How do the wars in Iraq and Afghanistan affect the U.S. economy, politics and way of thinking - Essay Example

According to many estimates, the cost of the Iraq War has been to the tune of $845 Billion to the US alone. The famous Nobel laureate, Joseph Stiglitz has estimated that the total cost to the economy has been to the tune of $3 Trillion. And he says that this can surpass even the cost of World War II that was around $5 Trillion to the US Economy (Stiglitz 125). It is estimated that the US spends a few billions in dollars everyday in Iraq. Apart from these direct costs, there are indirect costs to the economy that include interest raised on the debt to service the war, the cost of veterans coming home and getting treated for their injuries and the like (Reuters, 2008).

There are also other costs that include the replacement of damaged hardware and other machinery. The costs of the Iraq war have exceeded a lot more than what were originally estimated. And if we add the cost of reconstruction and rebuilding the economy, it becomes apparent that the Iraq war has been a nightmare in terms of the financial aspect. This has had severe repercussions on the American economy as we shall see in the next section. The US government resorted to a variety of methods to finance the Iraq War.

Primarily, the government encouraged profligate borrowing and reckless lending practices in order to raise the money required for the war. Since the war costs had to be finances, the US government turned to the sovereign wealth funds of the Middle Eastern countries to finance the war. This led to over-reliance on borrowed money and the US has been running huge trade deficits that can only be sustained by the infusion of more and more liquidity into the system. Towards this end, the lending practices became lax and not subjected to oversight and this has led to the sub-prime meltdown in the US (Kevin Philips 75-79).

As it is, the dollar is the fiat currency