US Industrial Production - a slow decline since November 2014

This graph shows the performance of US industrial production for the past ten years. The "cliff dive" of the Great Financial Crisis can be clearly seen, which bottoms out at 87.4125 in 2009-06. A quick recovery follows for a year, and then steady recovery until it peaks again at 105.9906 in 2015-01. But since then, Industrial production has slowly declined. Why? The 2015-01 peak was not much greater than the previous peak of 105.7290 reached in 2007-11.

Source: INDPRO


US Defense Spending, and Trump's increase

Donald Trump has decided to increase defense spending:

The US military is already the world's most powerful fighting force and the United States spends far more than any other country on defence. Defence spending in the most recent fiscal year was $US584 billion ($759 billion), according to the Congressional Budget Office, so Mr Trump's planned $US54 billion ($70 billion) increase would be a rise of 9.2 per cent. In a speech to conservative activists on Friday, Mr Trump promised "one of the greatest military build-ups in American history".

Yes, an increase of 9.2% is substantial as a percentage. But how big would it be compared to previous years? The following graph is based upon two FRED sources, FDEFX and GDP.
In fact the latest figures show that defense spending has decreased to 3.88% of GDP, which is the lowest recorded since 2000 Q4 (3.77% of GDP, the lowest since 1951). An increase of 9.2% would, (using a quick and simple equation) result in defense spending at 4.237% of GDP. The last time that was reached was 2014 Q3, which isn't so long ago. Of course such an equation is not very accurate when multiple quarters over many years are taken into account, but what is seen here is not a huge increase, and is still significantly lower than other periods in history.

Of course there's always the chance that Trump and Congress will make further increases in the future. But for the majority of us in the "reality based community" would still question the need for such an increase. What foreign power is threatening enough to demand such an increase in defense spending?

If defense spending remained the same proportion of GDP as it is now (3.9% to 4.1% of GDP), America would be safe enough. The risk of being attacked by a substantial foreign power is probably the lowest in history, and the risk that America's allies face is the lowest in history. The threat posed by IS and other Islamic terrorist organisations needs to be kept in perspective, namely that they pose not even one tenth of the threat posed by the Soviet Union during the Cold War.

Moreover the increase in defense spending may presage a future military campaign. But against who? Is increasing spending on defense simply the fulfillment of an election promise or is there something more substantial in the president's mind?


Japan: GDP vs Energy Use

I found this interesting graph on Wikipedia:

What it shows is empirical evidence that GDP and energy use don't always have to follow one another. Of course there is a relationship between the two, but what the graph shows is that it is possible for GDP to continue growing without necessarily increasing energy use. Graph is here.


US Public Debt as percentage of GDP

Five periods of history can be see here.

1. 1970-1982, the years of Nixon, Ford and Carter, where debt remained level at approximately 25%.

2. 1982-1988, the years of Reagan and his tax cuts and defense spending increases.

3. 1988-2000, the years of Bush.1 and Clinton, in which debt reached a plateau and began falling.

4. 2001-2008, the years of Bush.2, in which tax cuts stopped reducing public debt.

5. 2008-present, the years of Obama, which coincided with the Global Financial Collapse.



Public Debt


How Mexico can pay for the wall

Mexico holds US Treasury bonds as part of its international reserve. In October last year, they had $45.9 Billion. Link here.

Assuming the total co-operation of the Republican dominated US Congress, these bonds could be permanently confiscated in order to fund the wall.

Such an act would probably be without precedent.

Iran, for example, was unable to access their US bond holdings until the recent treaty allowed them to. In this case, legislation didn't permanently seize the funds - just kept the owners from accessing it while the dispute between the two nations continued.

Of course, seizing the international reserves of a country in order to make them pay for something is hardly in the best interests of anyone. Yet here we are and Donald Trump is about to be sworn in as president.

We can look forward to some very interesting times ahead. But not "good" interesting.