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Economic analysts are raising alarms about government spending reductions, specifically highlighting how these cuts might destabilize the current market. Danny Moses, known for predicting the 2008 financial crisis, pointed out that the extensive reductions made by the Department of Government Efficiency could have significant repercussions for private contractors, small businesses, and the overall job market. “The situation isn’t simply about identifying fraud or cutting waste; it’s much more complex,” he noted.
Investor Danny Moses, who gained notoriety for his strategic bet against mortgage-backed securities prior to the last recession, is now cautioning against another economic shift influenced by government actions.
Moses, the founder of Moses Ventures and a prominent figure from “The Big Short,” expressed concern that the market has yet to consider the broader negative economic effects stemming from large-scale job cuts prompted by the government efficiency initiative spearheaded by Elon Musk.
“It’s critical to understand the potential consequences these federal job cuts may have on the economy and its ripple effects,” Moses remarked during a CNBC “Power Lunch” interview. “These actions could adversely affect revenue streams.”
He added, “Our optimism regarding the long-term consequences of these cuts may be misplaced.”
According to court documents, the Trump administration has let go of over 24,000 federal employees, many of whom are finding it difficult to secure positions in the private sector due to the specialized nature of their skills. Additionally, around 75,000 individuals opted for deferred resignation, allowing them to remain on payroll through September. The Department of Government Efficiency (DOGE) claims to have cut $115 billion in government expenditures, although some analysts are skeptical about the accuracy of these figures, as highlighted in recent critiques.
The administration’s recent shifts in tariff policies have added to the unpredictability in the market, prompting various companies to reevaluate their strategies. Concurrently, Federal Reserve Chair Jerome Powell has kept interest rates steady in light of the ongoing policy discussions.
Moses noted that there are already signs of a decline in consumer confidence, which experienced its largest dip in four years last month. He suggested that these trends have not yet been fully represented in market pricing.
“It’s much more complicated than merely considering fraud and cutting spending,” Moses summarized. “It’s about the larger implications for federal workers and the impact on private sector contracts.”
He warned that the consequences of these cuts would be evident, particularly among small businesses and private contractors, which are now forced to make difficult operational decisions. “The ramifications of reducing federal assignments reflect a larger negative cycle in the economy,” Moses commented.
In the fiscal year 2023, the government reportedly spent approximately $759 billion on contracts, a rise of about $33 billion from the previous year. Of this amount, around $171.5 billion was allocated to small businesses, as per the U.S. Government Accountability Office. Notably, Musk’s companies have benefited from receiving at least $20 billion in these contracts.
The objective of DOGE has already begun to affect substantial contracts. For instance, Accenture‘s CEO, Julie Spellman Sweet, announced to shareholders that its Federal Services division, which accounts for 8% of global revenue, lost several contracts due to DOGE’s audits. Consequentially, Accenture’s stock saw a decrease of 7.3% following this revelation.
The dual loss of federal jobs and contracts creates what Moses describes as an “unvirtuous cycle.” As dismissed federal employees seek positions in the private sector, they may face limited job opportunities due to reduced revenue from government contracts.
Furthermore, the economy is bracing itself for the re-entry of thousands of former federal workers into the job market. These individuals might find varying opportunities depending on their skill sets, as discussed by economist Cory Stahle from Indeed’s Hiring Lab. “Will the labor market be capable of accommodating these workers?” Stahle questioned. “That remains uncertain.”
Presently, there is a robust demand for healthcare professionals—encouraging news for the roughly 16% of federal employees in this sector, according to the Pew Research Center. Nonetheless, there is a scarcity of white-collar positions, especially in technology and data-related fields. Many of the laid-off workers are educated and may be seeking traditional knowledge jobs that are currently unavailable, as noted by Stahle.
A potential reason for the market’s lack of response regarding the implications of these layoffs could be attributed to delays in government reporting. Although the Bureau of Labor Statistics indicated about 10,000 positions were cut in February, it is likely that the reporting period for these statistics ended before the significant number of recent firings took place.
“Employers are understandably hesitant given the uncertainty surrounding various factors, including tariffs and the labor force,” Stahle elaborated. “There’s considerable unpredictability at play that has yet to be fully assessed.”
Should a notable portion of federal workers struggle to secure new employment, consumer expenditures could decline sharply. This would pose a substantial threat to an economy where nearly 70% of economic activity relies on consumer spending, as highlighted by Callie Cox, the chief market strategist at Ritholtz Wealth Management, in a February blog post.
“At the end of the day, the economy revolves around people and their financial capacity,” she stated. “If consumer spending is disrupted, growth will inevitably falter, regardless of how justifiable the causes behind these disruptions are.”
This analysis is adapted from a piece featured on Fortune.com.
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