Look back over the last 100 years of expansions and contractions, and you'll see that major wars have generally come at a time when the economy needed stimulation following a collapsed expansion.
After five years of colossal mismanagement, the US economy may be so sick that the usual medicine would kill the patient. Ironically, George W. Bush may be the President who kept America out of another major war.
In any prolonged recession, money tends to safe harbour in land, bonds, and utilities. Wars shift investment away from stagnant "old economy" sectors and into newer, higher-risk growth sectors (technology, aerospace, synthetic materials, precision engineering, biomedicine) that would otherwise be undercapitalized. The huge public war debts also stimulate the financial sector, and generally interest rates are allowed to rise at the end of the war.
The pattern of the 20th century was that the end of both world wars saw a short recession -- high interest rates and unemployment --followed by a decade-long expansion as new technologies and processes were shifted from military to civilian applications. That also happened after the end of the Cold War. In all cases, however, once that technology-driven expansion runs out of steam, the American economy has plunged into Depression or a serious stagflating recession, which is what has again started to occur.
The problem with the cyclical process today is that interest rates have been artificially suppressed, capital is still locked in "safe harbour" which has resulted in a major real estate bubble, public debt is at an historic post-war high, but there is no real new technological innovation that might stimulate industrial expansion and job creation. Outsourcing has also cut into disposable consumer income which is increasingly dependent on rising personal debt load.
This is a macroeconomic disaster which is being barely averted by huge government spending on the military and "homeland security". The growth in public spending -- $300 billion on Iraq operations alone --is simply unsustainable. There are no good alternatives available. An expanded war in the Middle East or Asia, or another major terrorist event, would have a catastrophic impact on consumer and market confidence. In order to finance and manage a real jump in military spending, the US would have to re-regulate the entire economy. Taxes and saving would have to jump dramatically. Public confidence in national leaders is at an historical low.
Under these circumstances, we are not about to be lock-stepped into invading Iran. Syria doesn't really have anything of value to the U.S. For those looking to loot, they would have to look elsewhere. Is Saudi Arabia the prize? But, our leaders have to ask themselves: do not the Saudis, or their proxies, really have nuclear weapons at their disposal and a "doomsday plan" to use them?
For the first time in a century, war is not a viable economic option for the United States. As America reaches its imperial tipping point, we simply have more to lose than to gain from the outbreak of wider hostilities. We are out on cracking limb with nothing to grab onto but thin air and each other . . .
This regime is about to change.
Mark
