Title: Macroeconomic Impact | Costs of War
Headings: Macroeconomic Impact
Macroeconomic Impact
Key Findings
Recommendations

Content: Macroeconomic Impact | Costs of War



Macroeconomic Impact
An important impact of federal spending on the Iraq and Afghanistan wars has been to raise the nation’s indebtedness. The increased military spending following 9/11 was financed almost entirely by borrowing. Rising deficits have resulted in higher debt, a higher debt-to-GDP ratio, and higher interest rates. A good indicator of the sustainability of government spending is the ratio of federal debt held by the public to national income, or gross domestic product (GDP). This ratio increased by almost 37 percentage points between 2001 and 2011. Between a quarter and a third of this increase in federal indebtedness is due to war spending: by the end of 2011, deficit spending on the wars had raised the ratio of debt to GDP by about 10 percentage points. Financing the wars through debt requires interest payments as well. The US paid about $200 billion in interest on war spending during the first decade of the wars. If war spending continues as forecast by the CBO, the country can expect to have paid about $1 trillion in interest by 2020.