In 2003, Chairman Alan Greenspan of the Federal Reserve, professed to members of the Senate Banking committee that a war against Iraq would be the single biggest threat to the country’s economic health.
Now two years and a national catastrophe later, it is clear that Greenspan’s prediction was correct. The war in Iraq and Afghanistan has submersed the federal government into billions of dollars of debt, making this the business story of both last year and this year.
According to the New York Times, $200 billion will be borrowed from Asian central banks and other foreign investors to pay for the devastation caused by Hurricane Katrina. The yearly interest on that money will be in the billions.
Analysts say that the federal budget was already expected to be in the red by some $314 billion over the coming fiscal year before Hurricane Katrina hit. According to the Office of Management and Budget, since 2002 the United States has spent $277 billion in military expenses alone in Iraq and Afghanistan.
This number does not include the millions of dollars being spent on restoration projects. The Pentagon says the operating costs of the wars averaged $5.6 billion per month during last the fiscal year. A recession, steep tax cuts and heavy military spending has shifted U.S. national accounts from a surplus of 2.4 percent in 2000 to a deficit of 3.6 percent last year. Prior to Katrina, the Congressional Budget Office revised its cumulative U.S. budget deficit forecast for the 2006-2015 period from $980 billion to $2.1 trillion.
An editorial in the New York Times stated that the resulting deficits could create economic distress in the form higher of interest rates, slower economic growth, future tax increases and constraints on the government’s ability to be responsive, both to crises and to everyday needs: social security, education, and health care. Growing deficits also pose a security threat because increasing foreign repayment erodes America’s position in the world.