The White House has stunned financial markets with a request for $87 billion in emergency funding for a potential military confrontation with Iran. This sum, roughly equivalent to the entire UK defence budget, has sent gilt yields edging higher and triggered a fresh bout of capital flight from dollar-denominated assets. As a veteran observer of fiscal profligacy, I find this move deeply unsettling.
Let us put this number in perspective. $87bn is not pocket change. It is more than the annual GDP of Ukraine. It is twice the cost of the London Olympics. And it comes at a time when the US national debt has already breached $28 trillion. The Congressional Budget Office projects a deficit of $3.4 trillion this year alone. Adding another $87bn for a war that might never happen is like pouring petrol on a bonfire of debt.
The market reaction has been telling. Gold, the perennial hedge against fiscal madness, jumped 2% on the news. The yield on the 10-year US Treasury note, the benchmark for global borrowing costs, ticked up by 5 basis points. This is a clear signal that bond vigilantes are taking notice. They are asking: if the US can borrow this much for a war, what stops it from borrowing more for a stimulus, a green deal, or a universal basic income?
Meanwhile, the dollar index slid 0.3%. This is the beginning of a sell-off. Foreign investors, who hold $7 trillion of US Treasuries, are starting to question the ‘risk-free’ nature of American debt. When the world’s reserve currency issuer starts printing money for military adventures, the credibility of the entire system erodes.
The Federal Reserve is caught in a bind. It cannot raise rates to combat inflation because that would crash the economy. But it cannot keep rates low because that would debase the currency. The only way out is a massive tax hike, but that’s politically toxic. So we resort to the oldest trick in the book: war financing.
Let us not forget the opportunity cost. $87bn could have funded 1.4 million college scholarships fully. It could have built 435,000 affordable homes. It could have fixed every pot hole in America. Instead, it will be spent on missiles that will likely never be fired. That is the tragedy of fiscal irresponsibility: it crowds out productive investment.
We have seen this movie before. The Iraq war cost $2 trillion. The Afghan war cost another $2 trillion. And what did we get? A stability that was never achieved. A deficit that will haunt generations. Now, with Iran, we are about to repeat the same mistake.
The bottom line is this: $87bn for Iran is a drop in the ocean of US debt, but it is a symbol of a government that has lost all restraint. The market will eventually punish this behaviour. The question is how quickly. My bet is on a slow bleed: higher yields, weaker dollar, and a gradual loss of faith in the American promise. For now, I am shorting Treasuries and buying gold. That is the only rational response to fiscal recklessness on this scale.
