Financing Wars on Terrorism and Iraq

One of the key questions about the current U.S. war against terrorism and rogue states remains largely unanswered The extent to which defensesecurity expenditures will have to expand to meet the threat. Clearly, the ultimate cost will depend upon events that are still unfolding Will the United States be able to maintain the peace in Afghanistan with the current level of effort Will the remaining terrorist cells engage in further major acts of violence Will the United States attack Iraq If the attack occurs, how is that conflict likely to develop in terms of the intensity and duration The time and resources required for reconstruction and nation building The added amount of foreign aid to affected countries At this point, it is unrealistic to attempt even a rough estimate of the financial burden imposed by terrorism and rogue states. Instead, this essay looks at rough magnitudes of added security expenditures in the short-run--over the next year or so, and the role of the international monetary system in facilitating their financing. A future essay will examine the possible longer run financial costs of these conflicts and their implications for a necessary restructuring of the international monetary system to enable it to better meet the financing requirements dictated by world security needs.