Money Rehab with Nicole Lapin - How DOGE Will Affect Your Finances

Episode Date: February 24, 2025

Today, Nicole returns from maternity leave to unpack the biggest story in finance news: DOGE. In this episode, Nicole goes deep on the biggest changes DOGE has made since President Trump returned to office, and shares historical case studies that may help us understand what happens next. Plus— Nicole shares a hot take you may not expect. All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank.

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money rehab. This is a paid endorsement for public investing. Full disclosures and conditions can be found in the podcast description. I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Holy moly, a lot has happened in financial news while I've been on maternity leave. The two biggest stories we need to talk about right now are Doge and tariffs. Tomorrow I'm going to talk about tariffs because we really need to start with Doge. On day one of his second term, President Trump signed an executive order launching

the US Doge service, which yes, you know the name from the cryptocurrency and the meme. But this isn't just a branding gimmick. It is a major shakeup in how the federal government operates. So as we know, DOGE in this context stands for Department of Government Efficiency and is supercharged by none other than Elon Musk. Elon has been very, very busy since DOGE launched and I'm going to tell you how this frenzy of activity in DC is going to affect you and your wallet. I'll also explain my hot take, which is I am Team Doge. For the most part, anyway. A lot of headlines have emphasized the disruption Doge has brought to the US government. But for those of us who work in business and tech, disruption is usually a good thing. In business,

if someone is called a disruptor, it's almost always a compliment. Ultimately, I think this kind of disruption is good for government. And this isn't as hot of a take as you might think, because this isn't the first administration to focus on cost-cutting to lessen the national debt. But before I get too ahead of myself, let's talk about Doge. I'll rewind. Rather than creating an entirely new agency which would require the approval of Congress, Trump created Doge by repurposing an existing agency, the U.S. Digital Service, RIP. Doge's power has grown significantly in just a few weeks, with a new executive order directing federal agencies to coordinate with Doge to cut jobs and limit hiring to only essential positions. Each agency now has a directed

DOJ team responsible for reviewing budgets, technology, and staffing decisions. Musk's DOJ team is wasting zero time. He has done a ton of things, but the five that have gotten the most attention are, number one, slashing federal drops. Doge sent an email to two million federal workers offering a deferred resignation package where employees could resign but still get paid until September. The goal here was to shrink the government workforce quickly. About 75,000 workers have taken the offer so far. Speaking of repurposing, when this email to federal workers went out, Doge used the subject line, A Fork in the Road, which is the same subject line that Musk used when offering

similar resignation options to Twitter employees after buying the company. 2. Shutting Down USAID This was a big headline for a minute. USAID was the agency responsible for delivering billions of dollars in foreign aid. The agency has been nearly dismantled, thousands of employees were fired, and its website was essentially erased. The agency had been spending $40 billion annually on humanitarian support, which did not sit well with a growing number of Americans who feel like the US is intervening and spending too much overseas. Proponents of USAID feel that the agency's

work, namely saving lives through health interventions in developing countries, is both the right thing to do as a global superpower, but it also helps advance soft power and positive will toward the states. But even some people who support international aid feel like there wasn't enough USAID oversight to make sure that there isn't fraud taking place or to identify that funding is actually going to the most important causes. Number three, dismantling the Consumer Financial Protection Bureau, CFPB, an agency that protects consumers from predatory lenders. This is also the agency that created the rights that we have around fair debt collection practices. This agency is now a ghost. The CFPB's website now has a 404 error and its

social media accounts have disappeared. If you try and search old CFPB Instagram posts that still appear on a web search, you'll get an objection that says page not found. Eliminating a bureau task with protecting us obviously does not sound good. But let's not forget that there are other federal oversight institutions, the FTC, the OCC for example, so we're not being left out here in the cold. And there has been skepticism around the cost-benefit analysis of the CFPB for a while now. In 2017, the CFPB building was renovated for a whopping $145 million. Some people also argue that the CFP has limited lending for lower income folks and hurt smaller banks and credit unions that simply can't keep up with costly regulation.

No one wants the consumer to not be protected. But there's a lot more than just the headline going on here. Number 4. Doge staffers at the Treasury Department attempted to access government payment systems that store social security numbers and financial records. The reason Musk sought to get this information was to look for signs of inefficiency, bloat, or fraud. Musk has allegedly found tons of social security fraud. For example, cases of 150-year-old people collecting social security payments. Unless there's a new life expectancy breakthrough that we should all know about, these are most likely cases of stolen social security numbers.

Musk said that the amount of fraud he's seeing in the social security data is adding up to be the biggest scam of our lifetimes. While we don't have the exact data on the fraud that Doge is uncovering, we do have past data that the FTC collected in 2024. By August of last year, the FTC had collected over 33,000 reports of imposter scams involving Social Security with total losses of about 71 million. Then, in looking into the Treasury Department, Musk said that the Doge team found about $4.7 trillion in payments made by the federal government that were untraceable and for the dumbest reason. There is a traceable code, it's called TAS, that has historically been

optional for government transactions. Doge made a small change so that the TAS field is now mandatory when making government transactions, which will make all transactions traceable. It was as simple as that. Musk is being depicted like a bull in a china shop right now. But this is a pretty common sense move that literally comes down to changing one line in a series of paperwork. He's also eliminating paper checks, which Musk estimates will save the government $750 million. After legal challenges, a judge blocked Doge's access to treasury data. It seems like the IRS is going to get this treatment next. And lastly, number five, nixing government contracts. Doge has claimed that billions

in contracts have been cancelled in just a few weeks, though it hasn't provided specifics on what kinds of contracts were cancelled and what the financial impact has been. I know that we're still wrapping our minds around the amount of change that's happening in the government, but we cannot forget the bigger picture here. At the core of all of this is a push to shrink the federal government

and ultimately reduce the national debt, which now sits at $36.2 trillion. For context, that's more than 120% of the country's GDP. That's not just an out-of-balance budget. That is dangerous. I totally understand the concern that DOGE might cut or is cutting key government programs that benefit all of us. But the problem is, a national debt this large means that the government has to spend a ton of money on interest payments, and that, too, means that the government has to spend a ton of money on interest payments and that, too, is money that could go to projects that benefit us

like infrastructure and education. It also makes the U.S. more vulnerable to economic downturns because when the debt is so high, there is less financial flexibility in a crisis. Plus, I do think that all of this scrutiny over where our taxpayer dollars is going is long overdue. Doge is offering transparency about where our money is going and that is a benefit to all of us. Since Doge has been on the scene, they've saved the government a reported $55 billion. Now, can that kind of cost savings turn a vibe session into a bull market that we can all feel? Time will tell. As I mentioned,

this isn't the first time a president has tried to cut federal agencies to control the national debt. So luckily, we have some historical case studies that can answer some of our questions. There are four historical examples worth considering. First, our pal Calvin Coolidge. When he took office back in 1923, the federal government was bloated from World War I spending. By the time he left in 1929, he had cut the national debt by a third. This budget cutting definitely worked in the short term. Government spending dropped, the budget was balanced, and the economy boomed through the roaring 20s. However, critics argue that the lack

of government intervention contributed to the severity of the Great Depression that followed. So now let's look at Reagan. When Reagan took office in 1981, there was a national debt crisis. Inflation was out of control and government spending was skyrocketing. His solution was deregulation and budget cuts.

Did this help the finances of everyday Americans? Well, it depends on who you ask. On one hand, inflation dropped and the economy boomed in the late to mid 80s. On the other hand, the national debt actually tripled under Reagan because there were also tax cuts that ultimately outpaced spending cuts. His economic policies, often called Reaganomics, are still hotly debated today, but Trump is obviously a very big fan. Now remember, this isn't only a Republican playbook. Truman and Clinton did this too.

In 1941, the Truman administration formed the Truman Committee in order to check spending by the Defense Department and the Hoover Commission that basically was Doge 1.0. It's estimated that they saved between $10 and 15 billion dollars in 1941, which would be valued at about a quarter of a trillion dollars today. Clinton was the last US president to actually balance the federal budget. From 1993 to 2001, he turned a 290 billion dollar deficit into a 236 billion dollar surplus. He did a couple of things to achieve this. He cut 380,000 government jobs, mainly from the Department of Defense as part of his Reinventing Government Initiative. He also closed hundreds of military bases, which reduced defense spending after

the Cold War. He raised taxes on the wealthiest Americans, which boosted government revenue. And he imposed limits on federal spending in areas like education, housing, and public works. Did this help our debt problem? Absolutely. By the end of Clinton's presidency, the U.S. was not only running a budget surplus, but we even started paying down the national debt. The economy was strong, unemployment was low, and wages were rising. However, some argue that Clinton benefited from a booming tech industry as well and the budget surplus didn't exactly last. Bush's tax cuts and post-9-11 spending essentially wiped it out. So Coolidge, Truman, Reagan, and Clinton all cut federal agencies and spending to balance the budget but with very different outcomes.

The key lesson from these four historical moments is not just about cutting, it's about how you cut. So will Doge cut spending in the right way? Well Doge is taking a radical approach and that of course isn't without controversy. A lot of Americans are uncomfortable with the fact that someone they did not vote for is wielding so much power. I think it's valid, but also remember that the president does have the power to make appointments

and their appointments are an extension of them, a democratically elected official. Americans are also uncomfortable with the fact that Musk is the leader of several companies and as a result, he has been and will continue to be put in situations where there are big conflicts of interest. There is no question that the actions Musk is taking are aggressive. And as a result, Doge is now facing at least 12 lawsuits including allegations of violating

privacy laws and misusing government data. But regardless, Musk is pushing forward, calling government waste an epidemic. So why am I team Elon on this one? I have grave concerns about the extent of the national debt. And even though Musk's approach is unconventional, I do think his focus is on the right thing. Ray Dalio, famed investor, put it best. The national debt is like plaque building up on arteries that could ultimately lead to an economic heart attack. Because let's go back to the money trail. The national debt

is $36 trillion. The US GDP in 2024 was $29 trillion. If anyone ran a business like this, if I ran my business like this, it would fail. Not getting this under control can lead to inflation and higher interest rates, or worse yet, lower standing in the economic global order. Remember in 2023 when Fitch, a renowned private credit rating firm, downgraded the US credit rating from AAA to AA positive? A lower credit rating for America means exactly the same thing as what a lower credit rating from AAA to AA positive? A lower credit rating for America means exactly the same thing as what a lower credit rating means to you or me. Difficulty attracting capital and securing loans at good interest rates.

Realistically, the US is not going to lose its number one standing in the world if the CFPB shuts down. But it will if our national debt remains out of control. Let's end this back where we started. With you. How will you be affected by Doge? Well, it's going to depend on who you are. If you're a legacy federal employee, your work probably feels very uncertain right now. You've been encouraged by Doge to leave government work for the private sector and that likely feels chaotic and confusing. But hopefully the upside for government employees and for all Americans is that Doge promises their work will ultimately save taxpayers billions. And at this rate, I see some serious

savings in our future. For today's tip, you can take straight to the bank. Even before the rise of Doge, there has been a ton of concern about social security, specifically around how much social security funding will even exist when we retire. So if you want a better retirement plan, you should definitely chat with a financial advisor. If you don't have a financial advisor yet, I personally recommend Creative Planning. You can check them out at creativeplanning.com slash Nicole. Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to

potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at MoneyNews and TikTok at MoneyNewsNetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.