Dear Reader,
Good morning.
This is Dylan Jovine with Behind the Markets.
Happy Wednesday.
Today is Wednesday, January 14th.
And today I want to talk about President Trump’s proposed $1.5 trillion defense budget — specifically how that number fits into history when you look at defense spending as a percentage of GDP, especially compared to the Cold War.
But first, a quick note about our webinar this Friday at 1:00 p.m.
I really encourage you to sign up.
This one is actually kind of fun — and a little personal.
If there’s been one fair criticism of me over the years, it’s that sometimes I’ve sold great stocks a little too early.
And to be fair, that criticism isn’t wrong.
Last year alone in Breakthrough Wealth, we had some massive winners.
Grail, which we sold for a 458% gain.
Kratos, up 144% on the portion we sold.
Kinross, up 133%.
Oscar Health, 127%.
Rocket Lab, 324%.
Palantir, 310%.
Oscar again — the first half — up 202%.
A lot of six-figure winners.
But some of the younger people on my team — one in particular — came to me and said, “Dylan, what if you’d held on to some of these longer? What if we refined your system so it actually captured more of those massive, long-duration winners?”
So we did exactly that.
We went back, ran the research, even put parts of it through AI, and refined the system to see what would have happened if we had held on longer in certain cases.
I love working with young people. They like to take the old guy and see if they can do better.
And honestly, what they found was really interesting.
There were stocks we recommended — like Navient — that could have gone up over 1,000% if we’d applied this refined framework.
So we spent serious time rethinking and refining the Breakthrough Wealth system, and we’re going to walk through those results with you on Friday at 1:00.
Come join us. It’ll be fun — and very eye-opening.
Now, let’s talk defense spending.
Trump has proposed taking defense spending to $1.5 trillion, and it’s important to understand what that actually means in context.
At that level, defense spending would be roughly 5% of U.S. GDP.
That number might sound large, but historically, it’s not extreme at all.
In fact, it lines up closely with defense spending during the height of the Cold War.
For example:
In 1989, defense spending was about 5.6% of GDP.
In 1991, it was 5.4%.
In 1992, 5.3%.
If you go further back into the 1960s, defense spending was much higher — around 7% to 8% of GDP.
1964: 7.7%.
1966: 8.2%.
1970: 7.8%.
And of course, during World War II, the numbers were staggering.
In 1945, the final year of the war, defense spending hit 37.5% of GDP.
In 1946, it dropped to 19.8%.
By 1947, it fell sharply to 4.8%.
Then the Cold War ramps up.
From 1951 through the mid-1950s, defense spending jumped back into the double digits — 10%, 12%, even 14% of GDP.
Over time, as World War II fades and Cold War lines solidify, defense spending gradually settles back down.
By the early 1970s, after Vietnam, we’re spending about 5% of GDP on defense.
When Ronald Reagan comes into office, that number climbs again — to about 6% to 6.3%.
Then the Cold War ends, and we enter the 1990s “peace dividend.”
Defense spending as a percentage of GDP falls from around 5% to the low 3% range — 3.6%, 3.3%, even close to 3%.
That allowed Bill Clinton to do something remarkable in 2000: actually pay down U.S. debt.
Lower defense spending freed up capital. Interest rates came down. The economy benefited.
So here’s the part that concerns me.
Spending 5% of GDP on defense as we ramp up competition with China makes sense. Historically, that’s reasonable.
What worries me is our debt.
During World War II, U.S. debt peaked around 114% to 120% of GDP.
By 1947, it had fallen to about 103%.
Then it steadily declined — 92%, 86%, 70%.
By the early 1980s, U.S. debt was only 32% of GDP.
Think about that.
We were spending about 5% of GDP on defense — but debt was just 32%.
People were panicking about debt back then, and frankly, I never understood why.
Now fast-forward.
Debt climbs to about 60% under the first Bush administration.
Clinton brings it back down to roughly 55%.
Under Bush II, it moved back toward 60%.
Under Obama, it rises sharply — exiting near 90% to 100% of GDP.
And today, we’re around 120% of GDP, and realistically heading toward 130%.
We haven’t spent this much on defense with this level of debt since World War II.
That’s the concern.
If we don’t get debt under control, sustaining a $1.5 trillion defense budget becomes very difficult.
Bond buyers eventually walk away — and frankly, we’re already seeing early signs of that.
When buyers step back, interest rates rise.
Right now, what’s holding things together is essentially a stopgap: the Federal Reserve buying bonds and funding the government.
The left hand paying the right hand.
It’s a very unusual situation in American history.
Anyway, I just wanted to walk you through this framework and give you the historical context.
I hope you’ll join us for the webinar on Friday.
I’ll see you then.
Take care.
“The Buck Stops Here,”
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Written by Dylan Jovine