The Price Tag of a '9/11 World'

Twenty years since the 9/11 terrorist attacks... The impact of the 'War on Terror'... Perhaps the biggest, worst, and longest-lasting legacy... The price tag of a '9/11 world'... Deficit spending is anesthesia for the costs of war...

Editor's note: Tomorrow is the 20th anniversary of the September 11 terrorist attacks...

Everyone in America will likely reflect on the tragedy this weekend. And as you stop to think about what happened that day, it's also important to consider how everything has unfolded since then...

With that in mind, we're sharing a guest essay from frequent Digest contributor and American Consequences executive editor Kim Iskyan. He'll discuss the success of the U.S. government's actions "on the surface" in the days and years since 9/11.

But beyond that, Kim will dive into the enduring financial cost of that day's horrific events. It's one we're still feeling today, 20 years later – and will continue to bear for years to come...

Whether you think about it regularly or not, we live in a '9/11 world' these days...

Tomorrow will be 20 years since the coordinated attacks by militant Islamist terrorist group Al-Qaeda within the U.S... And I (Kim Iskyan) think we all remember where we were.

For me, as I wrote in an American Consequences essay this morning, it was Russia...

It was early evening (Moscow is seven hours ahead of New York), and I had wandered over to the trading floor of the investment bank where I worked to chat with a trader. Strangely, the TV in the corner – usually ignored, with the volume turned down – was the center of attention... And it was immediately clear why.

Two decades later, first and foremost, we must remember the 2,977 victims of the attacks on American soil that day... the multiples more who have died of illnesses stemming from being exposed to the debris of the attacks... and then everything that followed...

For one thing, just days after the 9/11 attacks, then-President George W. Bush articulated what would become the guiding light – objective, obsession, and holy grail – of American policy, both foreign and domestic, for the next two decades...

The War on Terror.

As Bush explained before a joint session of Congress at the time...

We will direct every resource at our command – every means of diplomacy, every tool of intelligence, every instrument of law enforcement, every financial influence, and every necessary weapon of war – to the disruption and to the defeat of the global terror network.

On the surface, it has worked – at least for America...

For the U.S., the War on Terror – encompassing the wars in Iraq and Afghanistan, as well as operations in Syria, Libya, Yemen, and elsewhere – achieved the end of securing the homeland.

According to one estimate, since 9/11, jihadi (that is, militant Islamist) terrorism has caused an average of six American deaths per year.

By comparison, gun violence killed six Americans every three hours last year... And twice as many people died globally from shark attacks in 2020.

But Al-Qaeda, one of the biggest players in jihadi terrorism, hasn't disappeared...

Though it has been notably unsuccessful at killing Americans on American soil, Al-Qaeda has extended its reach elsewhere... According to the National Consortium for the Study of Terrorism and Responses to Terrorism, as of 2001, Al-Qaeda had carried out a terrorist attack in 18 countries... And by 2019, it had done so in 51 countries.

Think tank Brookings Institution reports that the number of victims of extremist Islamist terrorism worldwide is between three and five times higher than it was in 2001. Jihadi terrorism is unfortunately thriving in North Africa, throughout the Middle East, and in parts of south Asia.

Plus, the broader impact of the War on Terror extends far beyond American borders, of course...

Brown University's Costs of War Project estimates that upward of 900,000 people have died in the War on Terror, including military personnel on all sides (with a total of around 15,000 Americans), civilians (about 40% of the total death toll), journalists, and aid workers.

That figure doesn't include "indirect" deaths caused by displacement, disease, and poverty. What's more, due to the War on Terror, 38 million people have been displaced, became war refugees, or both.

The price tag of the War on Terror is almost too big to comprehend...

The War on Terror has massively reoriented the spending priorities of the American government.

And while it may not have been what jihadi terrorists had in mind, the impact on the future of America may be far greater than their mostly failed efforts to kill Americans... or even than 9/11 itself.

The Costs of War Project estimates the all-in costs for the U.S. government in the War on Terror – including direct war expenditures, veteran care, increased domestic security spending, and interest – are around $8 trillion.

On its own, that's a staggering figure. And when viewed through the prism of opportunity cost – the lost benefit from spending that money on other things – it's astronomically incalculable.

For context, in today's dollars, it cost the Apollo program $640 billion to send a man to the moon (8% of the War on Terror), according to Money magazine. Ending global hunger by 2030 would cost a bargain of $330 billion. And everyone on Earth could be fully vaccinated for COVID-19 for $20 billion – barely a rounding error in the bill for the War on Terror.

The greenbacks spent on the War on Terror could buy about 2 trillion Big Macs – enough for 250 double-patty burgers with mystery sauce for every person on the globe. (That's probably not the best way to end global hunger, though.)

The War on Terror has dramatically restricted 'discretionary' spending by Uncle Sam...

In 2020, the U.S. government's federal budget amounted to $6.6 trillion, according to the nonpartisan Congressional Budget Office. Of that, $4.6 trillion was mandatory spending (such as for entitlement programs like Social Security, Medicare, and Medicaid). Around $300 billion was net interest on government debt.

Of the $1.6 trillion in "discretionary" spending, a bit more than half was for nondefense items – which includes everything from health to justice to agriculture to education.

Add it up, and the sum that the War on Terror cost over the past 20 years is as much as the federal government has spent on all nonmandatory, nondefense items since 2008.

Put another way... federal spending on all nondefense discretionary items – building roads, teaching disadvantaged preschoolers, improving public health, managing national parks, and much more – could have been doubled over the past 12 years if it weren't for all that has been spent on the War on Terror.

The opportunity cost of the War on Terror is breathtaking.

Even if you don't believe that government spending makes anything better, the $8 trillion could, in theory, have wiped out more than a quarter of the current national debt of $28.7 trillion (and counting).

Or more to the point... the War on Terror wouldn't have been an expense at all.

And it's clear why government expenses matter to the U.S. economy and today's investment environment...

Expenses – and our debt-based system – influence and touch everything from how much interest you pay on a mortgage... to inflation of grocery prices and other everyday items... to the value of stocks and bonds... and more.

In our editor-at-large Daniela Cambone's featured video interview today, Canadian investor Michael Gentile describes the influence of our debt well...

He points out that, today, the Federal Reserve has to keep interest rates so low in order for the government to afford to pay the interest on its debt and continue to run deficits...

I used 2020's budget as an example above. Gentile used 2019, noting the U.S. government took in $3 trillion in revenue and spent $4 trillion – a deficit of $1 trillion.

Then, he said the central bank wants and needs negative "real" rates, meaning the number you get when you subtract inflation from its benchmark rate (which today is near zero). More from Gentile...

If you have negative rates of 3% or 4%, that's a $3 trillion a year "carry" because your inflation is running hotter than your rates. That allows you to fund, systematically, $1 trillion or $2 trillion a year in deficits forever.

If real rates were to go positive, you'd have a huge fiscal correction in the U.S. economy, both on the government level and the market level...

The [Fed] needs real negative rates. If rates are zero, they need inflation to be 5%. If rates are 4%, they need inflation to be 9%. That's the math that they need – it's not made up numbers, it's real math – to sustain their unsustainable spending and debt levels in the U.S. That's the fly on the wall you're not hearing from them.

This might be the biggest, worst, and longest-lasting legacy of 9/11 and the ensuing War on Terror...

By that, I'm talking about the massive escalation of debt.

It's no coincidence that 2001 – the year of 9/11 – was the last year when the federal budget passed by Congress was in surplus. As Foreign Affairs magazine explains...

... With a ballooning national deficit and warnings of inflation, it is worth noting that the War on Terror became one of the earliest and most expensive charges Americans placed on their national credit card after the balanced budgets of the 1990s... Funding the war through deficit spending allowed it to fester through successive administrations with hardly a single politician ever mentioning the idea of a war tax.

Past wars that America has fought have required a real economic sacrifice by the country's citizens. To fund the Civil War, for example, Congress imposed the first income tax (at a flat 3% on all incomes greater than $800). To help pay for World War II, the government sold war bonds and hiked taxes.

But the War on Terror has been – in terms of current cash flow, at least – free because it's all being put on a credit card. "Deficit spending has anesthetized the American people to the fiscal cost of the War on Terror," says Foreign Affairs.

And even though the U.S. pulled out of Afghanistan, the War on Terror is still in full swing.

Even worse, the War on Terror isn't a one-off expense...

It's a permanent drain on America's financial resources. That's partly because the massive bureaucracy – call it the "terrorism-industrial complex" – that has evolved to support the War on Terror isn't going away anytime soon...

After all, a basic principle at the intersection of organizational behavior and political science is that the primary objective of a bureaucracy is to justify its own existence for perpetuity.

For example, the U.S. Department of Homeland Security ("DHS") – a paper-pushing spawn of the War on Terror – is the third-largest Cabinet department (after the Department of Defense and the Department of Veterans Affairs). The DHS employs nearly a quarter of a million people and has an annual budget of around $50 billion.

Cutting the budget of an organization that has protecting the homeland as its key focus is nothing short of political suicide. That means the DHS – and other ostensibly terror-fighting structures that consume hundreds of billions of dollars annually – is here for good.

9/11 was a tragedy... There's no denying or disputing that point.

And in the strictest terms, the response – keep Americans safe from Islamist extremist terrorism at any expense – has worked... But it's the "expense" part that might be one of that day's longest-lasting and most-damaging legacies.

The Fed Can't Tame the Inflation 'Beast'

The Federal Reserve will have a hard time fighting the inflation "beast," says Michael Gentile, a Montreal-based strategic adviser. If the central bank raises rates to at least 3%, Gentile tells our editor-at-large Daniela Cambone, it will cause a 50% stock market crash... and a 25-basis-point tick higher would trigger a 10% to 20% correction.

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 9/9/21): Asana (ASAN), Costco Wholesale (COST), Cintas (CTAS), Intuit (INTU), Ingersoll Rand (IR), and Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP).

In today's mailbag, our colleague Vic Lederman answers a few important questions stemming from his Wednesday Digest about the real estate market. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"As a landlord who owns 14 single family homes, I want to see the forbearance issue addressed and not just brushed over. An estimated 2 million homes are in forbearance.

"Perhaps many of these properties don't all go to foreclosure, maybe the Feds intervene in a massive way. But we are talking about no small amount of distressed inventory.

"Forbearance is not payment forgiveness. Long-term trend supply may be tight, but I think your assessment is overly dismissive of the distressed inventory. So dismissive in fact, that you have barely mentioned it in over a dozen residential real estate centered Digests.

"Two million homes at today's median value equals almost the entirety of the $700 Billion in missing inventory that you propose is needed." – Paid-up subscriber Robert C.

"Don't forget they just ended the rent moratorium. I can't remember the exact number that I heard recently, but I believe I heard about 9 million people are behind on their rent/mortgage payment by a few months or more. That will create a lot of inventory!" – Paid-up subscriber Erik B.

Vic Lederman comment: Thanks for your questions. You've hit on a few important points that have been in the media a lot lately... and we know a lot of folks are wondering about them.

In fact, we've seen so many headlines on the topic of foreclosures and evictions that we decided to address the topic directly in the latest issue of True Wealth Real Estate. We just sent the issue to our subscribers yesterday...

True Wealth Real Estate subscribers and Alliance members can find the full issue right here. And to answer these important questions for all Digest readers, we've "unlocked" the portion of our issue about why evictions and foreclosures won't crash the housing market...

In short, it's because of the math Steve and I talked about this week in the Digest... The U.S. housing market is short roughly 5.5 million units. Here are the details from this month's issue of True Wealth Real Estate...

Articles predicting a housing-market meltdown are missing the basic math of the situation. A few hundred thousand renters and roughly 2 million homeowners exiting their homes will not close the supply gap. And that assumes everyone in the CARES Act programs will have to leave, which won't be the case.

Plus, the idea that banks are rushing to foreclose on those homeowners is a little silly to begin with. That's because even in a hot housing market, foreclosures tend to be an option of last resort for banks...

Many of the remaining homeowners in forbearance will go through loan modifications, repayment plans, or payment deferrals. And for banks, the payment deferrals are particularly appealing.

Those plans allow the homeowner to pay a balloon payment at the end of their mortgage. Or – and this is the more likely scenario – when the house is next sold, the bank will take its cut out of the homeowner's equity to balance the missed payments.

I realize this explanation is kind of "in the weeds." But the takeaway is simple, as we explained in our True Wealth Real Estate issue...

It's going to take months, or the better part of a year, to sort all of this out. And when all is said and done, it's unlikely that the evictions and foreclosures will be significant enough to fix the supply shortage in housing.

Sure, evictions and foreclosures could cool off some markets a little. But that doesn't mean America will solve its housing shortfall by evicting its way out of it.

So please, don't let the headlines worry you. Evictions and foreclosures won't cause a housing crash... or change the supply-and-demand setup behind our thesis.

For nearly a decade after the housing crisis, builders failed to add enough homes to meet demand. Because of that, we have a massive imbalance between supply and demand right now.

And here's another point most people aren't considering... The state of private equity in the housing market has changed dramatically since the housing crisis, too.

It's very possible that the leading single-family rental investment companies and groups – including one we recommend in True Wealth Real Estate – will set a price floor in the housing market by snapping up foreclosed properties.

That's not a guarantee, but it's something to think about... And it's an important point that you're not hearing about it the mainstream media today.

So there you have it... We strongly believe in the tailwinds for the real estate market today.

That's why Steve calls the real estate boom his "No. 1 prediction for the 2020s." And it's why he put together a brand-new presentation on the topic. It outlines the incredible opportunity in this market today... And it concludes with a special offer that ensures you can take advantage. Click here to learn more right now.

Good investing,

Kim Iskyan
Ashton, Maryland
September 10, 2021