The Path to War?

Plus, your Friday fiscal news roundup

The Path to War?

Is the U.S. on a path to war with Iran? Neither side may want it, but fears of a new war in the Middle East have surged after President Trump ordered the targeted military strike that killed Iranian Maj. Gen. Qasem Soleimani, who commanded the elite Quds Force of the Islamic Revolutionary Guards Corps and reportedly was the architect behind nearly every major Iranian intelligence and military operation over the course of two decades.

“We took action last night to stop a war,” Trump said Friday. “We did not take action to start a war.” He added that the U.S. is not seeking regime change in Iran.

Trump and the Pentagon said the strike was aimed at deterring imminent Iranian attacks, though they did not provide further details. Army Gen. Mark A. Milley, chairman of the Joint Chiefs of Staff, reportedly said Friday that a Soleimani-planned attack against Americans “might still happen.” The Pentagon said that it will deploy about 3,000 more troops to the Middle East after Iran vowed “harsh retaliation.”

Republicans and Democrats alike called Soleimani a terrorist, and Senate Minority Leader Chuck Schumer said “no one should shed a tear” over his death. But Schumer and other Democrats said that congressional leaders should have been notified about the strike. Democrats also warned that the Soleimani’s killing could lead to a further escalation of hostilities that would put American lives at risk.

The fiscal factor: While other considerations — human life, national security and Americans’ faith in their government — all take precedence, the fiscal impact of a potential full-scale war with Iran can’t be entirely ignored. “Trump's dangerous escalation brings us closer to another disastrous war in the Middle East that could cost countless lives and trillions more dollars,” Sen. Bernie Sanders (I-VT) said.

So here’s a reminder of how much the post-9/11 wars are expected to cost in the long run. According to an annual report published in November by the Watson Institute for International and Public Affairs at Brown University, the U.S. will have spent $5.4 trillion by the end of this year on what was once called the “global war on terror” – a nearly two-decade conflict that has involved operations in more than 80 countries. Add another $1 trillion for the care of military veterans over the coming decades, and the total cost comes to an estimated $6.4 trillion.

Former Fed Official Calls for US to Issue More Long-Term Debt

In a column for Bloomberg Opinion, former Minneapolis Fed president Narayana Kocherlakota poses five big macroeconomic questions he sees for 2020 and beyond. Among them is how governments can take advantage of low interest rates:

“The 30-year yield on U.S. Treasuries is just over 2% — about half what it was a decade ago and about a third of what it was two decades ago. It would seem like a lot of public investments would be profitable if financed at this remarkably low interest rate. Shouldn’t the U.S. government issue (a lot) more long-term (with maturity of 30 years or possibly even longer) bonds to finance increased subsidies to higher education? Increased subsidies to research by universities and corporations? Spending on infrastructure like roads or hospitals?”

Others have made similar calls for the U.S. to issue more long-term debt and extend durations beyond 30 years, the longest it now sells, to take advantage of low interest rates. Treasury Secretary Steven Mnuchin told CNBC last September that the U.S. could issue 50-year bonds as soon as this year, depending on market demand, with the aim of “derisking” the national debt, which now totals more than $23 trillion. He said that 100-year bonds could follow. The Treasury Department confirmed in October that it is exploring selling 50-year bonds.

Read Kocherlakota’s four other big questions at Bloomberg.

Chart of the Day

Are interest rates destined to move higher, increasing the cost of private and public debt? While many experts believe that higher rates are all but inevitable, historian Paul Schmelzing argues that today’s low-interest environment is consistent with a long-term trend stretching back 600 years.

The chart “shows a clear historical downtrend, with rates falling about 1% every 60 years to near zero today,” says Bloomberg’s Aaron Brown. “Rates do tend to revert to a mean, but that mean seems to be declining.”

Your Prize for Making It Through the Week

It’s great that 2019 is over, but before we get too deep into the new decade, take one more look at some of the most powerful and memorable images of the past 10 years at The Atlantic, Reuters, Daily Beast and National Geographic.

Oh, and if you’re a football fan, you’ve got four playoff games to look forward to this weekend. Don't sleep on the Saints.

Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please tell your friends they can sign up here for their own copy of this newsletter.

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