The most important thing to understand about the U.S. budget, Donald Trump or no, is illustrated by the nearby chart. Even with Mr. Trump’s modest increases, defense barely rises as a share of federal outlays. In 1989 when the Berlin Wall fell, defense was 26.5% of outlays. In 2019 it will be 15.6%.
Meantime, look at “payments for individuals,” which encompass such income transfers as Medicare, Medicaid, Social Security and food stamps, among other things. This category was 47.7% of outlays in 1989 and has steadily climbed to reach an estimated 69.2% in 2019.
.. Net interest on the federal debt soaks up another 7.4% of outlays for 2018, and that will rise with interest rates.
I Love a Parade, but Not This One
Trump’s supporters and opponents alike are decent and patriotic. If only he lived up to their standard.
People who are for Trump always say “Look, he’s got an unfortunate character and temperament, but he’s good on regulation, good on the courts.” The problem, the veteran said, is the but. Once you get to the but, you are normalizing him—you are making him normal, which means you are guaranteeing a future of President Trumps. That means you have lowered the presidency forever, changed it forever, just when the world’s problems are more dangerous, and thoughtfulness and wisdom more needed.
.. Trump supporters, on the other hand, chose him and back him because he isn’t normal. They’d tried normal! It didn’t work! Of course he’s a brute, but his brutishness was the only thing that could surprise Washington, scare it, make it reform. Both parties are corrupt and look out only for themselves; he’s the one who wouldn’t be in hock to them and their donors. Is he weird? Yes. But it’s a weird country now. He’s the only one big enough to push back against what’s pushing us.
.. It is a central belief of Trump supporters that of course he’ll make mistakes—he’s not a politician, he’s new, he’ll learn. An underestimated aspect of Trump support is sheer human sympathy. They see him taking a pounding each day in the press and feel for him as a human being. The press misses this, but Mr. Trump doesn’t. He uses it.
.. His criticism went right at the Trump supporters’ faith that he will learn in the job. The executive said: He doesn’t learn! He’s not able to. He doesn’t have that mechanism inside that allows people to analyze problems and see their part in them. And without that you can’t improve.
.. If his two former wives are speaking truthfully, he betrayed the classic pattern of the abuser: He roughs you up, is contrite, vows to change, roughs you up.
.. You can’t really blackmail Donald Trump on personal conduct because nothing said about him would surprise or shock. Mr. Porter, however, was blackmailable.
.. Why did they let him stay on? Maybe because they were desperate: He was a respected establishment pro who could do the job. The administration struggled to attract such people.
.. I would add the big secret everyone knows both here and abroad and that occasionally springs to the forefront of the mind: A fundamental is unsound. Compared with other countries we look good, but compared with ourselves we do not. Our ratio of total debt to gross domestic product has grown to more than 100% and can’t keep growing forever.
.. It is a ridiculous and embarrassing idea. If you want to show respect for the military make the Veterans Affairs Department work. A big, pointless, militarist display with gleaming weapons and shining tanks is so . . . Soviet. What do you gain from showing off your weaponry? What are we celebrating—that we have nukes? That we have to have them is a tragedy.
“The abuse of greatness is when it disjoins remorse from power.”
.. If there’s a parade that purports to honor our military men and women, they will go. But they’re not stupid, they’ll know what it is. It is Trump being Trump, and obsessing the nation. It’s bread and circuses.
And it is not like us, at least the old and honored us.
A Hedge-Fund Titan Puts Away the Punch Bowl
Ray Dalio of Bridgewater sees Americans’ debt as a coming drag on growth and markets
.. While he doesn’t see another crisis in the offing, he does see the same underlying stresses at work: Americans have accumulated far more debt than they have assets and income to support.
.. Not only will this drag on growth and markets, it will leave the economy acutely vulnerable to higher interest rates. The relevant parallel, he says, is not the early 1930s, when the economy imploded, but the late 1930s when the Federal Reserve tightened monetary policy and inadvertently extended the Great Depression. Today, the central bank must balance the short-term need for higher interest rates to contain inflation against the long-term need for low rates to work off the debt overhang and sustain high asset prices.
.. “It may not be a problem in the next year or two, but the risk of not getting it right increases with time.”
.. “We ‘finance people’ see the world very differently from the way economists do,”
.. The views of finance people tend to be shaped more by trading experience than by formal economics. They assign much more weight to financial factors such as debt, asset prices and cash flow than do economists who emphasize “real economy” factors such as employment and investment
.. Finance people are wary of how macroeconomic data obscures crucial details of individual companies and households. Some economists do think like finance people, such as former Fed Chairman Alan Greenspan, but they are in the minority.
.. since the 1970s, inflation-adjusted interest rates have steadily declined while investors have accepted ever lower compensation for risks such as bankruptcy, recession and volatility (i.e. the “risk premium” has declined). This directly raises asset values and indirectly lifts growth by spurring borrowing.
.. His team estimates this has contributed three percentage points a year to stock returns since the 1970s while boosting private and government debt to 325% of gross domestic product.
.. In 2007, Mr. Dalio’s team concluded that the cost of servicing Americans’ debts was growing faster than their cash flows, creating the conditions for a crisis.
.. By slashing short-term interest rates to zero and buying bonds to push down long-term rates, it engineered the right combination of economic growth, debt write-offs and low interest rates necessary to start the painful process of “deleveraging,” or working off all that debt.
.. it can’t raise them much either, or debt servicingwould swamp cash flow and asset prices would sink. Thus Mr. Dalio foresees years of low interest rates, and while he thinks stocks are appropriately valued, he thinks returns to a typical stock-bond portfolio over the next decade will be around zero after inflation and taxes.
.. his biggest worry is that lower corporate taxes and higher stock prices do nothing for the bottom 60% of households who own almost no assets and whose stagnant wages are the mirror image of expanding profit margins, feeding resentment and political polarization. Says Mr. Dalio: “If we do have an economic downturn, I worry we will be at each other’s throats.”
Making China Great Again
As Donald Trump surrenders America’s global commitments, Xi Jinping is learning to pick up the pieces.
The hero, Leng Feng, played by the action star Wu Jing (who also directed the film), is a veteran of the “wolf warriors,” special forces of the People’s Liberation Army. In retirement, he works as a guard in a fictional African country, on the frontier of China’s ventures abroad. A rebel army, backed by Western mercenaries, attempts to seize power, and the country is engulfed in civil war. Leng shepherds civilians to the gates of the Chinese Embassy, where the Ambassador wades into the battle and declares, “Stand down! We are Chinese! China and Africa are friends.” The rebels hold their fire, and survivors are spirited to safety aboard a Chinese battleship.
.. For decades, Chinese nationalism revolved around victimhood: the bitter legacy of invasion and imperialism, and the memory of a China so weak that, at the end of the nineteenth century, the philosopher Liang Qichao called his country “the sick man of Asia.” “Wolf Warrior II” captures a new, muscular iteration of China’s self-narrative, much as Rambo’s heroics expressed the swagger of the Reagan era.
.. “In the past, all of our movies were about, say, the Opium Wars—how other countries waged war against China,” he said. “But Chinese people have always wanted to see that our country could, one day, have the power to protect its own people and contribute to peace in the world.”
.. For years, China’s leaders predicted that a time would come—perhaps midway through this century—when it could project its own values abroad. In the age of “America First,” that time has come far sooner than expected.
.. Trump often portrays America’s urgent task as one of survival. As he put it during the campaign, “At what point do you say, ‘Hey, we have to take care of ourselves’? So, you know, I know the outer world exists and I’ll be very cognizant of that, but, at the same time, our country is disintegrating.”.. China’s approach is more ambitious. In recent years, it has taken steps to accrue national power on a scale that no country has attempted since the Cold War, by increasing its investments in the types of assets that established American authority in the previous century: foreign aid, overseas security, foreign influence, and the most advanced new technologies, such as artificial intelligence... It has become one of the leading contributors to the U.N.’s budget and to its peacekeeping force, and it has joined talks to address global problems such as terrorism, piracy, and nuclear proliferation... This was an ironic performance—for decades, China has relied on protectionism—but Trump provided an irresistible opening. China is negotiating with at least sixteen countries to form the Regional Comprehensive Economic Partnership, a free-trade zone that excludes the United States, which it proposed in 2012 as a response to the T.P.P. If the deal is signed next year, as projected, it will create the world’s largest trade bloc, by population... By setting more of the world’s rules, China hopes to “break the Western moral advantage,” which identifies “good and bad” political systems.. Meng Hongwei, a Chinese vice-minister of public security, became the first Chinese president of Interpol, the international police organization; the move alarmed human-rights groups, because Interpol has been criticized for helping authoritarian governments target and harass dissidents and pro-democracy activists abroad... Moreover, China’s economic path is complicated by heavy debts, bloated state-owned enterprises, rising inequality, and slowing growth. The workers who once powered China’s boom are graying.
.. In 2000, the U.S. accounted for thirty-one per cent of the global economy, and China accounted for four per cent. Today, the U.S.’s share is twenty-four per cent and China’s fifteen per cent.
.. in the past we were used to going to the White House to get our work done,” Shivshankar Menon, India’s former foreign secretary and national-security adviser to the Prime Minister, told me. “Now we go to the corporations, to Congress, to the Pentagon, wherever.”
.. everybody else in the world will look around and say, I want to be friends with both the U.S. and the Chinese—and the Chinese are ready, and I’ll start with them.”
.. He presented China as “a new option for other countries,” calling this alternative to Western democracy the zhongguo fang’an, the “Chinese solution.”
.. The state press ran a profile of Xi that was effusive even by the standards of the form, depicting him as an “unrivalled helmsman,” whose “extensive knowledge of literature and the arts makes him a consummate communicator in the international arena.”
.. Xi has inscribed on his country a rigid vision of modernity. A campaign to clean up “low-end population” has evicted migrant workers from Beijing, and a campaign against dissent has evicted the most outspoken intellectuals from online debate.
.. Foreign universities with programs in China, such as Duke, have been advised that they must elevate a Communist Party secretary to a decision-making role on their local boards of trustees.
.. The Party is encouraging dark imaginings about the outside world: posters warn the public to “protect national secrets” and to watch out for “spies.”
.. Last June, Yao Chen, one of China’s most popular actresses, received a barrage of criticism online after she tried to raise awareness of the global refugee crisis. (She was forced to clarify that she was not calling for China to accept refugees.)
.. In Rao’s view, Trump’s “America First” slogan is an honest declaration, a realist vision stripped of false altruism and piety.
.. “In this world, power speaks,” he said, making a fist, a gesture that Trump adopted in his Inauguration speech and Xi displayed in a photo taken at the start of his new term.
.. “I think Trump is America’s Gorbachev.” In China, Mikhail Gorbachev is known as the leader who led an empire to collapse. “The United States will suffer,” he warned.
.. In 1991, when Bush, Sr., launched the war against Iraq, it got thirty-four countries to join the war effort. This time, if Trump launched a war against anyone, I doubt he would get support from even five countries.
.. For Chinese leaders, Yan said, “Trump is the biggest strategic opportunity.” I asked Yan how long he thought the opportunity would last. “As long as Trump stays in power,” he replied.
.. When Trump won, the Party “was in a kind of shock,”
.. “They feared that he was their mortal enemy.” The leadership drafted potential strategies for retaliation, including threatening American companies in China and withholding investment from the districts of influential members of Congress.
.. Before he entered the White House, China started assembling a playbook for dealing with him.
.. “China knows Trump can be unpredictable, so we have weapons to make him predictable, to contain him. He would trade Taiwan for jobs.”
.. there were two competing strategies on China. One, promoted by Stephen Bannon, then the chief strategist, wanted the President to take a hard line, even at the risk of a trade war. Bannon often described China as a “civilizational challenge.” The other view was associated with Jared Kushner, Trump’s son-in-law and adviser, who had received guidance from Henry Kissinger and met repeatedly with the Chinese Ambassador, Cui Tiankai. Kushner argued for a close, collegial bond between Xi and Trump, and he prevailed.
.. While Xi was at the resort, the Chinese government approved three trademark applications from Ivanka’s company, clearing the way for her to sell jewelry, handbags, and spa services in China.
.. During the transition, Kushner dined with Chinese business executives while the Kushner Companies was seeking their investment in a Manhattan property.
.. In May, Kushner’s sister, Nicole Kushner Meyer, was found to have mentioned his White House position while she courted investors during a trip to China.
.. During the Mar-a-Lago meetings, Chinese officials noticed that, on some of China’s most sensitive issues, Trump did not know enough to push back.
.. “Trump is taking what Xi Jinping says at face value—on Tibet, Taiwan, North Korea,”
.. “The Chinese felt like they had Trump’s number,” he said. “Yes, there is this random, unpredictable Ouija-board quality to him that worries them, and they have to brace for some problems, but, fundamentally, what they said was ‘He’s a paper tiger.’ Because he hasn’t delivered on any of his threats. There’s no wall on Mexico. There’s no repeal of health care. He can’t get the Congress to back him up. He’s under investigation.”
.. a Beijing think tank, published an analysis of the Trump Administration, describing it as a den of warring “cliques,” the most influential of which was the “Trump family clan.”
.. The Trump clan appears to “directly influence final decisions” on business and diplomacy in a way that “has rarely been seen in the political history of the United States,” the analyst wrote. He summed it up using an obscure phrase from feudal China: jiatianxia—“to treat the state as your possession.”