The Gambler: An Economic Outlook for the American Presidency

“You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
Know when to run
You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done”

                  - Kenny Roger’s The Gambler

On 20 January, 2017, Donald Trump, a businessman by trade, became the 45th President of the United States. President Trump ran on a populist “Make America Great Again” slogan and took advantage, in part, of the perception of a financial structure that seemed to favor elites over the common man. Therefore, the primary way to frame the strategic approach and environment of the new administration as it relates to national security should be through an economic lens. In doing so, one cannot on the one hand understate an atypical governance style, yet on the other ignore the inertia of a large nation and an intertwined global economic system.

President Trump has stated that he would like to increase the size of the Army to 540,000, float a 350-ship Navy, and fly a 1,200 fighter Air Force.[i] He has advocated $1 trillion dollars for a coast-to-coast infrastructure overhaul.[ii] To date, roughly a dozen companies from Apple to Carrier to Sprint have stated they will either keep or move jobs back to the US, possibly due in part to blunt force trauma Tweets, or promises of taxation reductions for both businesses and individuals.[iii] Canada and Mexico have both acknowledged that the North American Free Trade Agreement (NAFTA) could enter renegotiations and the new Administration made that an issue the first Monday in office.[iv] These all seem more plausible, thanks to solid foundational economic statistics laid by his predecessor, including the strongest US dollar in over a decade and US bank stocks having their best month ever recorded the last November.[v] Additionally, Consumer Confidence reached the highest levels of optimism in 15 years.[vi] America appears to be great and all our fiscal problems manageable.

Or not. To best forecast where things could go, it is often best to look where things are and where they are trending. This article begins with a whirlwind tour of global economic inclinations before it shifts to US concerns, culminating in the dissection of a single, but complicated, fiscal problem: the federal debt. Finally, the article concludes with a holistic description of the current environment as it relates to national security. As any card sharp will tell you, every hand is a winner, and every hand is a loser. It’s not the cards that are the most important, but the players. If you are gambling, you’re doing it wrong. President Trump is not gambling, but he is betting big.

It's the Global Economy, Stupid

When it becomes serious, you have to lie.” – Jean-Claude Juncker, President of the European Commission, the Executive Branch of the European Union

A trip around the globe reveals the positions of those sitting at the table; and there are many weak hands. Europe shows signs of fracturing. Led primarily by the UK Independence Party’s (UKIP) Nigel Farage, Brexit was the first salvo against the over-centralization of the European Union (EU). Indeed, for the whole continent the pendulum is trending back to populism. Italy’s referendum vote in December of 2016 led to the ouster of its prime minister, Matteo Renzi. There is Geert Wilders, leader of the PVV (Party for Freedom) in the Netherlands, Marine Le Pen, leader of the National Front in France, and Frauke Petry, leader of Alternative for Germany (AfD); all of whom are ardent, anti-establishment politicians. President Trump’s election has added exposure to several of these leaders as evidenced by Le Pen’s visit to Trump Towers in January and his requests to make Farage the ambassador to the US.

Wilders, Le Pen, Petry.jpg

The new faces of Europe? Marine Le Pen, Geert Wilders, and Frauke Petry.[vii]

The possibility of a reduction in trade via protectionist restrictions, trade wars, or simple nationalism is a real possibility as hinted at by the New York Times in Figure 1:

Figure 1: European Populism.[viii]

Europe also suffers from an aging and shrinking native population which places a drag on GDP growth. Only one country in the region, Turkey, has a birth rate at or above the replacement rate of 2.1.[ix] Yet this is hardly good news as Turkish President Recep Erdogan is increasingly slipping away from democratic principles as demonstrated by his recent effort to stay in power for another decade.[x] For the rest of Europe, while migrant communities may add fecundity, it is not assisting fiscally as the new arrivals are a net drain on state coffers. Germany alone is expected to spend up to $30 billion euros per year by 2020 to pay for them.[xi] Additionally, only 3% of the country’s 1.2 million migrants have secured employment according to the German government’s Institute for Labor Research.[xii] Other countries from Greece to Austria to France face similar costs and employment challenges as well, not to mention outlay increases due to terrorism and security spending, often from deploying their militaries domestically.[xiii] On top of all of this, there is increasing pressure from the US for NATO countries to live up to their obligations and commit 2% of their GDP to spending on defense. As the below chart shows, only five of the 24 NATO members are doing so.

Figure 2: NATO members spending on Defense.[xiv]

Asia has at least three ongoing hot wars, one in Syria and Iraq, a second in Afghanistan, and a third between Saudi Arabia and Yemen (it has a fourth if you count the Russia-Ukraine conflict which straddles the geographic continental divide). In November 2016 India, where 98% of all transactions take place in cash, banned 86% of the country’s currency.[xv] This is a single country that has a population equivalent to the continents of North America and Europe combined banning all paper cash bills worth roughly $8 or higher. While the stated aim was to crack down on tax evasion, the effects so far are tumbling productivity, unpaid workers, and a half-percent GDP forecast drop by ratings agency Fitch.[xvi] China’s debt-service ratio has increased from 12% of Gross Domestic Product (GDP) in 2008 to 20% in 2015.[xvii] Its currency is collapsing against the dollar, with a 14% total drop since late 2015, and the People’s Bank of China has burned through $400 billion dollars in reserves in reaction to this decline.[xviii]

Figure 3: Exchange Rate of the US Dollar to China’s Yuan.[xix]

Japan does not fare much better. It has both an aging population and the highest debt ratio of any first world country. Japan’s debt-to-GDP is well north of 229% as shown in Figure 4. This has massive fiscal implications for the United States as a just-released report from the US Department of the Treasury and Federal Reserve Board shows that Japan is now the largest owner of Treasury Securities.[xx] China and Japan together hold over a third of US foreign debt.[xxi] If their ability or desire to continue these securities purchases wanes, the likely reaction is that rates, and therefore US interest payments, would concomitantly rise.

Yuan exchange.jpg

Figure 4: A 10-year view of Japan’s Debt-to-GDP.[xxii]

In South America, a disastrous financial story continues in Venezuela. Bloomberg reported on one individual who had to queue for several hours at six separate ATMs to get 6,000 Bolivars (~$1.30 US), half of which would be spent on a package of rice.[xxiii] Charts of the exchange rate are powerful visual depictions of a modern case of hyperinflation. In December, Venezuela banned the 100-bolivar note, which accounts for 77% of the nation’s currency, and is slowly replacing it with larger denomination notes.[xxiv]

Figure 5: Exchange Rate of the US Dollar to Venezuela’s Bolivar.[xxv]

Mexico, while certainly not as bad as Venezuela, may also struggle under the new US administration. Proposals to build a wall and deport illegal immigrants will surely negatively affect their economy. The Administration has also threatened American companies to coerce them to build or keep factories here in the US, rather than Mexico. In response, the Mexican Peso has shed 25% of its worth against the US dollar since April of 2016.[xxvi] Clearly agitated by this rhetoric, Jorge Castañeda, former Mexican Secretary of Foreign Affairs threatened that his country could end cooperation on counter-drug operations.[xxvii]

China, Mexico, Japan, and Germany make up 37% of US trade and serve as proxies to larger issues.[xxviii] States, by their nature, seek to provide for and control their populace. Leaders, by their nature, seek to maintain their position of power, or the relative power of their party. This is often irrespective of the type of government, be it a democracy or a monarchy. The populace typically goes along with the government up to a certain threshold. We could be seeing a crossing of that threshold due to economic issues and the related social conditions. Many in Europe are pushing back against the EU and against migrants. Numerous countries appear to be hitting debt levels that can no longer be sustained and are reacting with capital controls, inflation, or other revenue generators. This has echoes of the currency debasement of ancient Rome or the loss of confidence and identity in the Weimar Republic. States, rather than having increased options, are actually facing dwindling choices. This may be the driving reason why the majority of NATO members aren’t meeting their fiscal obligations, why Japan can’t significantly increase its Self-Defense Forces, and why a Chinese collapse is far more frightening than scraps over islands. Looking at the above trends, it does not appear that many of the countries discussed, nor several other nations, have either the financial resources or popular will for the increased expenditure of a large scale state-on-state war. A sizable military yes, but only for internal security and a protection of what they already have. The US is no different.

Meanwhile, Back at Home, Those in Glass Houses...

If something cannot go on forever, it will stop.” – Herbert Stein, American economist

In addition to the positive economic news at the introduction to this article, as of this writing the Dow Jones broke the 20,000 barrier. The post-election increase in stocks is the best for any president-elect in over 60 years, building on the amazing overall stock market increase from about 8,000 when President Obama took office to 19,800 when he left.[xxix] Additionally, over the past six years under Obama, the unemployment rate has dropped from 10% to 4.6%.[xxx] The Federal Reserve, buoyed by this news, hiked rates in December 2016 for only the second time in a decade and announced three predicted rate hikes in 2017 in a move meant to telegraph a slow return to historically normal rates.[xxxi]

Unfortunately, though, America is awash in debt. Student loan debt has topped $1.4 trillion dollars, with some retirees seeing their Social Security checks garnished to pay off their liability.[xxxii] Americans are carrying just shy of $2 trillion in combined auto loans and credit card debt.[xxxiii] Many state pensions are grossly underfunded to the tune of $1 trillion dollars in aggregate.[xxxiv] Multiple municipalities are feeling the pinch with the latest casualty claiming the Dallas fund that manages the retirement paychecks of the city’s police and firefighters.[xxxv] The fund managers have asked the city for over $1 billion dollars to plug the gap.[xxxvi]

All of these numbers for debt are mere petty cash when compared to the true nadir of debt depression located at the federal level. The current US debt is just shy of $20 trillion dollars. This is what is known as “public” debt and does not include unfunded obligations and liabilities like future Social Security payments or retirement checks to veterans. There is no consensus on what that number is as it depends on such factors as how far out in the future you project your obligations.

Numbers of this size can be difficult to comprehend. However, if broken down per US household, the true problem can be ascertained. Assume as a policy maker you want to completely pay off the federal debt, unfunded future obligations and liabilities, and have a balanced budget (that is, no annual deficit). What would it take and how could you translate that to the average US household?[xxxvii]

Making some reasonable assumptions regarding the size of the total U.S. debt and the trajectory of the future economy and future fiscal policy, the per capita annual cost to every American to pay off U.S. debt as if it were a 100-year loan is $15,170. Add to this the cost of funding a federal budget in each of those years, and the total annual burden on each American rises to $28,805--assuming the federal budget remains fixed. Summing up the annual numbers then:

This equates to a tax rate of about 41.5% on every household in America for 100 years just for the federal government. It does not include state and local income, sales, or property taxes. Our next national crisis may begin with bond yields and bank derivatives. Not unimaginable, given our last fiscal crisis.

We Are All Economists Now

We are victims of the post-Enlightenment view that the world functions like a sophisticated machine, to be understood like a textbook engineering problem and run by wonks. In other words, like a home appliance, not like the human body.” – Nassim Taleb, risk analyst and author of The Black Swan

The above information provides enough of a baseline to augur national security trends as they relate to the economic environment of the United States both domestically and internationally. The first thing to observe is the basic economic principle of scarcity, long suppressed by modern debt instruments, seems to be returning.[xxxviii] The rich, Western countries are getting older at the same time that debt levels are becoming unserviceable. Most of Europe appears loathe to cut butter for more guns. At the conclusion of World War II, that continent wanted the US fully entwined in their security and feared abandonment more than over-involvement.[xxxix] There are those who now question America’s commitment to NATO and they may have European friends in Le Pen, Wilders, and others who agree. As for Asia, while China is walking the path of military projection, an argument can be made that it is not so much exerting power as it is pursuing access to resources and newly created Economic Exclusion Zones in the South China Sea.

In the US, the current debt ceiling will be reached in March, the Federal Government’s Continuing Resolution will expire on 28 April, and the POTUS should submit his budget in the April-May timeframe. With promises to cut the size of government and the debt, will the new administration risk a government shutdown over the budget or even threaten to default on the debt? The US debt remains an extraordinary challenge to national security for the new Administration. Interest payments are expected to increase to $700 billion in 2026, up from $270 billion this year.[xl] For a frame of reference, defense outlays for 2016 were $541 billion, third in total size after Social Security and Medicare payments.[xli] America struggles to pay for the military it has, the 2026 interest rate will consume a ghost military of equal or greater expense that has no soldiers, floats no boats, and flies no planes.

Yet in a military sense, the new Administration appears to want a larger, better equipped, and well trained military. Other than more significant surgical operations against terrorism – think Special Forces and increased airstrikes – he has not indicated a desire for war. Again, he is a businessman, but the type of businessman is critical: he’s a real estate mogul whose family corporation derives a heavy income from trade and tourism, not the defense-industrial complex. A possible explanation to square this circle against the debt crisis from above is another reference from poker. A player who is sitting on a “big stack” (i.e. a large number of chips) will “bully” other players with aggressive bets to force out weak hands and increase the chance of winning on subsequent bluffs. Against conventional wisdom, Trump may partner with Russia in the Middle East which may have the effect of both reduced US military expenditures in the region, via cost-sharing, and in cooling tensions between the two countries. Optimistically, it may even yield negotiating room for the government in discussions over the Ukrainian conflict. Or not.

As for the militaries of other countries, the trend of controlling internal populations in the face of economic strife will most likely continue. Europe is using its armies for internal terrorism response and policing. Mexico continues to use its army for counter-drug operations and Venezuela’s army is profiting heavily from that country’s stagnant economy.[xlii] Other than saber-rattling (e.g. North Korea) or limited actions and civil conflicts (e.g. Africa), larger nation-state war is an unlikely near term threat. Geoffrey Blainey wrote that a common fallacy is that countries go to war to distract from economic problems at home.[xliii] However, his research found the exact opposite was true. Countries who could not afford to go to war rarely did.[xliv] If this is true, a predictor of war may be a country’s debt levels, its currency exchange rates,[xlv] and its central bank intervention. Turkey may prove to be an excellent test case of this theory.

President Trump appears to approach governance like a CEO taking over a failing business. He wants to shake up the management, cut what he sees as the wasteful or inefficient sectors, and focus on profitability, business expansion, and core functions.[xlvi] Perhaps he sees the weakness of Europe as a harbinger of what could be domestically. Or perhaps he sees this as the greatest game he’s ever played. In poker, you don’t play each individual hand to win; sometimes you play not to lose. The best players wait to bet heavily only when they think their opponent won’t call their bluff or when they are sitting on the high hand. This seems to be the president’s strategy: trim the expenditures of the Federal Government, force others to contribute to the pot, and wait until the US can win big from a position of advantage. Call it playing the Trump card. Unfortunately, the house usually wins.

This article is a companion piece to one published on the Atlantic Council’s Futuresource.

Chris Ellis is an officer in the US Army with experience in Kosovo, Iraq, Afghanistan, and Kuwait. He holds a bachelor degree from the University of Washington, and masters degrees from the University of Kansas, the Command and General Staff College, and the School of Advanced Military Studies. His professional writing interests include ethics, science, and disaster preparedness. The views expressed in this article are the author's own and do not reflect the official policy or position of the U.S. Army, the Department of Defense, or the U.S. Government.

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[i] Rowan Scarborough, “Trump inheriting ‘weak’ Army, military too small to win major wars, report says.” The Washington Times, 27 November, 2016.

[ii] Ashley Halsey III, “Trump promised $1 trillion for roads and bridges. The trick now is finding the cash.” The Washington Post, November 29, 2016.

[iii] Examples include Apple, Ford, Carrier, Foxconn, Sprint, and Trans-Lux.

[iv] Alexander Panetta, “Canada, Mexico talked before making NAFTA overture to Trump.” CBC News, 16 November, 2016. Kristen Welker. “Trump to Sign Executive Order on Plan to Renegotiate NAFTA With Mexico, Canada.” NBC News, 23 January, 2017.

[v] “The dollar hasn't been this strong since 2003.” Business Insider, 16 November, 2016. Imbert, “Bank stocks rise nearly 19 percent in November, notch best month in history.” CNBC, 30 November, 2016.

[vi] “Consumer confidence hits highest level in 15 years.” CBS/Associated Press, 27 December, 2016.

[vii] From the Twitter feed of Geert Wilders, 21 January, 2017.

[viii] Jeremy Ashkenas and Gregor Aisch, “European Populism in the Age of Donald Trump.” New York Times, 5 December, 2016.

[ix] “Total fertility rate, 1960–2014 (live births per woman).” Eurostat, 14 March, 2016.,_1960%E2%80%932014_(live_births_per_woman)_YB16.png

[x] Michael Shedlock, “Erdogan Seeks Powers To Stay In Office Until 2029: Expect Perpetual State Of Emergency.” Zerohedge, 23 January, 2017,

[xi] “German government plans to spend 93.6 billion euros on refugees by end 2020: Spiegel.” Reuters, 14 May, 2016.

[xii] Donna Rachel Edmunds, “Just Three Per Cent of Newly Arrived Migrants Have Found Work.” Breitbart, 21 December, 2016.

[xiii] Lizzie Dearden, “Austria 'preparing to send troops to protect EU borders' against refugees.” Independent, 8 February, 2017.
Gregory Viscusi, “Paris Builds Barrier Around Eiffel Tower to Limit Terrorism.” Bloomberg, 9 February 2017. and Agence France-Presse, “2017 EU budget adopted with more for migration, security.”, 2 December 2016.

[xiv] “Pax Trumpiana: Allies and Interests.” The Economist, 17 December 2016, p. 53.

[xv] “India’s demonetization: The Ropy Rupee Recall.” The Economist, 3 December 2016, p.32.

[xvi] Ibid.

[xvii] Chi Lo, “China’s Debt Bubble: Why the Bears Are Wrong.” Barrons, 25 November, 2016.

[xviii] Tyler Durden, “China Dumps Treasuries: Foreign Central Banks Liquidate A Record $403 Billion In US Paper.” Zerohedge, 16 December 2016.

[xix] Tyler Durden, “China Devalues Yuan To Weakest Fix Since May 2008.” Zerohedge, 15 December, 2016.

[xx] “Major Foreign Holders of Treasury Securities.” US Department of the Treasury and Federal Reserve Board, 15 December 2016.

[xxi] Ibid.

[xxii] “Japan Government Debt to GDP: 1980-2017.” Trading Economics.

[xxiii] “Want Groceries in Venezuela? First Stop at Six ATMs.” Bloomberg News, 2 December, 2016.

[xxiv] “Venezuela’s Monetary Madness: Cash and Grab.” The Economist. 17 December 2016, p. 69.

[xxv] Tyler Durden, “The Bizarre Reason Why The World's Worst Currency Just Soared By 60%.” Zerohedge, 15 December 2016.

[xxvi] “XE Currency Charts: USD to MXN, 1-year.”

[xxvii] “Trump’s First Week, Mexican Relations.” Fareed Zakaria GPS, CNN, 29 January 2017.

[xxviii] US Census Bureau, “Top Trading Partners - December 2013.”

[xxix] John W. Schoen, “Here's how the Trump rally stacks up against other presidents.” CNBC, 16 December, 2016.

[xxx] Although, conversely, the Labor Force Participation Rate has also dropped. Yekaterina Guchshina, “United States Unemployment Rate.” Trading Economics, 2 December, 2016.

[xxxi] Bob Sullivan, “How Fed Rate Hikes Will Affect Borrowers Next Year.” ABC News, 30 December, 2016.

[xxxii] Emily C. Singer, “The government is yanking Americans' retirement checks because of unpaid student debt.”, 20 December, 2016.

[xxxiii] Ibid.

[xxxiv] John W. Schoen, “States face pension fund gap approaching $1 trillion.” CNBC, 25 August, 2016.

[xxxv] “Pensions in America: Stampede in Dallas.” The Economist. 10 December 2016, p. 72.

[xxxvi] Ibid.

[xxxvii] First, some assumptions for ease of calculation: 1) assume the smallest figure given above ($76.4 trillion) is the real amount of debt including unfunded obligations, 2) assume 2016 interest rates will continue for the duration of calculation, i.e. they will neither rise nor fall, 3) assume a stable US population in terms of size and household income, and 4) assume no GDP growth nor inflation nor additional spending above the current US government expenditures, that is, figures available for 2016 are stable for the duration of this thought exercise. As for the math.
According to the US Census, there are 124,587,000 households in America which equates to a debt burden of $613,000 per home (“National Debt.” This is a number that can now be treated like a home loan and solved using an amortization calculator. For argument’s sake, set the term at 100 years (the time at which the loan will be paid off) and the rate at 2.2%, which is the current average interest rate from US Treasuries ( This yields an annual payment per US household of $15,170 every year for 100 years (Calculated using the mortgage calculator at From the assumptions above though, we need to add payments to fund government expenditures each year and additional monies to have a balanced budget. The most recent data from the Congressional Budget Office (CBO) states that the median household income of the middle quintile is $69,700 and pays $8,900 annually in federal taxes (“The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, 8 June, 2016. The CBO also indicates that the 2016 deficit was $590 billion, so dividing this number again by the number of US households yields an annual payment of $4,735 per year to balance the budget (“Budget Projections for FY 2016.” Congressional Budget Office.

[xxxviii] For a crash course on one aspect of modern US debt, read Michael Lewis’ book, The Big Short. For an international view, read Boomerang, by the same author.

[xxxix] G. John Ikenberry, “After Victory: Institutions, Strategic Restraint, and the Rebuilding of Order After Major Wars.” Princeton University Press, 2000.

[xl] “Higher Interest Rates Will Raise Interest Costs on the National Debt.” Peter G. Peterson Foundation, 14 December, 2016.

[xli] “2016 United States Budget.”

[xlii] Hannah Dreier and Joshua Goodman, “'Lately, food is a better business than drugs': Venezuela's military profits as the country goes hungry.” Business Insider, 1 January, 2017.

[xliii] Geoffrey Blainey, “The Causes of War: Third Edition.” Free Press, 1988.

[xliv] Ibid, p. 87-96.

[xlv] All modern money is fiat currency and as such holds its worth based upon faith in its underlying value.

[xlvi] Alexander Bolton, “Trump team prepares dramatic cuts.”, 19 January, 2017.