U.S. economic situation promotes “war-seeking”

Red = unemployment, blue = inflation, YOY percent change

The current situation most resembles the early 1950s, when the nation also carried a heavy debt load, though not altogether as heavy as today.  Inflation shot up during the Korean War and then settled into about a two percent range for the rest of the decade.  The wage-price spiral took off in the mid-‘Sixties, with repeated red and blue peaks spiraling upward until Paul Volcker snuffed out the big inflation in 1982.

Given that the massive Baby Boom generation remembers the Vietnam War and its inflation, and are trembling in their boots about having enough money for retirement, any hot war breaking out now might reignite a wage-price spiral quickly.  With chaos abroad, the greenback would still look good as a reserve currency for a while.  The Fed might tolerate a ~5 percent inflation for a few years in the interests of debt reduction and household balance sheet “rebuilding.”  It helps to have a hot war to get an inflation going.

My inference: the U.S. economic situation promotes “war-seeking,”  if we follow the old patterns of realpolitick.  But there is no lasting reward following this path.

George Washington wrote:  “I do not mean to exclude altogether the idea of patriotism. I know it exists, and I know it has done much in the present contest. But I will venture to assert, that a great and lasting war can never be supported on this principle alone. It must be aided by a prospect of interest, or some reward.”

Triggering an inflation might well destabilize the entire Bretton Woods fiat money system, and create a much worse situation than a “limited” war—a bigger war.

George Friedman of Stratfor.com, a well-informed hawk and follower of realpolitick, says we are squandering our treasure in Afghanistan.  I agree.  Let’s get out before it spreads out of control and triggers an inflation.

(thanks to Ted R. for challenging me to clarify this)