can add or drop programs as they wish, provided the total spending isn't higher than the budget they have been allocated.

In practice, the budget resolution starts from the status quo and directs each committee to make cuts for a certain amount. The House just got its act together and Speaker Mike Johnson (R-LA) presented his plan yesterday. It is only 45 pages, although the actual budget will run thousands of pages. The proposed resolution states that the "goal" is to cut $2 trillion off mandatory spending but also increases the debt limit by $4 trillion. The Budget Committee will take up the resolution this week.

Even if it gets through the Committee, getting it passed through the full House won't be easy. If the vote comes after Rep. Elise Stefanik (R-NY) is confirmed to be U.N. Ambassador and has resigned from the House, it would take only two Republican defections to sink the resolution. Donald Trump wants to eliminate the federal income tax on tips and also wants to make the 2017 tax cuts permanent. House Republicans from New York and California want more SALT, and SALT is very expensive. All of this means either more spending cuts need to be found or the House has to accept a larger deficit. Getting 218 Republicans to agree on the way forward will not be easy.

Furthermore, House Republicans want one giant bill with all of Trump's goals in it. Putting together a giant package is going to generate fights over things other than how much money each department gets.

The guy in charge of getting the resolution through the House is Budget Chairman Jodey Arrington (R-TX). He is a hard-liner and many House members find him both arrogant and incompetent, an often-lethal combination. One House member on background said: "We'll soon find out if Jodey is in over his head." His top priority is cutting spending, but that is not what Trump ran on. Many of the other chairmen don't trust Arrington and don't see him as a team player. They don't think he can corral all his members and still get a resolution that contains all of Trump's priorities, his own priorities, and reduces the deficit at the same time—and in a situation where two Republican votes on the floor will kill the resolution. More specifically, he doesn't like the proposal Johnson cooked up because it doesn't kill as much spending as he would like.

One guy who especially is not enamormed of Arrington is House Ways and Means Chairman Jason Smith (R-MO). For him, implementing Trump's goals is more important than reducing spending and cutting the deficit, something Trump doesn't care about. If the budget resolution is too tight, it might be impossible to extend all of the 2017 tax cuts, end the tax on tips and give the representatives who live near the oceans more SALT. The math might not add up and Smith will then have a problem. Ending the tax on tips will be especially complicated since no doubt there are hedge fund managers who would be willing to accept $1/year in salary and hope the other partners give them a nice big tip. That kind of shenanigans could cost the government a lot of money. Consequently, the wording of the "no tax on tips" clause in the law has to be written in such a way that even the most expensive and skilled tax lawyers can't work around.

Oh, and now the Freedom Caucus has come up with its own plan. It prioritizes cutting the deficit by drastically cutting spending. Their plan is sure to conflict with what Johnson wants, what Arrington wants, what Trump wants, and what the SALT lovers want. Herding all the cats or making the sausage, whatever your preferred metaphor is, won't be simple with such a tiny majority and many people pulling in different directions.

Meanwhile, Senate Republicans saw all this coming and decided to head 'em off at the pass. So the senators wrote their own budget resolution, rather than wait for one to come over from the House. Also, Senate Majority Leader John Thune (R-SD) wants a simple budget resolution that is budget only. He wants to give Trump a quick win and thinks that leaving immigration and other issues for a second bill later will make the wheels turn faster. Johnson is strongly opposed to this plan. How is this going to play out? We don't know, but it could take quite a while. If the process goes on until April, Trump will be furious, but by then the two vacant seats in Florida may be filled, giving the Republicans a tiny bit more breathing space. (V)

Split Decision in the Appeals Courts

Many lawsuits have been filed against Donald Trump's XOs. In half a dozen cases, a judge has already made a temporary ruling, generally to ban the XO from going into effect until the judge has had a chance to hear the case on its merits. Nevertheless, one case made it to the appeals court already and another appeals court weighed in on an earlier case.

What these two cases show is that sometimes the courts move like a hare (see #1 above) and sometimes like a tortoise (see #2). (V)

Trump's Next Target: (Non-)Regulation of the Banks

One of Donald Trump's major goals is overhauling the system of how banks are regulated. Under Joe Biden, the regulators, spread across several agencies, clamped down hard on the banks and made protecting consumers their top priority. In particular, the head of the Consumer Financial Protection Bureau under Joe Biden, Rohit Chopra, was extremely aggressive. The banks hated him. One of the first things Trump did as president was fire Chopra.

Now Trump has picked Jonathan McKernan to run what is left of the agency after Elon Musk is through defunding it. He also chose Jonathan Gould to be the comptroller of the currency and Brian Quintenz to run the Commodity Futures Trading Commission.

McKernan has a bachelor's in economics from the University of Tennessee and a J.D. from Duke. After graduating, he went to work for WilmerHale, a top law firm that has a reputation for defending large corporations accused by the government of lawbreaking. He might or might not be the ideal person to run an agency that often tangles with the big banks, depending on your definition of "ideal." He later was on the board of the Federal Deposit Insurance Corporation, so he does know something about how government works.

The Comptroller of the Currency is one of the top regulators of national banks and foreign banks operating within the U.S. He makes sure the banks are obeying the law and are not on the verge of becoming insolvent. Gould has a bachelor's degree from Princeton and a J.D. from Washington and Lee University. Until Sept. 2022, he worked for a crypto firm, Bitfury. After that, he briefly had a job in the comptroller's office. Then he switched to Jones Day, another top law firm that often defends corporate clients accused by the government of wrongdoing.

Quintenz graduated from Duke and then got an MBA from George Washington University. He worked as a congressional aide for 6 years, then started an investment firm. Barack Obama nominated him as a commissioner on the CFTC but the Senate never got around to confirming him. In 2017, Trump withdrew the nomination, but later renominated Quintenz to fill a vacancy on the Commission. He resigned in Aug. 2021 and joined a crypto firm.

On the whole, all three of them are competent and know something about the financial sector. None of them are like Secretary of Defense Pete Hegseth, who has no business being in government at all. The red flags here, however, are that two of them (McKernan and Gould) have worked for law firms that are well known for defending corporate clients accused of breaking the law. That says something about how they may view corporate malfeasance. Also, two of them (Gould and Quintenz) have worked for crypto companies. Given Trump's new-found interest in crypto, it is hard to see them clamping down on the crypto business. Indeed, that question might just have come up when they were being screened for their new jobs. (V)

Inflation Keeps Rising

As you probably recall, Donald Trump won in 2024 because eggs cost more than they used to and he was going to fix it. Back on planet reality, the president has little power to lower prices, but does have some limited power to raise prices—for example, by levying tariffs on imports.

Guess what? Inflation is back. Prices in January 2025 were 3% higher than prices in January 2024. That's slightly more than the 2.9% in Dec. 2024 (vs. Dec. 2023). January is the fourth consecutive month inflation is up. Core inflation, which excludes the volatile food and energy costs, was up 3.3% in January. Some specific items that consumers will notice went up even more. Eggs are up 53% over a year ago. Meat is up 3.2% and ground beef is up 5.5%. Rents and mortgage rates are also climbing, with the interest on 30-year fixed rate mortgages now at 7%. And this is before the inflation generated by the tariffs kicks in.

Douglas Holtz-Eakin, president of the conservative think tank American Action Forum said: "This is an unambiguously bad piece of news for everyone involved—the administration, Trump and the Fed." In particular, with inflation rearing its ugly head again, the Fed will have to stop cutting interest rates. This will make Trump unhappy, because the real estate business lives on borrowed money and thrives on low interest rates. But if the Fed allows inflation to take hold, the political fallout for Trump will be horrendous. In 2026, Democrats will say: "The Republicans promised to lower prices. Prices are higher than ever now. They lied to you. Time to punish them for lying to you." That is the kind of message voters could respond to. (V)

Voting Rights Battles to Watch

Republicans (correctly) understand that if all eligible voters could vote in all elections, they would probably never win the presidency again and would struggle in all but deep-red states and districts. The courts have been helpful in suppressing the vote and there are a number of ways the courts could continue on this road in 2025. Here is a summary of eight of the key upcoming battles.

  1. The Louisiana Map: Conservatives want to kill off the few bits of the Voting Rights Act (VRA) that the Supreme Court has missed so far. After the Court struck down affirmative action in college admissions in 2023, they want to eliminate race as a factor in everything. They have John Roberts on their side; he famously once said: "The way to end racial discrimination is to stop discriminating on the basis of race."

    Specifically, after the 2020 census, Louisiana lawmakers drew a congressional map with seven majority-white districts and one funny-looking majority-Black district that ran 75 miles from Baton Rouge to New Orleans. This despite the population of the state being 33% Black. Activist groups sued, saying there should be two majority-Black districts, one around each city. The plaintiffs won and the Fifth Circuit agreed. A group of white voters want the Supreme Court to throw out the new map. The state is nominally defending its map, but Black groups say it is intentionally doing a poor job of it and actually is hoping for the Supreme Court to kill off Section 2 of the Voting Rights Act, which shields majority-minority districts.

  2. State-level VRAs: In response to the Supreme Court's gutting the federal VRA, some states have passed their own VRAs. Conservatives are going after these now. New York has one and a lower-court state judge struck it down as unconstitutional. It is now being appealed and will probably get to the U.S. Supreme Court eventually.

  3. Absentee Ballots: In 18 states, absentee ballots postmarked on or before Election Day are counted even if they arrive after Election Day (within some time limit). A case arose in Mississippi and a panel of three Trump appointees in the Fifth Circuit ruled that despite state law, ballots arriving after Election Day may not be counted. Several voter groups have asked for an en banc hearing by the entire Fifth Circuit. This case is sure to hit the Supreme Court eventually. Conservatives hope the Court will ban late ballots nationwide. There is a slight catch here though. As Republicans are starting to vote absentee more and more of late, banning late-arriving ballots might not be the big win Republicans are imagining.

  4. Voter Assistance: Red states have passed all kinds of laws making it more difficult for voter groups to help people vote. Alabama passed a law making it a major felony to help someone vote by mail. For example, helping a voter who is blind. Missouri banned helping people register. Florida banned non-citizens from helping a voter register (for example, driving them to city hall). All of these laws are in the courts now.

  5. Disenfranchisement: Virginia used to allow ex-felons to vote once they had paid their debt to society, but Gov. Glenn Youngkin (R-VA) instituted a lifetime voting ban for felons, even after their release. He knows that felons are disproportionately Black and Black people are disproportionately Democrats. A case brought by a former felon is in the courts now.

  6. Documentation: Republicans are constantly harping on noncitizens voting, when in reality the number of noncitizens voting (which is a felony) is microscopic. Nevertheless, Republicans keep passing state laws demanding that people present proof of citizenship to register or vote. Many states have voter ID laws. Republicans know that many poor people do not have a driver's license or a passport, not to mention more exotic forms of ID like a Global Entry card. They also know that poor people tend to vote for Democrats. Republicans also know that college students tend to vote for Democrats, so in Texas, for example, a student ID card issued by the University of Texas is not a valid ID, but a gun permit is. Some states have had mass purges of the voting rolls, and voters need a valid ID to get back on. Getting a valid ID often requires a birth (or naturalization) certificate. If the office that issues birth certificates is open only Monday-Friday from 2 to 5 and charges $50, that makes it hard for people who can't get off from work (say, bus drivers) to get one, whereas people with flexible schedules (say, lawyers) can manage it. There are several cases about voter ID in the courts now. Eventually they will get to the Supreme Court.

  7. Local Voting: Federal law does not determine who can vote in municipal elections. Some cities allow residents who are not U.S. citizens to vote for mayor and city council. These cities include New York, which has an election for mayor this year. In 2021, a local judge struck down the city ordinance allowing noncitizens to vote and an appeals court upheld the judge. Now it has been appealed to the New York Court of Appeals, which hasn't ruled yet.

  8. Gerrymandering: In 2010, Floridians approved two constitutional amendments that barred racial and partisan gerrymandering, respectively. Lawmakers ignored the amendments and drew gerrymandered maps anyway. In 2015, the state Supreme Court struck down the maps. This produced a new majority-Black district running from Tallahassee to Jacksonville. Democrat Al Lawson won the seat. In 2022, urged on by Gov. Ron DeSantis (R-FL), the legislature eliminated Lawson's district in a very aggressive gerrymander. Voting rights groups sued. The case is now in the state Supreme Court. Although it is an open-and-shut case, Chief Justice Carlos Muniz has said the amendments might be unconstitutional. If the actual words in the Constitution can be found to be unconstitutional, that opens all kinds of new questions.

These are just a few of the many attempts to make voting difficult. There are many more. (V)

Other Countries May Refuse to Share Intelligence with Gabbard

Yesterday, the Senate confirmed Tulsi Gabbard as DNI by a vote of 52-48. Sen. Mitch McConnell (R-KY) was the only Republican to vote against her, despite virtually every Republican knowing she is not only completely unqualified for the job, but might be an actual Russian asset. At best, she is a useful idiot who often takes Russia's side in disputes with the U.S. During her hearing, she defended Edward Snowden for leaking secret defense documents. The DNI is expected to keep secrets... well, secret, and not approve of folks leaking them. Many senators were very upset by this, but still voted for her. Such is the power of Donald Trump and the money of Elon Musk. One elderly senator who will probably retire next year was the only one who cared enough about national security to oppose a possible Russian asset as the country's top spy.

Trump probably knows Gabbard can't be trusted with the nation's secrets, but picking her was a dare he gave the Senate, as in "I dare you to defy me and refuse to confirm my pick for DNI, even though she is totally unqualified and a threat to national security. I dare you." And all but one caved, even the two women from Alaska and Maine who sometimes defy Trump. Confirming Robert Kennedy Jr. as secretary of HHS might merely result in thousands of unvaccinated kids dying of measles and polio. But the confirmation of Pete Hegseth and now Gabbard are serious risks to national security and all the senators know it. Still, they are too scared of Trump to act on this knowledge.

Other countries were expecting this. Many allies are now seriously considering whether they should share sensitive intelligence information with Gabbard. In the past, the U.S. and its allies always shared sensitive information, but now some countries may withhold it, for fear that Gabbard will intentionally or accidentally blab it to Russia and other enemies of the U.S. This could mean that the U.S. will no longer benefit from information their spies get, for fear that Gabbard will leak the information or worse yet, out the spies. The consequence is that Gabbard will seriously weaken the U.S. in a hostile world.

In some cases, foreign intelligence services may bypass the chain of command—which is a real no-no—and give sensitive information to John Ratcliffe, the director of the CIA, on his promise not to tell Gabbard. Ratcliffe is a professional and would understand the need for this. Needless to say, Gabbard would go bonkers if she discovered this, but CIA directors are generally pretty good about keeping stuff secret. So when she asks him, say: "What do the Brits know about Putin's health?" he could say: "They don't know anything," even when they do and he knows what they know. Needless to say, having the 18 spy agencies under Gabbard's command intentionally keeping her in the dark about many things because they don't trust her can't be good for national security. It also makes coordination difficult. There may be things that Ratcliffe knows that the DoD doesn't know he knows because he won't tell Gabbard. She is the one who is supposed to coordinate the multiple agencies, and if they won't tell her anything because they don't trust her, there won't be much coordination. (V)

The Billion-Dollar Senate

A vast amount of money will be spent on congressional races this year and next. In the Senate, it will be concentrated in maybe five to seven states. Certainly Georgia, Ohio, Maine, Michigan and North Carolina, and possibly Kentucky if Mitch McConnell jumps out and Gov. Andy Beshear (D-KY) jumps in. Maybe New Hampshire, if Chris Sununu decides to run for the Senate. The chairman of the NRSC is Sen. Tim Scott (R-SC). He expects all spending records to be broken.

Scott thinks the total spending in Maine, where Democrats will try to unseat Sen. Susan Collins (R-ME), will be in the $400-600 million range. It is hard to see how they will spend it. Maine has only 15 full-power TV stations. He thinks the North Carolina race, with Sen. Thom Tillis (R-NC) trying to defend all his Senate votes for incompetent people, will top out at $700 million. He believes these two races alone will add up to more than a billion dollars. These are numbers that used to be far more than a presidential campaign spent. But because politics is now so partisan and ferocious, supporters and opponents of Donald Trump see control of the Senate as a life or death matter, so the money will flow like water.

And it is not even clear that force-feeding a voter the same ad 30 times a night is really more effective than force-feeding the voter the same ad 10 times a night. At some point people are going to get angry at the ads and they might become counterproductive. Besides, many voters simply vote for their party's candidate and no amount of advertising will change that. This means each party might be spending a few hundred million dollars to try to convince 10,000 undecided voters that their ad is less obnoxious than the other side's ad. (V)

Democrats Should Send Joe Manchin a Valentine's Day Card

It is St. Valentine's Day tomorrow. Democrats really ought to send former senator Joe Manchin a card telling him that he was right and they were wrong and how much they now love him. Manchin, as you may recall, refused to allow Democrats to pack the Supreme Court, something many of them were champing at the bit to do. To pack the Court, they would have first had to abolish the filibuster. To do that, they needed his vote (and that of Kyrsten Sinema, but she was potentially gettable with enough coaxing, pork, and promises to help get her reelected). Unlike Sinema, who was playing games with the Democrats, Manchin really meant it.

If the Democrats had abolished the filibuster, by now the Republicans would surely have passed a bill doubling or tripling the size of the entire federal judiciary, depending on how many judges the Federalist Society could come up with for Donald Trump to nominate and the Senate to ram through. At the moment, half a dozen judges have temporarily blocked Trump, but if the Republicans had their druthers, by June three-quarters or more of the federal judges would be carefully vetted Trump appointees certain to side with him on everything. The only remaining guardrail would have been gone.

And of course, the only weapon the Democrats have now—the filibuster—would have been gone for normal legislation as well. The sky would have been the limit for Republicans. How about bills banning all abortions nationwide while mandating that every K-12 class in America begin with a short reading from the New Testament followed by a 1-minute student-led prayer? Forget about trans people. What about a bill making homosexual acts a felony punishable by stoning to death in public, with the public invited to buy official stones of various sizes for various prices and the money going to local governments? What about mandating gun ownership for all able-bodied males over 18 and a national stand-your-ground law making it legal to shoot anyone trying to enter your house if you thought they were up to no good? How about border guards being instructed to shoot immigrants crossing the Rio Grande, with a $500 bonus for each kill? Imagine a change to the tax laws setting a marginal tax rate of 0% for incomes over $1 million (for the job creators)? Or better yet, one abolishing the federal income tax and estate tax altogether and recouping the income with a 25% sales tax on everything, including food, rent, and college tuition? The list goes on and on. But none of these things will happen on account of Joe Manchin. Surely he ought to get some love for that? (V)


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