DOGE Shock and Crisis in U.S. Credibility

Trump’s obsession with flow over stock

In fiscal year 2024, the U.S. federal budget recorded revenues of approximately $5 trillion against expenditures of $7 trillion, resulting in a $2 trillion deficit.

Historically, the U.S. has routinely financed such deficits through Treasury-issued bonds, relying on the dollar’s global dominance and perceived invulnerability to default—reflecting the unrivaled USD’s currency hegemony and the position as global reserve currency, the U.S. has maintained for nearly eight decades.

The U.S. government has maintained federal finances through public debt management and monetary policy while factoring in budget deficits. In short, the U.S. government has been managing the nation with an emphasis on stocks (assets and bonds), alongside budgetary flow (revenue and expenditures) of the nation’s finances.

Trump, however, views deficits as inherently problematic, obsessively prioritizing flow over stock. His aggressive measures—whether slashing government expenditures through DOGE or attempting to reduce trade deficits through tariffs—reflect this fixation.

Ironically, what enables Trump’s radical flow-oriented mindset is the considerable stock of U.S. credibility and dollar hegemony, painstakingly built since the end of World War II.

The Argentina precedent

Unlike the U.S., in most countries, reckless government spending can trigger inflation and sovereign defaults—exemplified historically by Argentina. Argentina experienced nine defaults from 1827 until 2020.

In 2023, Javier Millay entered the presidential race with a platform of radical fiscal reform. That year, Argentina faced inflation surpassing 130% and a GDP contraction of 1.6%. During the election campaign, he wielded a chainsaw, symbolically promising drastic fiscal reform. Upon assuming office in December 2023, President Millay swiftly enacted reforms: reducing the number of ministries, slashing civil service jobs by 10%, abolishing fuel subsidies, and cutting overall government spending, including social security, by 30 percent.

Central to Milei’s “chainsaw” reforms is the Ministry of Deregulation and State Transformation, initially intended as a temporary entity but later extended its mandate. Milei’s bold approach—mass layoffs, radical downsizing, and a temporary organization—became a direct model for DOGE. Elon Musk has met with Milei a few times since last April, praising Milei’s austerity measures. President Milei became the first head of state Trump met following his November presidential election.

Yet, the chainsaw-style governance reform in Argentina—a nation burdened by currency instability, repeated defaults, rampant inflation, and a poverty rate in the 40% range—is profoundly unsuitable for the U.S. The nation has maintained dollar hegemony and provided international public goods. Extreme governmental downsizing risks severe and far-reaching damage, undermining America’s national interests and destabilizing the international order.

This is why allies of the U.S. are concerned about the DOGE reform.
Japan is not the exception.

Japan’s administrative reform

In the 1980s, Japan wielded an administrative reform axe through the Ad Hoc Commission on Administrative Reform, established by Prime Minister Zenko Suzuki amidst spiraling national debt following the 1970s oil shocks. The commission was led by a successful businessman and the former president of the Japan Business Federation (Keidanren) Toshio Doko.

Chairman Doko aimed for fiscal reconstruction without raising taxes, following President Reagan’s efforts to streamline government administration in pursuit of a small government.

The Doko Commission proposed bold measures, notably privatizing Japan National Railways (JNR). JNR was heavily regulated by the Japanese government regarding fares, personnel, and investment plans, and lacked management flexibility, so it could not operate without government subsidies. After the privatization, Central Japan Railway Company continued to invest heavily in Shinkansen, the world’s first high-speed rail. The bullet train has become a global symbol of Japanese credibility, thanks to its unparalleled safety, comfort, and accuracy of timetables. This case resembles a good practice of how administrative reform has reduced fiscal spending and increased confidence in the nation by harnessing the power of the private sector.

During the reform, Chairman Doko was known for his frugal life. His motto was: ” Frugal individuals, prosperous society”

Crisis in U.S. Credibility

In stark contrast, DOGE’s approach represents a reversal of Doko’s maxim—society is becoming more frugal, while Trump and his selected elites are getting richer.

DOGE has compromised key governmental functions that have been a source of credibility and strength for the U.S. The dismantling of vital agencies like USAID severely damages U.S. credibility among Global South, creating a leadership vacuum and geoeconomic enclaves, which can be filled by China.

Meanwhile, Elon Musk is returning to private entrepreneurship, where he regained the top spot on the Forbes World’s Billionaires List.

Furthermore, Mr. Trump and first lady Melania Trump launched their crypto assets, the $TRUMP and $MELANIA memecoins, mirroring Dogecoin’s speculative origins.

While the value of their memecoins plummeted significantly, World Liberty Financial, the cryptocurrency company started by Mr. Trump and his sons, plans to issue a stablecoin called “USD1.” The stablecoin is a type of cryptocurrency designed to be pegged to one dollar. President Trump has banned the issuance of Central Bank Digital Currency (CBDC) by the FRB. If USD1 were to circulate globally, Trump risks undermining the Fed’s monetary authority, eroding the dollar’s hegemon and undercutting its reserve currency regime.

Having relinquished its role as the world’s policeman, the U.S. now faces the peril of abandoning its position as the world’s banker.

U.S. global prestige rested on military, economic, and technological superiority, underpinned by unshakable credibility and generosity for allies and like-minded countries. Trump’s policies risk squandering America’s accumulated stock of trust, inflaming global uncertainties, and destabilizing the international order.

Ultimately, the Trump administration’s demolition project imperils not merely domestic stability but the very foundations of global governance itself.

(Photo Credit: Reuters/Aflo)

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