Posts Tagged ‘Deficit Spending’

The Coming War Economy

February 1, 2012 2 comments

It seems that President Obama is preparing for war with Iran. From Massive U.S. Military Buildup Reported Around Iran:

In addition to some 50,000 U.S. troops currently in the region waiting for orders…President Barack Obama is deploying an additional 50,000 soldiers to be ready for ‘any contingency’ by March….Western military sources familiar with the American buildup on the two strategic islands tell DEBKA-Net-Weekly that, although they cannot cite precise figures, they are witnessing the heaviest American concentration of might in the region since the US invaded Iraq in 2003.

Assuming a prolonged engagement with Iran, the following series of economic events are likely to occur:

  1. Higher oil prices. Oil prices rise from $100 per barrel to $150 and higher.
  2. Worldwide recession. U.S. unemployment rate rises to 15-20%.
  3. More fiscal stimulus. More money-printing by central banks to prop up failing banks and key industries.
  4. Higher gold prices. A mad rush for gold as a hedge against currency risk. Silver tags along.
  5. Higher commodity prices. Commodity prices rise even as demand for them collapses.
  6. Higher inflation. The official rate will be 6-8% while the real rate will be more like 12-15%.
  7. More deficit spending. Massive government-funded programs to reduce dependency on oil will be offered.

Even if only the threat of war is maintained, an external enemy like Iran (however real or perceived) becomes the perfect political cover needed to push a Keynesian-style fiscal stimulus, inflation be damned. It might produce enough of a short-term, economic kick to help the President sail through the elections. At least, that would be the hope. The consequences that have to be dealt with on the other side (in 2013 and beyond) are another matter.