The U.S. financial crisis is picking up speed. As the once mighty US dollar continues to sink, gold just hit $1,513 an ounce. World financial markets and investors are taking fright.

A leading credit rating agency just warned the US AAA credit rating might be downgraded. How the mighty have fallen.

While Rome burned, President Obama and the Republican-controlled U.S. Congress traded childish taunts and bromides. Both parties refused to tell Americans the painful truth: their government's yawning $1.4 trillion U.S. budget deficit had to be slashed to prevent a financial meltdown. That would mean pain for everyone.

But the two political parties are deadlocked: Obama's Democrats want to raise taxes. Republicans demand tax cuts and want to cut health, education and welfare, all three sacred cows to the Democrats. The GOP urges increasing military spending at a time when 40 million Americans use government food stamps.

This fatuous debate mostly ignores the 800-lb gorilla in the room: America's bloated $750-900 billion annual military spending. Some experts put total annual U.S. military and intelligence spending at $1.2 trillion.

Few American politicians, the courageous Rep. Ron Paul excepted, dare suggest seriously trimming the Pentagon's runaway spending.

The U.S. National Priorities Project estimates that in 2011, out of one dollar of U.S. federal spending, 27.4% is military; 21.5% health; 13.8% interest on the debt; 10.9% social security; benefits; 3.5% education; and 23% on everything else. The U.S. spends $450 billion annually to finance its ever-growing deficits.

In 2010, U.S. military spending exceeded by 50% the average spent in the Cold War years when America had a serious rival in the Soviet Union. Since 2000, U.S. military spending has grown by 67% (all figures adjusted for inflation). Yet today America has no real military rival.

The U.S. now accounts for almost 50% of world military spending. Add America's wealthy allies in Europe and Asia, and the total rises to 80%.

And yet Americans are incessantly barraged by wild claims their nation is under dire threat, the latest and most preposterous being that dirt-poor Myanmar (former Burma) is getting nuclear weapons. China, with a military budget only 1/10th the size of Americas, is the only future threat the Republicans can come up with.

It's too bad most Americans think of "defense" spending rather than calling it "military sending. This gives the totally mistaken impression America's shores are somehow being threatened by enemy invasion.

In reality, the Pentagon's vast budget sustains U.S. world military domination, with over 100 overseas bases, air and naval fleets, two wars, numerous smaller "police actions" in Africa and Asia, rented allies, and a strategic nuclear arsenal at least 75% larger than possibly needed.

President George W. Bush started two wars, cut taxes, and spent billions in farm and medical subsidies -- without funding these expenditures through tax increases or spending cuts. These costs were simply loaded on to America's huge national debt.

If American taxpayers had to actually pay for their so far $1.6 trillion wars in Afghanistan and Iraq, these conflicts would quickly be ended.

President Lyndon Johnson also financed the Vietnam War through debt. The result: a worldwide wave of inflation that took a decade to overcome. The same thing is happening today thanks to the profligate George Bush who doubled US government spending. The U.S. has been exporting inflation around the globe by debauching the dollar and massive borrowing to finance its deficits.

Bush and now Obama's unpaid-for wars, recklessly low US interest rates, flooding the U.S. economy with cash, commodity speculation, and China's overheated economy are fueling the rising tide of world inflation.

A few politicians have recently had the temerity to gently suggest modest cuts in military spending. But they are terrified of being accused of the ultimate sin in hyperpatriotic US politics, being "soft on defense" and "not supporting our boys."

Yet unless the Pentagon's budget is cut -- perhaps by as much as half or more -- the US, dangerously top-heavy with debt, may capsize.

Runaway military spending is undermining, not reinforcing, U.S. national security. History amply shows that more empires were done in by poor finances and debt than invasion by enemies.

Alas, America's governing system, dominated as it is by powerful, self-enriching special interests, can't seem to escape from the national addiction to war and debt.

As my friend columnist Arnaud de Borchgrave writes, while the US has wasted $1.5 trillion on its Afghan and Iraq Wars, China is busy winning friends and customers and buying companies around the world.

The Economist just estimated that China's total foreign exchange holdings now exceed $3 trillion. That's more than enough, says The Economist, to buy the Pentagon and all its arms, or all of America's farm land -- and still have lots of change left over.

China accumulated this cash hoard by exporting goods and earning interest on its $1.1 trillion of loans to the deadbeat US government.

copyright Eric S. Margolis 2011

