Donald Trump and the siege of Washington       
Will the system bring the president down or will he destroy it first?
by: Edward Luce     


If something cannot go on forever, it will stop. The question is how long that will take with Donald Trump. It is little use speculating about the next four years. Just multiply Mr Trump’s first four weeks and ask how long America’s system can take the strain.

In his first month Mr Trump has declared war on the intelligence agencies and the media. It looks like the judicial branch is next on his list of enemies. There is no middle ground in Mr Trump’s Washington. Either the forces that are against the president will bring him down or he will destroy the system. My bet is on the first. But I would not stake my life on it.

Do not be reassured by Mr Trump’s cabinet. Many of them are experienced individuals. James Mattis, the secretary of defence, Rex Tillerson, secretary of state, and Steven Mnuchin, the nominee for Treasury secretary, are professionals. We may dispute their priorities but we have no basis to contest their hold on reality.

Even Kellyanne Conway, and Sean Spicer — Mr Trump’s controversial adviser and press secretary — would probably look fine if they were working for a different president. Mr Trump could populate his administration with America’s most diligent public servants and it would not change the most important thing. They would still be required to execute the orders of a man who divides the world into friends and enemies — and nothing in between.

Robert Harward, the ex-navy Seal who turned down the job to serve as Mr Trump’s national security adviser, is a harbinger of things to come. In any normal circumstance, someone of Mr Harward’s background would have leapt at the honour of such a high position. But Mr Harward could not stomach the prospect.

It would have meant serving a president who thinks he knows more than his generals about war, more than his spies do about intelligence and more than his diplomats do about the world. The only people with whom Mr Trump agrees are those who agree with him. It is an open question how long it will take for Mr Trump’s existing appointees to reach the same conclusion. There is a thin line between doing your duty and being humiliated.

The US intelligence agencies already appear to have crossed that line. No fewer than nine intelligence sources leaked details of Michael Flynn’s phone call with the Russian ambassador to the Washington Post. Some of this was surely revenge for the contempt Mr Flynn dealt out to intelligence agents, who coined the term “Flynn facts” when he was head of the Defense Intelligence Agency. But some of it was motivated by deep alarm about a president who is so cavalier with US national security.

Mr Trump has likened the Central Intelligence Agency to Nazi Germany and accused it of working for Hillary Clinton. In contrast, he has nothing but praise for James Comey, head of the Federal Bureau of Investigation, whose last minute intervention helped to tip the election Mr Trump’s way.

The message is clear: be like Mr Comey or be treated as the enemy. It is hard to imagine there are many public servants who see Mr Comey as a role model. Some of them risk their lives at relatively low pay to serve their country. Mr Trump is not their country.

Then there is the lying media — or the “Lügenpresse” as Mr Trump’s alt-right supporters say in echo of the Nazi slur. On Thursday Mr Trump subjected the media to an 80-minute diatribe disguised as a press conference in which he accused them of dishonesty, peddling “very fake news” and conspiracy to undermine his presidency.

His next logical step is to accuse the media of treason. In a tweet he later deleted Mr Trump called the media an “enemy of the American people”. This cannot end well. Anonymous death threats have become a normal way of life for many journalists in Washington. I fear it is only a matter of time before this results in violence. The same applies to the judiciary. The judges who shot down Mr Trump’s “Muslim ban” earlier this month are also receiving death threats.

Where does this end? Panglossian types cling to the hope that Mr Trump will make a course correction. In this happy development, he would clear the White House of firebrands, such as his close advisers Stephen Bannon and Stephen Miller, and replace them with seasoned operators.

Such a purge is possible at some point. It may even be likely. Few advisers can long survive proximity to the white heat of a demagogue. Unless Mr Trump replaced himself, the siege would go on.

Nor can we bank on a personality transplant. Mr Trump could spend 95 per cent of his time taking the advice of experts and 5 per cent going against it. That 5 per cent would still drive the agenda. But Mr Trump is not a reformable character. The more besieged he becomes, the more he lashes out. He is now vowing an investigation into leaks and an implied purge of disloyal officers.

It is hard to predict how long it would take to resolve the battle between Mr Trump and the so-called deep state. It is also hard to say how long a Republican Congress could stand the heat. As I say, multiply the past four weeks by three, or six, or nine. The neutral ground will vanish. At some point this will boil down to a choice between Mr Trump and the US constitution.

The Gong Show

By: Captain Hook

As Dr. Steve Pieczenik (former CIA) explains in this brilliant clip, the larger US bureaucracy, deep state, and shadow government, the centralized 'super-state' that conquered the not just America, but the world, are essentially dying. The consequences of all the corruption, fraud, and excesses are coming home to roost, where significant change is coming Trump or no Trump, as will become evident as the global decentralization process accelerates in years to come. Thing is though, these people in the bureaucracy like their overpaid jobs and privilege, where they will not go quietly. This is what you are seeing right now as Trump attempts to 'drain the swamp' - the treason, backstabbing, and betrayal -  where the daily antics in Washington these days are beginning to resemble a bad episode of The Gong Show, not the management of a country.

But you've got to take your hat off to Trump with all the abuse he's been taking; even if his real compulsions are more ego exercise oriented than anything else. Who else does 'the little guy' (public) - have fighting for them however? And for this, they love him. Unfortunately, in the end, even if Trump is somewhat successful, the party won't last long, not with the inflation signals Trumponomics has been triggering, yet to be reflected in an economy still very sick under the hood. Trump would of course argue 'it's too early to see the benefits', and this is true.

These are not normal times however, where if the economy does improve, and an 'inflationary tone' does return, because America, and the world, are now so heavily over-indebted, all such benefits would be eclipsed by the insolvencies as interest rates would need to continue rising.

To help things along in this regard, we have Janet Yellen, evidenced in her Humphrey-Hawkins testimony last week, where she stated although rate hikes will be gradual, they may come sooner rather than later. So if inflation keeps picking up, which has been the case, and she doesn't pull the trigger in March, the inflation trade, which includes just about anything not nailed down these days (and includes both stocks and precious metals), should benefit further. (i.e. as perception moves away from visions of stagflation towards accelerating inflation.) This could be the impetus that takes the S&P 500 (SPX) to the 2450 target (long-tem channel bottom) we have been discussing for some time. Traders should pretty much be out of their minds by then, likely sporting huge 'hedging losses', all in what will seem like 'light speed' at the time.

If she does tighten however, with the economy collapsing due to it's own weight (debt), increasingly stressed out, paralyzed, and exhausted traders could change things quickly - manifesting some degree of collapse in stocks. As you will read below in attachments, stocks have been rising because of the 'perpetual short squeeze', discussed on these pages many times previously. If you've been with us for some time then, one would know this situation will end abruptly at some point once indebted traders become exhausted (or broke) and are forced to leave the game. You will see big increases in suicide rates amongst traders (later this year?) once stocks begin to fall in earnest, leaving these ruined gamblers behind. It's too bad. I have always stated not to short the stock market blindly; unaware of what the consensus is doing.

There is of course good reason for this - so you don't get caught up in a manic move (squeeze) like the one we are in right now - like this guy.

Going the other way, what this means is once stocks actually start falling for real, disoriented traders will not believe it, where if they begin to act on such a belief, would mean open interest put / call ratios could fall with prices, which is of course 'the dynamic' that brought about both crashes in 2000 and 2007. Suspension of disbelief in perpetually rising prices can be a 'real bitch' once prices start falling impulsively with traders turned on their heads. This is just the opposite of what they are attempting to do right now, which is to pick the top, evidenced by rising key ETF / index open interest put / call ratios (see here), where you have traders attempting to 'buy the dips' on a sustained basis evidenced in falling open interest put / call ratios (with prices), offering little for the machines to grab onto to squeeze.

So if you think hedge funds did poorly last year, just wait until Christmas this year. Many casualties will abound by then in all likelihood, as most are completely unprepared for what is coming. The good news associated with this will of course far less money would be available for the funds to play in COMEX gold and silver, which, when combined with the money printing that will undoubtedly be coming (as a result of panicking central bankers), should set the bottom(s) for precious metals either later this year, or early next. (i.e. to complete the larger degree a - b - c corrective affair that began in 2011 - see below.) And who knows, maybe COMEX will even be unseated as global price setter for precious metals, which would play havoc in all other US (Western) markets as a result. (i.e. due to out of control rising prices.)

Initially the charts indicate precious metals should suffer with deteriorating general liquidity conditions (see gold chart below), where it's expected the dollar($) should rise as global debtors must buy in order to deleverage (think synthetic $ squeeze). Once this buying is complete however, accelerating decentralization trends will take over concerning the $'s fate, which should see it literally crash at some point once people begin to realize just how badly the American economy has been hollowed out by the bankers and bureaucrats. All the infrastructure spending in the world will not change this reality set against the deflationary forces that will grip macro-conditions once the impending deluge of debt related insolvencies begin to accelerate in the years to come. Trump is selling the idea America can have its cake (the debt binge of the last forty plus years) and eat it too, however such belief is fallacy. (See Figure 1)

Figure 1
Monthly Gold Chart

What's more, while Trump will do his thing over the next four years, and this will have some impact on the economy (although it may not be measurable set against aggregate losses), decentralization, by definition, is in aggregate an ultimately contractionary process in terms of raw numbers, even though more people should be working. So it's important to understand what happens after the present global bubble economy is popped. It won't be replaced by another bubble blowing experiment - meaning although economies will be stabilized, they will be smaller. So while trump will fill the Fed with doves, thinking he can engineer a bubble blowing experiment for 'the people' (as opposed to just the oligarchs), because of rising market (interest) rates outside of central control, hinged off rising inflation expectations, such folly will not last long.

How to Survive the Trump Era

Joseph E. Stiglitz
. Trump protest

NEW YORK – In barely a month, US President Donald Trump has managed to spread chaos and uncertainty – and a degree of fear that would make any terrorist proud – at a dizzying pace. Not surprisingly, citizens and leaders in business, civil society, and government are struggling to respond appropriately and effectively.
Any view regarding the way forward is necessarily provisional, as Trump has not yet proposed detailed legislation, and Congress and the courts have not fully responded to his barrage of executive orders. But recognition of uncertainty is not a justification for denial.
On the contrary, it is now clear that what Trump says and tweets must be taken seriously. Following the election in November, there was near-universal hope that he would abandon the extremism that defined his campaign. Surely, it was thought, this master of unreality would adopt a different persona as he assumed the awesome responsibility of what is often called the most powerful position in the world.
Something similar happens with every new US president: regardless of whether we voted for the new incumbent, we project onto him our image of what we want him to be. But, while most elected officials welcome being all things to all people, Trump has left no room for doubt that he intends to do what he said: a ban on Muslim immigration, a wall on the border with Mexico, renegotiation of the North American Free Trade Agreement, repeal of the 2010 Dodd-Frank financial reforms, and much else that even his supporters dismissed.
I have, at times, criticized particular aspects and policies of the economic and security order created in the aftermath of World War II, based on the United Nations, NATO, the European Union, and a web of other institutions and relationships. But there is a big difference between attempts to reform these institutions and relationships to enable them to serve the world better, and an agenda that seeks to destroy them outright.
Trump sees the world in terms of a zero-sum game. In reality, globalization, if well managed, is a positive-sum force: America gains if its friends and allies – whether Australia, the EU, or Mexico – are stronger. But Trump’s approach threatens to turn it into a negative-sum game: America will lose, too.
That approach was clear from his inaugural address, in which his repeated invocation of “America first,” with its historical fascist overtones, affirmed his commitment to his ugliest schemes. Previous administrations have always taken seriously their responsibility to advance US interests. But the policies they pursued usually were framed in terms of an enlightened understanding of national interest. Americans, they believed, benefit from a more prosperous global economy and a web of alliances among countries committed to democracy, human rights, and the rule of law.
If there is a silver lining in the Trump cloud, it is a new sense of solidarity over core values such as tolerance and equality, sustained by awareness of the bigotry and misogyny, whether hidden or open, that Trump and his team embody. And this solidarity has gone global, with Trump and his allies facing rejection and protests throughout the democratic world.
In the US, the American Civil Liberties Union, having anticipated that Trump would quickly trample on individual rights, has shown that it is as prepared as ever to defend key constitutional principles such as due process, equal protection, and official neutrality with respect to religion. And, in the past month, Americans have supported the ACLU with millions of dollars in donations.
Similarly, across the country, companies’ employees and customers have expressed their concern over CEOs and board members who support Trump. Indeed, as a group, US corporate leaders and investors have become Trump’s enablers. At this year’s World Economic Forum Annual Meeting in Davos, many salivated over his promises of tax cuts and deregulation, while eagerly ignoring his bigotry – not mentioning it in a single meeting that I attended – and protectionism.
Even more worrying was the lack of courage: it was clear that many of those who were concerned about Trump were afraid to raise their voices, lest they (and their companies’ share price) be targeted by a tweet. Pervasive fear is a hallmark of authoritarian regimes, and we are now seeing it in the US for the first time in my adult life.
As a result, the importance of the rule of law, once an abstract concept to many Americans, has become concrete. Under the rule of law, if the government wants to prevent firms from outsourcing and offshoring, it enacts legislation and adopts regulations to create the appropriate incentives and discourage undesirable behavior. It does not bully or threaten particular firms or portray traumatized refugees as a security threat.
America’s leading media, like The New York Times and The Washington Post, have so far refused to normalize Trump’s abnegation of American values. It is not normal for the US to have a president who rejects judicial independence; replaces the most senior military and intelligence officials at the core of national security policymaking with a far-right media zealot; and, in the face of North Korea’s latest ballistic missile test, promotes his daughter’s business ventures.
But when we are constantly barraged by events and decisions that are beyond the pale, it is easy to become numb and to begin looking past major abuses of power at the still-greater travesties to come.
One of the main challenges in this new era will be to remain vigilant and, whenever and wherever necessary, to resist.

Cost Push Inflation

By: Captain Hook

The reason we are looking at this today is because of how the Trump Bump is causing input prices to jump higher already, evidenced in the most recent (December) US ISM numbers, showing the biggest jump since 2011. And this trend will most likely continue with the excitement Trump has created with 'making America great again', where even foreign governments are joining the party, which will continue to strengthen employment conditions (already apparent), raising the specter of rapidly rising cost-push inflation. So its understandable precious metals are stirring again, where it appears like inflation, pressure is building for increasing prices.

That said, and in spite of the jobs Trump is destined to create (see here) from his admirable efforts, unfortunately the drag of an over-indebted economy is expected to produce stagflation at best, or if The Donald (and Fed) wants to pull all the stops, some degree of hyperinflation at worse. Therein, if Trump sees his efforts failing as time goes by, again, with the economy continuing to stagnate besides his efforts, America, and the rest of the world, could be looking at a great deal more cost-push inflation in the future if he assigns the Fed the job of fixing the problem. After all, The Donald is a delegator; so such thinking is not a stretch.

So the thing one needs to understand (and watch for) at this point, is how Trump, and the Fed, is going to react if the data continues to stagnate. If history is an indication, and my bet, is he will continue to push his agenda - recovery or bust. And if he is able to populate the Fed with a new list of doves by next February, or sooner, when Yellen will be leaving (he will not reappoint her), the dye could be cast, and off we go towards some degree of hyperinflation. What's more, we now have direct evidenced this is the case with Trump's rolling back of Dodd-Frank on Friday, which in his own words is a priority initiative for his administration.

Unbeknown to most, this directive is not necessarily another 'giveaway' for bankers/Wall Street, but is primarily aimed at freeing up credit for the American people. That's right; Trump is going to force the banks to slash lending standards and make credit available to just about anybody who wants it, potentially making the 2008 bubble look like child's play. And while his heart might be in the right place, the end result will be disastrous, first inviting shades of the Venezuelan experience (hyperinflation) to America, and then darker shades of the 'dirty thirties' as a result, making owning gold (and silver) a 'financial necessity'. (i.e. it already is.)

Such as it is then, please; don't be confused about what happened on Friday in the Oval Office.

This was not Trump licking the bankers' boots as usual these days for an American President, even though it might look that way. The letter Trump sent the Fed the same day proves this. No - this was The Donald telling the bankers they better get their act together and start lending money to the plebs - or they will be fired. I'm not kidding - that's what's happening here. So again, what this is telling you, is owning gold and silver are no longer 'optional diversification points' in one's portfolio, it's telling you precious metals are a 'necessity', and should form a meaningful role in wealth preservation. (i.e. because you are about to be assaulted.)

Right now, those that don't understand the above, view owning gold as a 'risky asset' that is 'foreign' to both themselves and their financial advisors. And silver, which is even 'stranger' than gold to most, if one were to own it, where would you store it - it's so bulky and heavy? So when it is bought, most opt for the paper, further fueling the Western derivatives derived intervention, with COMEX at center. And of course the price never goes up. It was $17 back in the 70's and it's still stuck there. What kind of an idiot would play in this game anyway? So it's not hard to understand why this nightmare has gone on for so long.

But this could be about to change (the possibility is real I can assure you), which would take the chart huggers by surprise. Yes, I am a chart hugger too, however I am also a trained economist, and I can tell you categorically that if Trump mobilizes the banks in the States to 'loosen up' credit standards in his attempt to 'make America great again' at any cost, cost-push inflation, and then hyperinflation, will begin to price the unprepared out of the economy in fairly short order. So the bears may not want to short the market just yet, because as was the case on Friday, stocks could continue to rise 'unexplainably' under such policies, even if the shorts have already been squeezed out.

How Many Euro Crises Will This Make? It’s Getting Hard To Keep Track

Every few years, it seems, one or another mismanaged eurozone country falls into one or another kind of crisis. This leads to speculation about the end of the common currency, which in turn spooks the global financial markets. Then the ECB conjures another trillion euros out of thin air, buys up and/or guarantees all the offending country’s bonds, and calm returns for a while.

At least, that’s how it’s gone in the past.

The latest crisis has more than the usual number of flash-points and could, therefore, be something new and different. Currently:
Greece. This charming but apparently ungovernable country only got into the eurozone in the first place because its corrupt leaders conspired with Goldman Sachs to hide the true condition of the government’s finances. It quickly blew up and has been on intensive care ever since. Now the latest bailout has become deal-breakingly messy:

‘From bad to worse’: Greece hurtles towards a final reckoning

(Guardian) – With another bailout set to bring more cuts, quitting the euro is back on the agenda. 
The country’s epic struggle to avert bankruptcy should have been settled when Athens received €110bn in aid – the biggest financial rescue programme in global history – from the EU and International Monetary Fund in May 2010. Instead, three bailouts later, it is still wrangling over the terms of the latest €86bn emergency loan package, with lenders also at loggerheads and diplomats no longer talking of a can, but rather a bomb, being kicked down the road. Default looms if a €7.4bn debt repayment – money owed mostly to the European Central Bank – is not honoured in July. 
Amid the uncertainty, volatility has returned to the markets. So, too, has fear, with an estimated €2.2bn being withdrawn from banks by panic-stricken depositors since the beginning of the year. With talk of Greece’s exit from the euro being heard again, farmers, trade unions and other sectors enraged by the eviscerating effects of austerity have once more come out in protest. 
This is the irony of Syriza, the leftwing party catapulted to power on a ticket to “tear up” the hated bailout accords widely blamed for extraordinary levels of Greek unemployment, poverty and emigration. Two years into office it has instead overseen the most punishing austerity measures to date, slashing public-sector salaries and pensions, cutting services, agreeing to the biggest privatisation programme in European history and raising taxes on everything from cars to beer – all of which has been the price of the loans that have kept default at bay and Greece in the euro. 
The arc of crisis that has swept the country – coursing like a cancer through its body politic, devastating its public health system, shattering lives – has been an exercise in the absurd. The feat of pulling off the greatest fiscal adjustment in modern times has spawned a slump longer and deeper than the Great Depression, with the Greek economy shrinking more than 25% since the crisis began. 
Even if the latest impasse is broken and a deal is reached with creditors soon, few believe that in a country of weak governance and institutions it will be easy to enforce. Political turbulence will almost certainly beckon; the prospect of “Grexit” will grow.
Italy. A few months ago the centrist president, Matteo Renzi, resigned after losing a referendum (don’t bother with the details, they were never very interesting and in any event have been overtaken by events), making a new election necessary. There was a chance that Renzi would be returned to office, which would reset the clock on Italy’s inevitable descent into Greek-style chaos. But yesterday he resigned, throwing the upcoming elections into disarray and opening the door to eurosceptic populists. Combine political turmoil with a moribund banking system and Italy becomes a prime candidate for Big European Crisis of 2017.

Italy’s Renzi resigns as party leader, in tussle over how to counter rise of 5 Star

(MarketWatch) – Italy’s governing center-left Democratic Party was locked in a fierce battle Sunday over the best way to pull the country’s economy out of the doldrums and blunt the momentum of antiestablishment politicians—as mainstream politicians across the Continent struggle to come up with winning strategies in a year of major elections across the European Union.

Former Prime Minister Matteo Renzi, who resigned as premier after losing a referendum vote on constitutional changes in December, formally stepped down as leader of the party after facing sharp criticism for his inability to stem the mounting popularity of the rival 5 Star Movement, a euroskeptic party that wants Italians to have a national vote on whether to leave the eurozone. 
5 Star, which opposed Renzi’s proposals in the plebiscite, and the Democrats are running neck-and-neck in public-opinion polls. Both parties have pushed for fresh parliamentary elections this year. The country is now being run by a caretaker administration.
France. Each new immigration horror story adds a bit to the popularity of the anti-immigration National Front, and increases the odds that party leader Marine Le Pen makes a strong showing in upcoming elections. The odds are still against her actually winning, but as the polls tighten, French bonds are sold off by nervous traders, widening the spread between French and German yields. A widening yield is a sign of approaching trouble:

Political Turmoil Returns To Europe: French-German Spread Blows Out

(Zero Hedge) – European political fears have returned this morning, leading to a blow out in French government bond yields, pushing the 10y yield now higher by 5bps and 5y up 8bps, as early losses extend after latest poll shows support for anti-euro presidential candidate Marine Le Pen rising in both election rounds.

As a result, the French-German 10Y govt spread has jumped to 85 bps, following an accelerated selloff, to the widest level since July 2012.

And those are just the front-burner problems. The Dutch are also holding general elections next month in which their version of Donald Trump will likely be the leading vote-getter.

Germany has two elections this year, and opposition parties are gaining on Chancellor Angela Merkel. So there will be no shortage of scary headlines from the Continent going forward.
Why should non-Europeans care about any of this? Because the EU is the biggest economic entity on the planet and the euro is the second most widely-held currency. Turmoil there means turmoil everywhere else, though the form is hard to predict. A euro crisis might send terrified capital into US stocks and bonds, extending the bull market in domestic financial assets – and making the current US administration look like a bunch of geniuses. Or it could spook capital out of financial assets altogether, crashing stocks and bonds while boosting the price of real things like farmland, solar farms and precious metals. Or it could buoy all US assets, with “anywhere but Europe” becoming the dominant investment theme for a while.

OR the ECB could try to paper over the mess by devaluing the euro even further, setting off a trade war with the US, Japan and China, all of whom need weaker not stronger currencies to hide their own financial mismanagement.

The Evolving NATO Alliance

By George Friedman and Jacob L. Shapiro

US Secretary of Defense James Mattis met with defense ministers from other NATO member countries in Brussels on Feb. 15. The meeting was closed to the public, but some of Mattis’s comments were released to the media. “America will meet its responsibilities, but if your nations do not want to see America moderate its commitment to this alliance, each of your capitals needs to show its support for our common defense.” He added, “America cannot care more for your children’s security than you do.”

The previous US administration criticized NATO at times but in such a way that the complaint was never taken seriously. The new administration cannot afford for this demand to not be taken seriously. From a US strategic view, the status quo is unacceptable.

The Definition of an Alliance

NATO was created to be a defense alliance. Defense requires military forces. Alliance means deploying those forces to protect or support an ally. Alliances usually involve countries with varying power and capabilities, some weak and some strong. This is to be expected. But sharing the burden is also expected in an alliance. Each partner gives what it can for the greater good.

By all these measures, NATO is not currently a coherent alliance. It is instead a collection of states disproportionately dependent on the US for security guarantees.
This arrangement is significantly less valuable to the US than an alliance.  

The world is more unstable today than at any point since the Soviet Union’s fall. The US is still the only global power, but it is not all-powerful. The US must have the support of its allies to meet challenges such as Russia and China, as well as in the ongoing war with radical Islamism. Other NATO members also must have the support of the US.

Mattis has called attention to an unpleasant truth: NATO military capabilities are not adequate to meet all the challenges facing NATO members. This lack of capability can be attributed to three factors: the disproportionate level of NATO members’ defense spending, the decline in NATO members’ defense spending over the last seven years, and the unequal sharing of the alliance’s burdens relative to individual members’ resources.
Uneven Defense Expenditures

The chart above starts at the simplest level. Not all NATO members spend a similar amount on defense. NATO estimates that alliance members’ defense expenditures totaled $918.3 billion in 2016. More than 70% of that spending came from the United States. The US spends 2.5 times more on defense than all other NATO member states combined.

NATO is not currently a traditional military alliance. It is a list of 27 countries the US has agreed to defend.
Decline in Defense Spending

he data in the table above are taken directly from NATO’s own figures and show the problem from a different angle. Defense expenditures as a percentage of each individual ally’s GDP (including the US) have been decreasing steadily. Some claim this decline only began after the 2008 financial crisis. This is not true.

Only eight countries increased spending as a percent of GDP from 2005 to 2008. As the chart above shows, these increases were small. In 2006, NATO states agreed at a summit in Riga that all members should spend 2% of GDP on defense. In that year, six countries met that threshold: Bulgaria, France, Greece, Turkey, the UK, and the US. In 2016, only five countries met this threshold: Estonia, Greece, Poland, the UK, and the US.

In 2014, some NATO countries reaffirmed their commitment to increase spending to requisite levels by 2024. But NATO member states had already agreed to those spending levels in 2006. “Reaffirming a commitment” is code for not having fulfilled a previous promise and insisting this time will be different. Promises lose their worth when they have been broken in the past. A decade is a long enough time to wait for an ally to live up to a promise. And 18 years is an unreasonable amount of time.

The US cannot fight wars and defend NATO’s varied interests with promises. The US cannot honor commitments unconditionally. Its power has limits. The US faces a broad array of challenges in different parts of the world, and this makes having dependable allies a crucial part of US strategy. 
Relative Defense Spending

Not all NATO members are created equal. For example, Croatia is never going to spend an equal amount on defense as the United States. But even when factoring in the size of the US, it spends significantly more on defense than other members. As the chart above shows, the US accounts for about 50% of NATO members’ total GDP and 32% of their total population—and yet the US makes up about 72% of defense spending.

There is only one country that spends a proportionate share on defense based on its share of overall GDP and population: the United Kingdom. The US contributes far more than its share. Every other NATO country spends less relative to its economic activity or its population. Western European countries (excluding the UK) account for 31% of NATO members’ GDP and 33%  of their population, and yet they contribute 16%  to NATO members’ total defense spending.

Eastern European countries, which account for 4.2% of NATO members’ GDP and 12.7% of their population, are much poorer and smaller than Western European countries. Eastern Europe contributes 2.7% to defense spending. In effect, Eastern Europe contributes closer to its share than its far wealthier and stronger neighbors to the west.

On one hand, this makes sense. Eastern Europe faces more immediate threats than Western Europe. Eastern Europeans still have fresh memories of Soviet domination, which means Russian aggressiveness poses a very real threat there. On the other hand, it demonstrates that some NATO members that can contribute more are not pulling their weight.
Clear Eyes

After Mattis’s closed-door meeting with defense ministers, NATO Secretary General Jens Stoltenberg said at a press conference, “This is not the US telling Europe to increase defense spending. This is 28 allies, heads of states and governments sitting around the same table in 2014, and looking into each other’s eyes and agreeing that we shall increase defense spending.”

The NATO secretary general’s analysis is wrong. This is the US telling Europe to increase its defense spending. There will be a tangible change in NATO member states’ behavior, or there will be a tangible change in US support for NATO. If the second scenario takes shape, NATO will be replaced by a greater emphasis on important bilateral relationships.  

The US has asked for help and hasn’t gotten it. The US is now demanding help. NATO member states face a serious choice over whether to give the US this help. The US wants NATO meetings to be gatherings of officials from 28 allies sitting around a table, each clear-eyed about the alliance’s goals, and bearing a proportional share of the cost of achieving those goals. For the US, that is a measure of success. It is not a description of reality.