Can the US Afford to Go to War?

After Hamas’ attack on Israel, tensions in the Middle East have been rising. The United States has, not surprisingly, given a significant amount of support to Israel. And now the Biden administration wants to give even more money to Israel.

This comes on top of billions of dollars the US has already given to Ukraine over the past year and a half after Russia’s invasion of Ukraine. Can the US government really afford to do this? And what happens if the US itself gets drawn into one of these conflicts, or another one?

War Spending Fuels Debt

Spending on war has fueled government debt for centuries. Wars aren’t cheap, and one of their first casualties is ordinary fiscal discipline.

In the case of the US today, we aren’t even fighting an actual war, aside from some small-scale intervention in Syria. We long ago pulled our fighting troops out of Afghanistan and Iraq, yet we’re still spending billions of dollars on proxy wars and supporting other countries fighting.

The Biden administration now wants to spend another $100+ billion on warfare, with $60 billion of that going to Ukraine and $14 billion going to Israel. That’s money that the US government doesn’t have and wasn’t planning to spend. So how does it come up with the money?

Like most of the government’s spending, it’s financed by debt. The government has to issue new debt to finance this spending and hope that it can find buyers.

With a national debt of over $33.6 trillion, a cost to service that debt at over $800 billion annually and counting, and interest rates that are rising to over 5%, the US government’s fiscal situation is becoming more and more precarious all the time.

Every bit of spending the government does adds to that debt. And more and more spending is being done piecemeal, piling on to the national debt.

The budget deficit for Fiscal Year 2023 was projected to be $1.4 trillion as of February 2023. But now the total deficit is expected to be about $2 trillion.

Budget Process Is Broken

That’s what happens when the government ceases to budget through the normal budgeting process, and instead passes spending bills piecemeal throughout the year. $100 billion and $100 billion there, and pretty soon you’re talking real money.

Imagine that you’ve told yourself that you’ll only spend $100 a month eating out in a month. You hit that limit in the first two weeks of the month after two nice dinners.

But then you decide to grab a $20 lunch one day with coworkers, and then spend $25 at happy hour a few days later. The next week you do the same thing, and all of a sudden you find yourself having spent nearly twice as much as you budgeted.

That’s what the federal government has been doing in recent years, passing numerous smaller spending bills outside the normal budget process and in addition to the existing funding resolutions. That’s how you end up with hundreds of billions of dollars of extra spending, and a lot of it is spent on war.

If the US government is already running $2 trillion annual budget deficits, which comes at a time when the US military isn’t involved in a conflict, what happens if the US gets pulled deeper into a war?

What happens if the conflict in the Middle East starts to draw in Iran and others who start targeting US assets, prompting a military response? What happens if China takes advantage of what’s happening in Europe and the Middle East to try to invade Taiwan?

Fears of war are growing, and the likelihood that a miscalculation could lead to heightened conflict seems to be increasing every day. If the US military were to become actively involved in a major war, you can almost guarantee that US spending would jump even from its already high levels.

But can the US afford to spend that kind of money? Is it sustainable? And what would happen to the value of the dollar?

War and the Dollar

The creation of the Federal Reserve System in 1913 just happened to occur right before the outbreak of World War I. By the time the US entered the war in 1917, the Fed was ready to assist, and did so through expansionary monetary policy.

Indeed, the period from 1914 to 1919 is considered one of the most inflationary periods in US history, with the money supply doubling during that time, and inflation rates peaking at over 23%.

Thankfully the post-war period saw a return to a semblance of normalcy, as monetary expansion slowed and prices fell during the short and sharp “Forgotten Depression.” But that experience during World War I shows us what could happen again during a major war.

Imagine if the US were to get drawn into a war in the Middle East, or in Ukraine, or in East Asia, or even worse, all three at once. How many trillions of dollars do you think that would cost? And who would fund it?

In all likelihood it would be the Fed monetizing that debt, driving up the size of its balance sheet, increasing the money supply, and sending inflation skyrocketing. The outbreak of war would almost certainly see a return of high inflation, and with it a massive fall in the purchasing power of the US dollar.

Millions of American households have already been harmed by high inflation over the past few years. US entrance into war would harm them even further. And that’s one reason so many people are trying to protect themselves against that possibility.

Gold and the Dollar

One way that people have protected themselves historically against inflation is by buying gold. Gold maintains its purchasing power over the long term, whereas the purchasing power of the dollar continually declines as a result of inflation.

Since the Fed’s creation in 1913, the dollar has lost 97% of its purchasing power, while gold has gained over 9000% in value. And during the last sustained period of high inflation, the stagflation of the 1970s, gold’s average annualized rate of growth was over 30% per year over the course of the decade.

If the US government ends up going to war, high inflation could very well result. And those who take steps to protect themselves against inflation could end up faring better than those who don’t.

Protecting your financial future with gold doesn’t have to be difficult, either. Starting a gold IRA to protect your retirement savings is one way to do it. Direct purchases of gold are another. But whichever method you choose, Goldco has numerous options available for you.

Goldco has helped thousands of customers benefit from buying gold over the years, whether it’s a few thousand dollars of gold and silver to store at home, or hundreds of thousands of dollars rolling over from a 401(k) into a gold IRA. With over $2 billion in precious metals placements and over 5,000 5-star reviews, we pride ourselves on quality gold and silver products and exceptional customer service.

If you’re looking to buy gold to protect your wealth against the effects of war, inflation, or recession, call Goldco today to learn more about the many ways owning gold can benefit you.