"Doug Casey on the Cost of the Iran War -
and Why It Will Fuel Inflation"
by International Man
"International Man: The war with Iran is dominating the headlines, but what most people aren’t considering is the economics of warfare and what it means in the bigger picture. When a $35,000 Iranian drone can force the US or Israel to fire interceptors costing millions, what does that say about the economics of modern war, and who really benefits in a conflict defined by that kind of asymmetry?
Doug Casey: War has always been about economics. That’s even truer today because of the huge discrepancy between what the First World can afford and what the Third World can. I believe Iran is using what Muhammad Ali called the rope-a-dope. You mostly just absorb your opponent's blows. He tires himself out, and then you counterattack. The Iranians' rope-a-dope is to let the US and Israel deplete their supplies of ultra-expensive missiles and interceptors before counterattacking in size.
The US is in the habit of building fantastically expensive, complicated weapons that were originally intended to confront peer adversaries like the Soviet Union or China. That can make sense when you consider that a US soldier costs about a million dollars, all in, to train and support. But a Third World teenager costs about nothing. Each of them is like an AI-directed cruise missile, but there are millions of them. It’s the same equation with missiles and drones.
Wars like this, and this war in particular, might bring down the US through simple bankruptcy. Most Americans are unaware that Trump has already dropped bombs in 10 different countries just in the last year. It’s expensive, and it makes enemies.
The US is no longer like G.I. Joe in World War II, passing out nylons and chocolates to make friends. The answer from the Third World will be "Two, three, many Vietnams", pinpricking the giant to death over decades. The US has been using ultra-expensive planes and missiles to blow up huts in the desert. It had to back off from fighting the Houthis, who aren’t even a nation-state. The US approach to warfare is unseemly, stupid, uneconomic, and unsustainable. You might think that Trump would consider closing its 850 provocative foreign bases and concentrate on safeguarding the geographical US. But that’s not how declining bankrupt empires are wired…
International Man: The Pentagon’s preliminary estimate is that the war will cost roughly $1 billion per day, but some analysts say missile defense alone could be costing several billion daily. How much higher do you think the real cost of a US-Iran war would be once you include indirect costs, delayed effects, stockpile depletion, and the broader economic distortions?
Doug Casey: To keep this in perspective, realize that World War II, which was an all-out fight for survival and lasted almost four years for the US, supposedly only cost $275 billion. Those were hard dollars, perhaps $4 trillion in today’s currency. The comparison helps keep expenses in perspective. Now, nobody even knows the direct costs of wars. Forget about the indirect costs. It’s said that the misadventure in Afghanistan cost $2.3 to $4 trillion, fighting against primitive people armed mostly with AK-47s. The Iraq War cost over $2 trillion. Neither adventure benefited the US in any way whatsoever that I can determine.
But in the case of Iran, the US is now hunting truly dangerous big game. There are lots of possible outcomes, but few are beneficial to the US. Trump has foolishly demanded unconditional surrender, which is an unusual concept for an undeclared war. It’s hard to walk back a demand for unconditional surrender. In other words, it appears Trump has blown the opportunity to say we taught them a lesson, back off, and declare victory - like he did when supposedly destroying their nuclear facilities in June. He’s made it an existential fight for the Iranian regime, with elements of religious war. Which is especially dangerous in a region full of true believers. My guess is that costs will spin out of control.
International Man: How long do you expect the Iran war to last? How do you think it will play out and eventually end? What about international law?
Doug Casey: The US has gotten into the habit of imposing its will on pipsqueak countries over the last 80 years. But Iran is different. The attack on Iran was completely unprovoked, a total war of choice. Their mantra of "Death to America" is understandable in light of US policies in the region. It’s criminal to launch a surprise attack in reaction to nothing more than harsh words. Terrorism? There’s been none on the part of Iran itself, despite the US propaganda.
What Iran’s done is support the Lebanese Hezbollah, the Palestinian Hamas, and the Yemeni Houthis in their wars against Israel. I’m no fan of the Iranian regime; the world would be better off without them. But everyone in the Muslim world is either a declared or covert enemy of Israel. That’s a pity. But as Washington and Adams said, we should be a friend to all, and an ally to none. Worse, the US and Israel launched their attack in the middle of negotiations, which is dishonorable. Despicable, actually.
We’re looking at the overturning of traditional international law. But let’s recognize that international law has never been more than a pleasant fiction. It’s a make-believe world between politicians. Even though each party is often a liar with bad intent, it helps if you want to give the other guy the benefit of the doubt. Politics is Machiavellian, and understandings between governments are easily disregarded. International law is mainly used to make a war of aggression seem righteous.
Here’s an analogy. Look at the world of international law as a sleazy nightclub with 200 customers. Some are going to be raucous, some will be quiet; some are friendly, some are aggressive; some smart, some stupid. There will always be a few gangbangers who don’t like each other, some townies who hate the preppies, some junkies, a couple of ex-cons, and a few psychos. And there’s no cop to keep order. The world is just like that bar. No written rules, just some vague understandings. And lots of misunderstandings. Like in any bar, customers size each other up, deciding who to drink with, who’s looking for trouble, or, if you’re a bad actor, who you can beat up and roll.
The US used to be the toughest customer in the saloon of international law, buying friends with free drinks. But he’s turned into a mean drunk who’s overdrawn his tab. The other customers who used to tolerate his eccentricities have started to dislike, disrespect, and resent him. It will probably end up like an altercation in Deadwood’s Gem Saloon.
Forget about the concept of international law. It exists only as a veneer, the way politeness does in a frontier bar. The sham is being exposed by the unprovoked surprise US/Israeli attack on Iran.
International Man: Washington can’t fund a long conflict like this out of current tax revenues, so it has to be financed through debt. With foreign buyers like China and Japan stepping back, will the Fed become the buyer of last resort, and is that when the money printing really begins?
Doug Casey: The world has watched the US engage in promiscuous deficit spending for the last 80 years. Serious questions started coming up in the 1960s, with the Vietnam War, resulting in the dollar devaluation and the default on gold redemption in 1971. Since the early 1980s, the major export of the US ceased to be aircraft, computers, and soybeans. The main US export now is about a trillion fiat dollars every year. Interest on its debt is the largest line item in US spending, after armaments.
In addition to financing all the new spending, the government has to roll over about $10 trillion in old debt that’s coming due this year. The Federal Reserve is the only realistic buyer for all that. They’ll have to print dollars to finance the debt. We’re approaching the endgame from several points of view.
International Man: You’ve often said war is the health of the state and a destroyer of capital. In a conflict with Iran, why do you think the result is likely to be more inflation, more currency debasement, and a stronger case for hard assets like gold, energy, and commodities?
Doug Casey: The only way the US can finance this war is by printing money. That always results in higher prices. And higher interest rates as well. Predicting the direction of interest rates is risky, but you’ll recall that they dropped from the 15-18% level in the early 1980s to close to zero by 2022. My guess is that we’ve entered a new cycle, taking us to new all-time highs in interest rates. It won’t take 40 years to get there this time. Meanwhile, commodity prices are at all-time lows relative to other assets. The smart play is to sell the dollar, especially long-term bonds, and go long commodities of every type."
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