DOGEing a Crisis, Remedy for an
Unsustainable Path
By Mike Casey; Andersen Alumnus and Co-Founder of TechCXO and CEO of Banker Advisor
The U.S. economy experience modest expansion in
the post-pandemic period of 2022–2024, with Real GDP increasing by slightly
over 2.33% year on average. According to estimates, over one-third of this
growth, which played a significant role in job creation, has been fueled by
increases in government spending. The U.S. government’s spending comes from tax
revenue and is merely a reallocation of economic resources from the private
economy’s productivity. However, since government spending has been funded by
significant increases in deficits and increase interest expense on our national
debt, there is a growing concern regarding the impact of our recent fiscal
policies on the longer-term impact on the U.S. economy.
The health of U.S. fiscal policies is viewed with considerable concern
by many analysts due to the combination of high debt levels, large budget
deficits, and the projected unsustainability of the current fiscal path without
policy changes. However, there's also an acknowledgment of the economic
resilience and the potential for policy adjustments to mitigate these risks.
The political climate will have a significant impact on future fiscal health,
particularly given the administration shift. The Department of Government
Efficiency (DOGE) wants to concentrate on simplifying the federal government of
the United States, however taking action to solve these problems would need
bipartisan agreement, which is still unclear given the current political
environment.
Unsustainable Path
The budget deficit, which was over $984 billion or 4.5% of GDP in 2019,
increased to $1.83 trillion or 6.4% of GDP in fiscal 2024, while the U.S.
economy grew from $21.5 trillion in 2019 to just over $27.4 trillion in fiscal
2024. By the end of fiscal 2024, the national debt balance had risen to $36
trillion, with interest expenses on the about $23 trillion national debt in
2019 amounting to $375 billion and over $1 trillion. While the U.S. economy
expanded by about $6 trillion, the national debt rose by $13 trillion. The size
of recent deficits is historically large outside of exceptions such as World
War II, the Global Financial Crisis, or the COVID-19 epidemic. Federal Reserve
Chair Jerome Powell characterized the situation as being on an
"unsustainable path," emphasizing that the national debt is growing
faster than economic growth.
Economic Hazards
Rising interest rates are just one of the negative effects the United States
may experience if its current fiscal policy track of growing deficits and debt
continues. The cost of debt servicing, or interest payments, rises in tandem
with the nation's debt. Increased interest payments take up a bigger portion of
the federal budget, which might divert funds from infrastructure, healthcare,
and education. Government, corporate, and consumer borrowing costs may rise as
a result of ongoing deficits and excessive debt levels. As a result, consumer
spending and private investment may decline, slowing economic growth. The
government's ability to respond to unforeseen circumstances, like recessions or
natural disasters, or economic crises, is hampered by a heavy debt load.
Overspending by the government can raise inflation, especially if it puts
pressure on the Fed to monetize the debt (print money to cover deficits).
Future generations could be burdened financially by growing debt, which forces them
to pay for current excesses through higher taxes or decreases in public
services. High debt levels may compel austerity measures that
disproportionately impact low- and middle-income households, such as reducing
social services.
Funding Execution Risks
The estimates of the financing obligations of the U.S. government to cover the
new borrowings related to the current deficit, interest costs, and the
refinancing of maturing debt in 2025 vary but are generally upwards of more
than $10 trillion. This is a significant
undertaking for the U.S. Treasury, which features several risks related to the
existing fiscal policy trajectory, which includes increasing deficits and
increased national debt, among other factors. These risks are complex and
include the impact of outside influences such as the debt ceiling limit, the
U.S. credit rating, investor appetite, market absorption capacity, dependence
on foreign investors, currency exchange rates, and market volatility.
DOGE
The Department of Government Efficiency (DOGE) is an advising organization that
functions independently of the government and makes suggestions for enhancing
government effectiveness rather than being an official government department.
Streamlining federal government operations in the United States and cutting
down on inefficiencies are the main goals of DOGE. Key aspects of its mission
include:
- Identifying and cutting unnecessary spending
- Reducing the size and complexity of the
federal bureaucracy
- Restructuring federal agencies
- Fostering transparency and public
participation
- Advancing efficiency through technology.
DOGE’s main objective is to increase the
effectiveness, cost-effectiveness, and responsiveness of the U.S. government to
the demands of the people, with an emphasis on minimizing the federal footprint
in accordance with conservative budgetary policies. However, political and
legal restrictions still apply to how these objectives are actually carried
out, and major modifications will require Congressional support and approval,
which we can only hope will be achieved.
About Banker Advisor: BankerAdvisor is the world's largest financial
services review platform. Reviews, ratings, and resources for selecting
financial services providers.
About Mike Casey: Mike Casey developed his vision for
BankerAdvisor through
his experiences as a CFO
for several larger enterprise software and services
businesses through the
process of searching for financial services providers.
Mike observed that, while
financial services represent a huge portion of the
economy, businesses and
consumers often have difficulty selecting the right
providers due to limited
transparency, criteria and insight into the quality of many
services. Mike is also a
co-founder, managing partner, and leader of the CFO
practice for TechCXO,
LLC, a professional services firm. Named to the Inc 5000
list 15 times since its
founding in 2003, TechCXO is a $60M+ firm and a pioneer
in providing on-demand
executive financial, strategic, and operational consulting
services for growth-stage
enterprises.