Michael Burry's Warning: The Market is Underestimating the Economic Impact of DOGE's Mass Spending Cuts

Michael Burry, the investor who famously predicted the 2008 financial crisis, has once again raised alarms about the market. This time, his focus is on the economic impact of the Department of Government Efficiency's (DOGE) aggressive federal spending cuts. Burry, known for his prescient bets against the housing market in the mid-2000s, has bet more than $1.6 billion on a Wall Street crash, according to Security Exchange Commission filings released on March 22, 2025. His fund, Scion Asset Management, has bought $866 million in put options against a fund that tracks the S&P 500 and $739 million in put options against a fund that tracks the Nasdaq 100. This move indicates that Burry believes the market is underestimating the economic impact of DOGE's spending cuts, which could lead to a significant market downturn.



Burry's bet is not without precedent. In the mid-2000s, he made a significant move by launching Scion Capital, his own investment fund. The fund's initial capital boost of $1 million came from Joel Greenblatt of gotham Capital, who was an avid reader of Burry's blog. From its inception, Scion Capital was a success. Unlike the S&P 500, which suffered an 11% decline in 2001, Burry's fund gave its investors a return of 55%. Capitalizing on the dot-com bubble, Burry strategically shorted overvalued tech stocks, further enhancing his reputation as an astute investor. His success in predicting the stock market crash is largely credited to his unique focus on lenders rather than borrowers. "What you want to watch are the lenders, not the borrowers," he said. "The borrowers will always be willing to take a great deal for themselves. It’s up to the lenders to show restraint, and when they lose it, watch out."

Burry's current investment strategy reflects his assessment of the economic impact of DOGE's spending cuts. He has bet more than 90% of his portfolio on a market downturn, according to the filings. This suggests that he is highly confident in his assessment of the economic impact of DOGE's spending cuts. The implications of this for the broader market are significant. If Burry's assessment is correct, and the market does experience a downturn as a result of DOGE's spending cuts, it could have a ripple effect on the broader economy. This could lead to a decrease in consumer confidence, a slowdown in economic growth, and an increase in unemployment. Additionally, if other investors follow Burry's lead and also bet against the market, it could exacerbate the downturn and lead to a self-reinforcing cycle of market decline.

Investor Danny Moses, best known for his prescient bet against mortgage-backed securities before the 2008 financial crisis, is sounding the alarm again — this time over the market’s failure to properly account for the economic fallout from aggressive federal spending cuts. “I think we are underestimating the impact to the economy of the cuts we’re making at the federal government, and what that might mean in terms of knock-on effects,” Moses, founder of Moses Ventures, told Power Lunch show host Kelly Evans on CNBC on Thursday. "I think we’re hurting the revenue side of the equation," he added. Cost-cutting measures have been spearheaded by the White House DOGE office, with Tesla CEO Elon Musk as its public face. The Trump administration has overseen the firing of at least 25,000 federal probationary workers across 18 agencies within months, though the fate of many of those jobs is still in legal limbo. The upheaval could imperil safety nets like Social Security and Medicare, programs which tens of millions of people rely on. Musk and Trump have said that much of the federal spending is "wasteful" and "fraudulent," though there has thus far been no publicly available evidence that anyone in the federal government has committed the crime of fraud.



On top of DOGE cuts, economic uncertainty has followed Trump’s on-again, off-again tariffs, stoking recession fears. The S&P 500 struggled to regain ground after a sharp pullback, and remains at about 8% below its February all-time high. Moses said that first-quarter earnings reports will likely reveal signs of a market slowdown, with consumer confidence already showing weakness. He added that investors could be in for a potential shock, because the risks of economic downturn haven't been fully priced into the markets yet. “When your debt-to-GDP is over 120%, you really can’t afford to make a mistake,” said Moses, referring to America's government debt-to-GDP ratio. “I think we are being overly optimistic about how this is going to play out.”

The economic fallout from DOGE's aggressive federal spending cuts, as warned by investor Danny Moses, could manifest in the market in several ways. First, the cuts could have a noticeable impact on growth. Over the last two quarters, government spending added 0.9% and 0.5% to overall US GDP growth respectively. Longer term, government spending’s median contribution to overall growth is 0.4%, suggesting that no spending increase could reduce economic growth by about half a percentage point. We estimate that US potential GDP is about two per cent; eliminating federal spending growth could knock potential GDP back to about 1.6 per cent. Investors should monitor economic indicators such as the Composite Index of Leading Economic Indicators and the Atlanta Fed’s GDPNow model, which are already showing signs of softening. For instance, the Atlanta Fed’s model predicts US gross domestic product will contract 2.8 per cent in the first quarter, marking a sharp reversal from last quarter’s 2.3 per cent expansion.

Second, the cuts could lead to a sudden supply of new private sector workers, potentially pushing wage growth lower. The federal government employs approximately 2.4 million civilian workers, and DOGE cuts could shrink the federal workforce by 300,000-400,000 throughout 2025. Investors should keep an eye on initial unemployment insurance claims and the insured unemployment rate, which could indicate if private-sector workers are starting to lose their jobs. While there hasn't been a clear sign of upward movement in these numbers yet, it's important to stay vigilant.

Third, the cuts could further erode consumer confidence, leading to a decrease in consumer spending. Consumer confidence is already sinking on a surge in the US Policy Uncertainty Index. A sharp slowdown in government spending could exacerbate this trend, leading to a decrease in consumer spending. Investors should pay attention to first-quarter earnings reports, which are likely to reveal signs of a market slowdown. Consumer confidence and spending are crucial drivers of economic growth, and any weakness in these areas could have ripple effects throughout the market.

Fourth, the cuts could have implications for specific sectors and regions that are heavily reliant on federal spending. States with a high proportion of federal jobs, such as Washington DC, Alaska, Wyoming, West Virginia, and New Mexico, are particularly vulnerable to significant cuts. Federal jobs represent about 10 per cent of local employment in the Washington DC metropolitan area, and government jobs account for 30 per cent of the district’s workforce. Investors should consider the potential impact on specific sectors and regions that are heavily reliant on federal spending. For example, the National Black-Footed Ferret Conservation Center in Carr, Colo., is at risk of losing heat and power as its remaining employees rush to prepare for the animal's breeding season. This could have implications for companies that supply goods and services to these sectors and regions.

To prepare for these potential shocks, investors should diversify their portfolios, stay informed about economic indicators, and be ready to adjust their investment strategies as needed. It's also important to consider the long-term implications of DOGE's spending cuts, as they could have lasting effects on economic growth and stability.

Ask Aime: Will Michael Burry's bet against the market trigger a significant downturn?