Elon Musk, billionaire and CEO of Tesla, is co-leading the newly established Government Efficiency Department (DOGE) alongside Vivek Ramaswamy under the upcoming administration of 'crypto president' Donald Trump.

The goal is to cut $2 trillion from federal spending. This figure is nearly equal to the projected deficit of the U.S. government in 2024. But the issue here is that this project could not only fail — but could also destroy the entire U.S. economy.

The Pipe Dream

DOGE is not even a real government agency. It is an advisory group. It cannot do anything without the approval of Congress or Trump. But Elon’s name carries weight. His mere involvement has turned this into more than just a theoretical exercise.

These plans are very drastic: mass layoffs, agency dissolutions, and regulatory cuts. While Trump and his allies are cheering, skeptics are sounding the alarm about potential consequences.

Elon and Vivek are eyeing cuts of up to 75% of the government workforce. Three-quarters of federal employees could be laid off if DOGE’s vision becomes a reality.

But how realistic is this? Experts say not very. Here’s why: about 75% of the federal budget is mandatory spending. Programs like Social Security and Medicare are untouchable without triggering a fierce political backlash.

That only leaves discretionary spending—about $1.7 trillion—for cuts. Half of that is for defense, which Trump and his allies are unlikely to touch. What remains is just a penny compared to the grand ambition of $2 trillion.

Even the savings from cutting inefficiencies (around $150 to $200 billion) would only be a drop in the bucket compared to the deficit. This calculation is unreasonable.

Government Shutdown Stalemate

Elon has demonstrated his political clout, and that truly makes Trump a bit uneasy. Just weeks ago, this eccentric billionaire derailed a bipartisan deal to avoid a government shutdown. His fervent social media posts rallied Republican lawmakers to block the agreement.

He called the allocations excessive, labeling them as wasteful spending. This raises fears of a government shutdown as the holiday season approaches. If federal operations are disrupted, the economic impact would be catastrophic.

The shutdown of 2018-2019 cost the economy $11 billion. Experts warn that a new shutdown could be even worse, especially as the inflation and interest rate outlook for 2025 has created a fragile economic environment.

And the influence of Elon has not even officially begun. Imagine what will happen when Trump takes office, and DOGE starts to push its proposals more vigorously. The risk of a prolonged stalemate in Washington is increasing, and the economy will suffer severely.

A Debt Crisis is Forming

With all the talk about efficiency, DOGE could actually make the national debt worse. The U.S. is already deeply in debt. The national debt has surpassed $36 trillion, and the Congressional Budget Office (CBO) predicts that debt will reach 166% of GDP by 2054. DOGE's proposals, if they do not yield real savings, could accelerate this trend.

Here’s how it could unfold. First, DOGE's goal of saving $2 trillion seems unattainable. If they fail to meet the target, the government will have no choice but to continue borrowing. This means higher interest rates on debt, which is already costing $880 billion a year—13% of the budget.

Secondly, Trump has called on Congress to eliminate the statutory debt ceiling. While this may avoid a debt crisis in the short term, it could lead to uncontrolled borrowing in the long run.

Then there is the wild card of tax cuts. If Elon’s idea includes tax cuts without corresponding spending reductions, the deficit could explode. Trump’s first term added nearly $8 trillion to the debt, partly due to tax cuts. If DOGE follows a similar strategy, the debt issue will spiral out of control.

The Market is on the Brink

As we reported earlier, the financial market is not immune to DOGE's grand plans. Investors are watching anxiously, and with good reason. Analysts suggest Elon’s cuts could trigger a 'deflationary shock.' Bond yields have risen, making borrowing more expensive for both businesses and the government.

Yields have surged from 3.6% in September to 4.46% currently. This creates a liquidity crisis. Companies struggling to access cheap capital may cut back on investment, leading to slower economic growth. The stock market could be affected as investors shift to bonds, which are seen as safer during times of turmoil.

Of course, this would also affect the cryptocurrency market, especially since Bitcoin still has an inherent correlation with U.S. stocks and Dogecoin (DOGE) shares the name with this so-called agency.

There are also concerns about reduced consumer spending. If DOGE cuts welfare programs like Social Security, millions of Americans could lose disposable income. That would impact the economy, harming everything from retail sales to the housing market.

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