I wrote about America’s national defense on the Sunday before Trump 2.0 Inauguration Day (https://kotokreport.com/national-defense/). Many thanks to readers for their varied viewpoints and responses. Here are some additional observations.
First, a disclosure: I hold a defense-sector ETF exposure in my personal investment account. I’m not recommending anything, just disclosing. What you read here is my opinion only, or another person’s opinion where I have noted it.
We’ll start with the former Republican Senate Leader Senator Mitch McConnell, who voted “no” on the controversial Trump 2.0 Hegseth Defense Secretary nomination and therefore forced JD Vance to break a 50-50 tie. Republican Senators Collins and Murkowski joined him in the “no” vote. McConnell, in a lengthy statement, warned that whoever leads the Pentagon faces a “daily test with staggering consequences for the security of the American people and our global interests.” He continued, “Mr. Hegseth has failed, as yet, to demonstrate that he will pass this test. But as he assumes office, the consequences of failure are as high as they have ever been.”
Politico reports that McConnell has now made clear he intends to use his vote to make his points. Most importantly, after stepping down from leadership, McConnell secured the Appropriations Subcommittee gavel that will give him control over more than $800 billion in yearly defense spending. He has also indicated he intends to use his Senate perch to do battle with the isolationist wing of the party, telling his biographer Michael Tackett that he was going to make the late Sen. John McCain (R-Ariz.) “sound like a dove.”
For the full story see “McConnell sends a message,” https://www.politico.com/news/2025/01/24/pete-hegseth-vote-mcconnell-006649.
Let’s get to David Blond, a former Chief Economist for the Defense Department (under Reagan). David sent a longer discussion about presidential transitions and national defense. Here’s an excerpt:
It has been fifty years since I was there for the last transition from Carter to Reagan and I’ve been trying to recall all the ins and outs of that time in my office that stood at the pivot of the budget and policy and set Defense budgets. This is rather long, but it is as much for my understanding of what might happen although we have no clear picture of any Trump direction whereas Reagan came in with a clear agenda — to drive the Soviets into the dust by showing we could outspend them; and we did just that.
David’s complete missive is posted on my personal website. He has given me permission to make it public: “Guest Comments: David Blond Responds to Kotok’s ‘National Defense,’” https://davidkotok.com/2025/01/21/guest-comment-david-blond-responds-to-kotoks-national-defense/
Before going to other reader responses, let me add one organization’s comment about the challenge of financing the American defense budget. The Committee for a Responsible Federal Budget has offered an analysis of tax cuts and budget implications (“Has TCJA Paid For Itself?” https://www.crfb.org/blogs/has-tcja-paid-itself). Please think about financing defense as you read about the new proposal for America to have its own version of Israel’s Iron Dome. Please ask yourself: How do we pay for it? IMO, the debate is not about whether we need it? We do. The debate is about money and who pays!
Here’s an excerpt from the summary:
There is a significant risk that the narrative that the tax cuts came closer to paying for themselves than projected will be used to argue extensions do not need to be offset. This is a dangerous path to take. The fiscal situation is far worse today than when the TCJA was passed, with debt at nearly 100 percent of GDP and interest costs at 3.1 percent of GDP – compared to 75 percent and 1.4 percent before TCJA was enacted. This means further borrowing is likely to be even more detrimental to the economy than it was when debt was lower. Meanwhile, the tax cuts being considered for extension are likely to grow the economy by significantly less than those that are already permanent – estimates suggest that extension will pay for no more than 14 percent of itself…
Now to reader Donn R., who captured a lot of viewpoints with this sentiment:
My grandparents also escaped Czar around 1905, Lithuanian and Ukraine, Jewish. No military for me. I wanted to be an astronaut. 4 F. Bad eyes, too skinny. My dad U.S. Navy in WW2. Truman and Einstein saved his life (a lot of lives). He raised the family in Levittown PA. I’m born 1954. Biden mumbled worse than Neville Chamberlain while Putin slowly patiently massed his forces in Ukraine. European oligarchs and royalty have killed each other nonstop from before we split in 1776, while we only had 1 civil war. President Washington warned about foreign entanglements largely because there were no other republics on the planet. All were ruled by kings or “god kings” except France which was a mess anyway. I was pro space program. Pro nuclear. The Dem party left me when it abandoned nukes in the 1970s, so I have a very different perspective and hostility to the Dem party going way back before Reagan even challenged Ford in 1976. Trump has hot wars to deal with. But nobody wants to fight him militarily. Kiss of death. WE can annihilate anybody without touching nuke weapons. It is simple when you get down to it. It’s July 4th in January. Celebrate, like Lee Greenwood and Snoop Dog. What a pair.
Mark G. wrote this note from California:
Excellent article, good sources. I agree that funding the Ukraine war helps American manufacturing. Some criticize that as the military-industrial complex liking wars. I don’t believe they do, but of course there is an economic side benefit, appropriate if we are to help defend other nations. I think tariffs can have a value in incentivizing companies to re-shore to the United States. I would like nothing more than to see fewer goods manufactured in China, our economic enemy, and more in Vietnam and Mexico, the latter of which would help reduce pressures to immigrate to the United States. My forebear’s experienced similar persecution in eastern Poland-Russia. Those guys just don’t seem to stop their aggression, do they?
Kotok note: Obscured by the inauguration pomp and DT’s executive order flurry was the news about Singapore’s F-16 upgrade. Lockheed Martin announced the order. Note how important exports of American manufactured military items to allies have become to the United States. Will tariff wars interfere?
Jerry G. is worried more about trade wars than shooting wars: “If Trump mentions IEEPA in his acceptance speech tighten your seatbelt another notch (‘Are US Shippers Ready for an Emergency Order on Tariffs?’ https%3a%2f%2fgcaptain.com%2fare-us-shippers-ready-for-an-emergency-order-on-tariffs).”
Kotok note. Thank you, Jerry, and don’t forget the Houthis, shipping, defense, and Iran backing the Houthi attacks and supplying them with weaponry. You are correct. Shipping is big and intertwined with America’s national defense.
My longtime journalist friend Vincenzo asked, “Do you see any direct effects on currencies and crypto? (The Trump meme coin yesterday was… wow.)”
Kotok answer: Vince, we have just started to see the whole DT 2.0 crypto theatrical production. This is just Act 1. Note Trump’s Truth Social venturing into crypto. I will have more to say about that in the future.
The issue of crypto and meme coins is still a puzzle. Does anyone recall the Tulip Bubble? Or the South Sea Bubble, a classic offering and collapse, which dates to the year 1720 (“The South Sea Bubble,” https://www.historic-uk.com/HistoryUK/HistoryofEngland/South-Sea-Bubble/)? The Trump meme tokens are worth billions in market prices while worthless in the real economic world. This is a remarkable addition to the DT 2.0 arsenal. I am watching the entirety of the crypto, meme coin, token, Bitcoin-led revolution and recalling history. I suggest a classic book for readers, especially younger ones: Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay (https://www.amazon.com/Extraordinary-Popular-Delusions-Confusion-Confusiones/dp/B08BN5V2YP/).
Kotok disclosure: my personal position in meme coins: none. To understand why I don’t own them, please take Melania’s token and try to buy a dozen eggs with it at the grocery store.
And here’s an historical note on defense.
While doing research for our new book, The Fed and the Flu: Parsing Pandemic Economic Shocks(https://www.thefedandtheflu.com), we picked up the following tidbit of military history. I will summarize. Attila the Hun’s huge army of Huns and Germans crossed the Rhine in 451 AD and battled the Roman army led by General Aetius. By 452, Attila was in Italy and the Po River Valley. He conquered Milan and planned to move south and sack the City of Rome. Why didn’t he succeed? We know he stopped at the River Po and then retreated back across the Alps. The defeat of Attila happened in the marshlands, and climate change at the time had created heavy rains and swamps. Roman legions didn’t defeat Attila; he lost to malaria. It was the mosquito that decimated his army. Source: Kyle Harper’s wonderful book: The Fate of Rome: Climate, Disease & the End of an Empire (https://www.amazon.com/Fate-Rome-Climate-Disease-Princeton/dp/0691166838)
A final thought. DT 2.0 may or may not become an inflection point in American history. We shall see. But it is a change in the approach to geopolitics and isolationism, national defense and projection of power, and healthcare and dealing with pathogens. Where this all goes now is still guesswork. Political campaigns are based on words and promises. As we have demonstrated again and again in our new book, governance and its outcomes are often quite different from the rhetoric that preceded them.
The requirement for America’s defense grows daily, IMO. Some readers call me a neocon. So be it. History is clear to me – we have mortal enemies and risk is rising.
Stay tuned.
