Do Not Forget That Wars Demand Money
I Doubt The US Can Afford To Escalate And Fight A Long War, Even If It Wanted To
A quick reminder that today (August 4) at 13:15 ET/18:15 BST/19:15 CEST, I will be doing a Substack Live with Fabian Hoffmann who writes Missile Matters. Fabian has established himself as one of the best analysts of missile technology and strategy anywhere on the planet. We will discuss not just missile technology and the Russo-Ukraine War, but also developments in missile technology worldwide. Here is the link if you want to attend.
Hi All,
People love to talk about war: how militaries behave, what weapons and tactics they use, how they are being commanded, and how the battles are progressing. However, the central question of war is usually/often ignored as boring or indecipherable. And that is: how do you pay for a war?
Wars are obscenely expensive, usually costing far more money than people can imagine before they start. Finding such funds usually requires a combination of hard work and brute force. Even then it is a struggle. Russia, for instance, has spent most of its sovereign wealth fund and liquidated the vast majority of its gold holdings to fight Ukraine, in what was supposed to be a week-long war.
I was struck by this question because the cost of Trump’s War is usually overlooked in the strategic discussion of whether Trump can or should escalate, and whether such a decision might turn Trump’s war into a longer-term conflict. In actuality, the question of how this war can or should be financed needs to be addressed first. One of the determining facts which will determine the length of this war could be that the USA is far more under the gun financially than it was at the start of any war in its history. That alone might prevent the US from escalating or lengthening the war—even if Trump wanted to do both.
If I may, I would like to go back to one of my favorite pieces of the year so far, which struck some people as a little out of left field. It was how in geopolitical and economic terms, we may have forgotten what it was like to deal with a real financial crisis.
The argument in the piece was that over the last 20 years we have had one way to deal with any crisis, be it the 2007-8 financial meltdown, the Covid pandemic, etc., and that was through massive deficit spending. We could, and did, throw masses of money at any problem. At the same time, the US fought its long War on Terror, which lasted through the American withdrawal from Afghanistan in 2021. All of this borrowing helped get the USA (and the rest of the world) through these crises, but of course it came with a time limit. We have been incredibly lucky (in the short term) over the last twenty years in that for much of the time interest rates were exceptionally low. At some point the borrowing has to stop, and I do not believe people understand this and are prepared for it.
Note: Paul Krugman wrote an important Substack on a related theme four days ago entitled: The Bond Market Doesn’t Like Bullshit. It’s worth a look.
