"President Makes the News for Declaring Holy War,
and America Will Pay the Price"
by David Haggith
The first story quotes the president as saying, "Donald Trump has invoked a holy war in a furious final Easter Monday ultimatum to Iran: “Remember when I gave Iran ten days to MAKE A DEAL or OPEN UP THE HORMUZ STRAIT. Time is running out - 48 hours before all Hell will reign down on them. [sic] Glory be to GOD! President DONALD J. TRUMP”
Sounds like the apocalyptic religious fervor behind this war that I wrote about, straight from the mouth of the president. Extraordinary even for Trump. This kind of religiously laden statement is certainly not what we are accustomed to hearing from US presidents, who have always tried to make sure, when fighting in the Middle East, that their statements carry no content that would sound like their war is religiously based, lest that incite jihad in the Arab world, joining all Muslims together in the fight. The guys in the White House and the Pentagon seem to be wanting to incite jihad by repeatedly emphasizing the religious basis for their present war, which they started.
The US starting the war makes it a defensive war for Iran, which is essential for declaring jihad under Arab understanding of jihad. It’s like NATO, a defensive agreement, but with a religious basis that says Muslim nations must join each other in defending their religion if attacked. By framing the war in apocalyptic religious terms the US is encouraging Arabs and Persians and other Muslims to understand the war as an attack on Islam, which makes jihad, in their view, all the more appropriate.
US presidents have typically bent over backwards to make clear that the wars they are raining down on the Middle East have nothing to do with Islam to avoid heightening those possible interpretations of the war, which are the very thing that could turn this into full-scale World War III and a “holy war” at the same time.
The other article says, "Donald Trump has threatened to strike more of Iran’s critical infrastructure if the Strait of Hormuz is not reopened tomorrow in an expletive-laden social media post. “Tuesday will be Power Plant Day, and Bridge Day, all wrapped up in one... Open the f---ing Strait, you crazy b-----rds, or you’ll be living in hell – just watch! Praise be to Allah,” he said in on Truth Social. That’s throwing it in their face by using a phrase that sounds awfully close to their “
Allahu Akbar,” often shouted just before some horrific act of violence in their name for God Have we ever been in more directly apocalyptic times?
Tariff it! Americans are already going to pay big. The US war continues to put West Texas Intermediate crude in the rare “backwardization” where it is priced above Brent Crude (European oil from the North Sea). That is a huge windfall from war for US industry and some US billionaires, but a massive tax for US citizens to pay. It’s a win for the Military Industrial Complex … or, at least, one major part of it. For most of us, it just means desperately higher prices for everything that oil goes into.
That is, unless Trump does what Trump says he loves to do and puts an export tax on US oil. WTI is now selling at a 30-40% premium, which puts the price up for domestic users of America’s own oil because it is an open, competitive market. So, producers will sell to the best price. The real purpose of export tariffs is found in exactly this situation, which is to reduce external sales so that a nation’s people (or government) have enough of the nation’s own product.
Since the sellers of US oil are profiting exorbitantly from a war that taxpayers are entirely paying for, the US government should put an export tax on that oil for 30-40%, taking that wartime windfall and putting it in the government’s coffers to help offset the taxpayers cost for the war. The oil producers didn’t do anything exceptional to realize these enormous gains from war, which is why they lobby for war.
Take the entire benefit away, then maybe that component of the MIC will stop lobbying for war. Use the windfall to pay for the war in cash and to drive down fuel prices for US taxpayers by removing the incentive to sell all US oil to foreign buyers for higher profits. Under such a tariff, US oil producers can either sell to foreign buyers for the same profit they get from US buyers because they have to reduce their price to offset the tariff, with the government pocketing the full difference between what the oil producer charges and what the foreign buyers has to pay, or they can sell to US buyers for the same amount of money they are getting under that tariffed situation from foreign buyers.
How the cost of this war will endure: Even with an export tariff, the war tax US consumers are now paying on oil will continue for a long time. As Reagan’s budget planner (very familiar with the oil-based stagflation of the 70’s under the OPEC embargo) says, “This is not your grandfather’s stagflation.” In fact, I’m inclined to believe that another article in the headlines section today is right in claiming that oil prices will NEVER return to what they were before the war.
“I don’t think we’re going back to the pre-war prices for the foreseeable future,” said Mark Zandi, the chief economist of Moody’s Analytics and among the first economists to predict the 2008 financial crisis, speaking with Politico for its report Monday. “Certainly won’t be this year, won’t even be next year. Might not be ever.”
The difference between now and back then, as both writers point out, and as I also said last week, is that oil was shut off with a simple decree back then, so it could be turned back on when the Arab objective was met with another OPEC decree. This time, however, the ability to transport oil from well to sea is being destroyed, and the ability to refine crude oil into products is being destroyed. The only thing that can be turned back on overnight by decree is opening up the Strait of Hormuz, but it will take years to fully repair destroyed infrastructure in that arena to where the oil supply lines that have been taken out can start moving again.
As Stockman says, "We are going to get a globe-shaking economic conflagration erupting from the void that was the Persian Gulf commodity fountain. That includes between 20% and 50% of all the basic commodities that drive global GDP, including crude oil, LPGs, LNG, ammonia, urea, sulfur, helium, and sundry more."
Stockman points out a different but equally valid reason the crisis Trump has created will not be like the OPEC Oil Crisis. The high inflation was not as painful because America had just experienced thirty years of a roaring economy. So, when the economy was taken way down by the limited supply of oil and the high costs of oil, American spending power was still generally running at a slightly positive grade. We, on the other hand begin with an economy that had already fallen essentially to zero real GDP growth after Trump’s first tariff-enthusiastic year.
(That happened because IMPORT tariffs, which were Trump’s entire focus, make everything more expensive for US consumers and companies because most of what we buy is imported, and most of the rest of what we buy is filled with imported parts or resources. EXPORT tariffs, in a case like this, merely reduce exorbitant extra profits that come from price premiums for US companies on foreign sales. The companies sell the oil at the premium price, but the government skims off all the premium in taxes because the government created that exorbitant pricing opportunity for them with its war; they didn’t earn it. Since the premium portion of the price is purely the windfall of war, the companies will still make the same profit they made during non-war times from selling to foreign entities; but for US customers, prices get held down because they are not bid up by more desperate foreign buyers and the oil company doesn’t have to pay the tariff on sales to domestic buyers. All of that helps offset what taxpayers would also be on the hook for with this war.)
Stockman points out that, in the seventies, US incomes had long been rising at more than 3% per year, while inflation had long been less than that. So, they were more able to absorb the much higher inflation that came along in the seventies because their incomes had for a couple of decades been pushed up in buying power. So, they lost buying power during the OPEC crisis, but were still ahead of where they had been years before. It wasn’t fun or good, but it was endurable because they had somewhat of a cushion.
Now, however, US consumers are being hit after coming out of years of inflation that have already seriously eroded their buying power - inflation that was still higher than anything they had seen for many years and inflation that was already rising again. They are already drained and reliant on credit for everyday expenses, and credit is already, due to the cost of tariffs, defaulting at a much higher rate than it had been pre-Trump.
Total public and private debt back in the seventies was a TINY fraction of what it is today in the US; so there was a lot more capacity to weather through by using increased debt as a tool. During the seventies total national and private debt went from 147% of GDP to 162%.
BUT… Debt outstanding now totals nearly $108 trillion and weighs in at 343% of national income (GDP). That is to say, as we head into the next stagflationary era, the US economy will be carrying two turns of extra debt relative to income than was the case in 1970.
In an already depleted state, consumers are now getting hit by huge cost increases from this war with elevated prices that the other article says are not going away: “I don’t think we’re going back to the pre-war prices for the foreseeable future,” said Mark Zandi, the chief economist of Moody’s Analytics and among the first economists to predict the 2008 financial crisis, speaking with Politico for its report Monday. “Certainly won’t be this year, won’t even be next year. Might not be ever….” In an apparent effort to address concerns over rising prices, Trump has said gas prices would “come tumbling down” as soon as the United States pulls out of Iran, as would inflation – a claim Zandi rejected out of hand…. [Naive or outright lying.]
Even if the conflict were to be resolved soon, business leaders fear that any market improvements would be delayed by months. “The die is being cast for the rest of the year for what’s going to happen in the markets,” said Jim Fitterling, the CEO of Dow Inc., speaking at the CERAWeek conference in Houston recently, as reported…. “It’s like the unwind we saw on supply chains during COVID. You could be in the 250- to 275-day range. This is not going to be an instantaneous rewind.”
OPEC didn’t break things. Maybe people, but not things. This war has broken a lot of things, as wars do, but this war, unlike all previous wars, has focused particularly intensively on breaking OILY things. So, prices will rise for as long as it takes to manufacture and install these things.
Moreover, the prospect of resolving all of this by saving the collapsing economy with a Trumpian attack on interest rates to reduce the cost of all that debt is now unlikely to work as the president thinks. As I just wrote to a reader who asked me about this …"I don’t think rates will go lower. I think Big Beautiful Bill will demand higher rates. Rapidly expanding war spending will add huge additions of debt to what BBB already created. All that debt is going to demand higher rates of interest. Soaring inflation from oil-based cost increases for the next 2-3 years will also demand higher interest as bond rates are highly inflation-sensitive.
With all of that, I don’t think it will matter much what the Fed does, unless it does QE beyond what we’ve ever seen because there is just too much new debt to keep hosing up, plus the compounding interest on all of that to be financed with each new issue of debt.
I think the failing economy will also lower the nation’s credit ratings, and, at the same time, demand more debt spending in order to save the economy. With all of that, I think it more likely the system will blow up from overload than that it will pave the way to lower interest just because it desperately needs lower interest… In short, I think the bond vigilantes will demand higher interest in spite of what the president wants or what the Fed might do if it were inclined to give the president what he wants.
Or, as David Stockman put it, "But after February 28th and Trump’s initiation of a war in the Persian Gulf that can’t be won and which will send the global economy into a tailspin like nothing seen since the mid-1970s, we are truly off to the stagflationary races. Energy and fuel costs have already soared. Most importantly, the workhorse hydrocarbon of the US economy- diesel fuels used by the nation’s massive fleet of trucks, rail, and farm tractors - is already above its 2022 level at $5.40 per gallon and still climbing. [Now $6.19 where I live!]
Likewise, on the very eve of the planting season fertilizer costs have already doubled, meaning that application rates will be cut back, yields will fall, and food prices will be soaring by the 4th of July when the USDA crop condition reports pretty much forecast the fall production levels.
And, of course, no one took into account that the natural gas processing plants of Qatar were fastened at the hip to the semiconductor plants in South Korea and Taiwan and from there to the entire manufacturing sector of the world. All of this through the life line of helium gas extracted from natural processing plants.
In short, these soaring commodity prices are going to push the inflation indices higher, even as industrial output contracts owing to rising costs and limited availability. Labor markets are frozen as much as they were in the depth of lockdowns from April 2020, while new home sales are evaporating.
That’s stagflation by any other name, but this time the Fed will not be in a position to do much about either inflation or recessionary pressures. Neither, with $40-trillion of national debt, can the Fed fight this inflation by raising interest rates. That would sink the US government, not to mention what it would do to the much larger amounts of private debt. Nor dare the government add to that debt mountain in order to stimulate the economy because that, too, would push interest rates higher in order to find buyers for the extra debt. So, dream on Trump. The damage is done. Your inflation is here to stay! Fait accompli!"
