Long-term perspective: Conflicts, rising prices, economic downturns, and hidden threats at home.
War, Inflation, and the Looming Threat of Recession
War often leads to inflation, and while inflation is not directly responsible for recession, price increases, and a decrease in economic activity often lead to a recession.
When I wrote about the resilience of the U.S. dollar weeks back, I had no idea we would step into another conflict. Granted, the Israel conflict is a conflict I support and understand, but it does not take much to figure out that bombing a territory while simultaneously sending billions in aid to the territory being bombed—Gaza—makes for an interesting narrative.
The United States has spent more than $75 billion on the Russia–Ukraine war, and that amount does not count the money given to allies to support the effort.
Between Jan. 24, 2022, and July 31, 2023, the United States has sent $26.4 billion in financial support, while $46.6 billion has gone to military expenses.
Now, President Joe Biden has asked Congress for $105 billion for Ukraine, Israel, and the border.
For a $180 billion, where does this leave us?
Let’s take a look at a few statements from varied sources, such as the Chatham House, the European Central Bank (ECB), and investing legend Bill Gross.
Dame DeAnne Julius from Chatham House said: “The pandemic shut down large parts of the service sectors of economies and disrupted supply chains into manufacturing. In addition, many governments provided fiscal support through furloughs for people laid off work and grants to keep businesses afloat while they were unable to produce or sell. The result was a rise in savings and a sudden bounce-back in demand when COVID restrictions were lifted.”
On the Russia–Ukraine war, the ECB stated: “The war triggered a massive shock to the global economy, especially to energy and food markets, squeezing supply and pushing up prices to unprecedented levels. Compared with other economic regions, the euro-area has been particularly vulnerable to the economic consequences of Russia’s invasion of Ukraine.”
On Oct. 23, bond guru Bill Gross said: “Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate U.S. economy slowing significantly. Recession in fourth quarter.”
At the moment the United States is finally staring down a recession, and it’s been coming for a while. However, we are also staring down the potential of another war, one that is rarely mentioned in the press. In March of this year, Senator Angus King (I-Maine), asked energy security experts “if they believe there are cyber ‘sleeper cells’ that have infiltrated the nation’s energy grid and may be positioned for a future attack.”
Former FBI Special Agent Eric Caron agreed on another front, stating: “We have over a thousand joint terrorism task force cases going on here in America today relating to Muslim extremists.”
Ask yourself this: While fighting numerous wars, battling inflation, and contending with the looming threat of a recession, what happens if domestic attacks start from sleeper cells hiding out across America? What if the sleeper cells decide to attack our energy grid? What if these sleeper cells decide to start a religious war in America? It’s completely possible, and no one can say our border is safe.
No one can say that out of the millions of illegal immigrants that have come through our southern border in the past few years, we don’t have any enemies in the mix.
How many potential enemies are hiding in America, waiting for the next opportunity?
And what about China? What happens if China decides to wage war to regain control of Taiwan?
All of the sudden a world war seems plausible. How will America respond, and what will this do to our economy?
What will this do to America?
How do war-related disruptions in supply chains and energy markets strain the global economy and contribute to inflationary pressures and reduced economic growth
Been particularly affected by the war due to its heavy reliance on energy imports from Russia.”
Bill Gross, the former head of PIMCO and investment legend, expressed his concerns about inflation and its impact on the economy: “Inflation, while not the direct cause of recession, has often been a primary factor. To the extent that it interferes with normal market mechanisms, inflation can disrupt pricing of goods and services, creating uncertainty and leading to a contraction in economic activity.”
Based on these statements—and many others like them—it is clear that the combination of war and inflation poses a significant threat to the global economy. The increased military expenses and financial support sent to conflict-stricken countries drain resources from other sectors of the economy. At the same time, inflation erodes purchasing power and increases the cost of living for individuals and businesses, leading to reduced economic activity.
This combination of factors can create a vicious cycle where decreased economic activity further exacerbates the impact of inflation, leading to a recession. This is particularly concerning as the world is already grappling with the economic fallout of the COVID-19 pandemic, and a recession could prolong the recovery process.
Moreover, the war-related disruptions in supply chains and energy markets have further strained the global economy. Energy prices have soared due to supply shortages, affecting industries and households alike. This not only adds to the inflationary pressures but also hampers economic growth by increasing costs for businesses and reducing disposable income for consumers.
As governments continue to allocate significant financial resources to support war efforts and provide aid to conflict-affected regions, the strain on the economy becomes even more pronounced. The funds diverted to military expenses and humanitarian aid could have been used for investment in infrastructure, education, healthcare, and other sectors that promote long-term economic growth.
While it is crucial to address conflicts and provide assistance to those in need, it is equally important to carefully consider the economic consequences. Steps must be taken to mitigate inflationary pressures and ensure that the allocation of resources does not hinder overall economic stability and growth.
As the global community navigates through these challenging times, policymakers, central banks, and international organizations must work together to monitor and manage the impact of war and inflation on the economy. Efforts should be made to strengthen supply chains, diversify energy sources, and implement measures to mitigate the risks of inflation. Additionally, fiscal and monetary policies should be carefully calibrated to maintain price stability and support economic recovery.
In conclusion, war and inflation have a complex and interconnected relationship with the economy. While war often leads to inflation
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