With the Senate Foreign Relations Committee passing a recommendation to bomb Syria, including McCain’s amendment to directly support the rebels, we are moving toward a new rise in the war spending trajectory. For a historical perspective, below you see a chart I developed in 2007. It calculates the inflation-adjusted costs of the Vietnam War and estimates that the war with Iraq would cost over $1 trillion or 37% more than the Vietnam War. Expenditures in Vietnam led to a self-reinforcing cycle of higher interest rates and inflation during the 1970s—leading in no small part to Nixon’s decision to remove the $35 per ounce gold exchange rate for the dollar, and to interest rates eventually rising to almost 20%. This article is about why I think interest rates are heading higher, viewed through the context of the politics of the US government’s next war. While I’d prefer to convince the world to change its course toward a more peaceful future, given the futility of trying to do so, I’ll use my time with you today presenting data, analysis, and a few opinions about the economic consequences of the march toward war that US policy is now set upon. The chart below combines defense, veterans benefits, homeland security, the State Department, and defense-related interest payments, to create a more comprehensive picture of our military spending. The chart shows the dollars spent each year; no correction is made for inflation or the relative growth of our economy and population. Such re-jiggering would make World War II and earlier wars appear more dramatic. The key point is that the US is spending a huge amount of money on its international security. With each war, or rumor of war, that came along, military spending increased. Following Iraq, we added another war in Libya and extended the war in Afghanistan far longer than planned. The combined costs, by my calculations, have now reached around $3.4 trillion. My method is simple: I add up the military spending that exceeds the 2002 level for all the years since then. If we hadn’t been facing significant international conflicts, I believe the military spending baseline of $507 billion in 2002 would have remained fairly static. The $3.4 trillion is just the increase over that baseline to date. Using the modest projections from the White House’s Office of Management and Budget (OMB), my estimate is that by 2018, all future increases combined could easily add up to another $2.5 trillion. It could be much more, and it might even be less, but the most reasonable expectation is that the current crop of politicians will spend at least at that level. Those who want war seem to be able to get war. That is my basic assumption. Along the way, Congress is supposed to deal with its self-imposed ceiling on federal debt, now set at $16.73 trillion. In fact, the operations of government have already exceeded that level, but the federal government is adept at playing Enron-like games. Current Secretary of the Treasury Jack Lew says he can hold off hitting the ceiling until mid-October, when the government would hypothetically shut down without Congress’ authorization for a raise. For the record, Newt Gingrich actually forced such a shutdown to happen under the Clinton presidency, which resulted in the government being forced to actually take tangible measures to cut spending at the time. The chart below shows the amount of current outstanding government debt as reported by the Treasury. The flat line at the right of the chart is the suppression of debt financing the government is now undertaking in the attempt to avoid a shutdown. Being completely distracted by the situation in Syria, Congress is not addressing the fiscal issues, and time is running out. The last time this crisis became important was in 2011, when the stock market dropped, our government debt rating was downgraded by S&P, and Congress legislated the sequester on spending that only slowed but certainly didn’t reverse the government’s accumulation of debt. Of course, this debt crisis will be resolved, as it has been in the past, by raising the ceiling. The focus on war probably means that the immigration bill won’t reach final approval, that efforts to derail Obamacare won’t reach political mass, and we already know that gun control has pretty much seen its day and gone away. But war spending and government deficits are here to stay. The attitude of our leaders is clear: they don’t care what the people think, they will be moving ahead with more spending on wars, continuing to worsen the deficit, ultimately leading to further debasement of the currency. That means higher prices, leading to inflation, and higher interest rates. On that last point, as you can see in the chart here, the rate on the benchmark 10-Year Treasury is now just two basis points below 3% and moving higher as I write: There is, of course, much more to this discussion than time and space allow for here. In the next edition of The Casey Report, I’ll go into details on what’s coming and the specific actions you can take to successfully invest in an environment of rising interest rates. As it is standard policy at Casey Research to offer risk-free 3-month trials with money-back guarantee for all our publications, you can sign up to read my deeper research in the next edition of The Casey Report by clicking here.