We can no longer rely on debt-laden US

THE European welfare state is in extremis. Its death throes are playing out before our eyes in an economic danse macabre of fiscal crises, banking bailouts and savage budget cuts.

From Lisbon to Latvia, governments are slashing public spending and going cap in hand to the International Monetary Fund. And from Athens to Aberdeen, students and trade unionists take to the streets in a sometimes-violent, last-ditch defence of their accustomed privileges.

But the end result of this economic Greek tragedy is pre-ordained by the cold hard calculus of budgetary maths. The European welfare state model that evolved after World War II has proved economically unsustainable: the account is coming due.

On the other side of the Atlantic, the US is afflicted by a similar malady. This year, the US government will borrow 40c out of every budget dollar it spends and will run a mammoth $US1.65 trillion ($1.59 trillion) deficit.

When Washington's current extravagance is piled upon profligacy from years past, this spend-a-thon brings the US's cumulative public debt to a whopping $14.2trillion. That sum represents 96 per cent of the $US14.8trillion gross domestic product of the US. In other words, the US government owes virtually the annual total worth of all goods and services produced by every US firm and individual. And that's not counting another $US6.3 trillion in state and local government debt and pension obligations.

Remarkably, military spending plays a minor role in the US's looming sovereign debt crisis. For all of its image as a free-market bastion, the US has become much more of a welfare state than is perceived. The real culprits in Washington's fiscal woes are government health and social programs.

Federal and state government payments and subsidies constituted fully one-third of all US wages and salaries paid last year. Medicare, the US government healthcare program for senior citizens, consumed 22.5 per cent of GDP that same year. By contrast, US defence spending - including on the wars in both Iraq and Afghanistan - constituted less than 5 per cent of GDP.

The grim upshot of this number crunching is that the US is on a fiscally unsustainable trajectory towards national insolvency. These are the wages of the country's long-standing economic sins. There are only two options for Washington to stave off catastrophe: draconian budget cuts or reducing the real value of its debt by debasing the dollar through inflation. Either way, the economic and strategic consequences for the world will be profound.

Last June, the chairman of the Joint Chiefs of Staff portrayed the US's debt burden as "the most significant threat to our national security". Former US Treasury secretary and Harvard University president Lawrence Summers asked in 2009: "How long can the world's biggest borrower remain the world's biggest power?" The answer is: not long. We can't know precisely when the US's fiscal day of reckoning will arrive, but when Moody's warned a few months ago that US Treasury bonds were facing a downgrade from AAA status, you can be sure it's coming.

It was Cicero who said money forms the sinews of war. And in straitened economic circumstances, defence spending is usually the first item to go. We see this in Britain, where the Royal Navy has been cut to the bone and beyond. Without carrier air capability in the fleet until 2019 at the earliest, Britannia won't be ruling the waves anytime soon.

With its own debt burden that mandates both fiscal restraint and an inflationary devaluation of the dollar, the US's strategic wings will be clipped as well. The first round of defence cuts came in January, with $US78 billion over five years sliced from the $US680bn level spent by the Pentagon last year.

But that's only a bit of foreplay to the serious business of getting the US's fiscal house in order. It's inevitable more radical cuts to the US defence budget loom. Given that near certainty, it's time for debate about what a militarily diminished US means for Australia.

Since the end of WWII, we've enjoyed the benefits of stability provided by a Pax Americana in the western Pacific. Even during the worst Asian flare-ups of the Cold War - Korea and Vietnam - the international sea lanes upon which Australia depends were never threatened.

As a result, Australia has consistently short-changed its military establishment, getting away this year with spending a paltry 1.8per cent of GDP on defence.

Australia Defence Association head Neil James notes: "There are three generations of Aussies who've grown up under America's protective wing. They've never even had to consider the possibility that one day they might not be able to rely on US strategic supremacy, free of charge".

But with the US well down the road to economic perdition, Australia can no longer rely on the presumption that the US will have our back. It's extremely unlikely that a decade hence we'll see a US navy of 10 carrier battle groups. Currently, projections for a US air force fleet of 2400 F-35 Joint Strike Fighters will almost certainly never fully materialise. Costing more than $US100m a plane, the F-35 is a budget-buster, as are the new Ford-class aircraft carriers that cost $US9bn a pop. To an increasingly cash-strapped US, they will be unaffordable in quantity.

In politics, as in physics, a vacuum will be filled. In global affairs, this applies with redoubled force. For Australia, the $64,000 question is who will step in to the breach of strategic equilibrium triggered by the recession of US power from the western Pacific.

Will a resurgent China expand its strategic footprint by developing a real blue water navy? Will Japan, South Korea, India The Philippines and other Asian countries join in coalition to counterbalance the renascence of the Middle Kingdom? Or will these nations choose a path of "Finlandisation", opting for neutrality and passive accommodation with their giant neighbour?

These are the questions being mooted within Australia's strategic studies community. They form the subtext to the Rudd government's 2009 Defence white paper that called for a massive expansion of the Royal Australian Navy and RAAF.

But there are certainties of which we can still be confident, even within the haze of future Rumsfeldian 'unknown unknowns'. Without the intelligence support and military largesse produced by our close alliance with the world's superpower, we'll have to spend more on our national defence. Much more.

Australian governments of both persuasions will have to fill some of that US-less strategic vacuum with a greatly enhanced Australian Defence Force. On this point, the mainstream of the ALP is in agreement with the Coalition.

According to James, the most restrained estimates predict Canberra's military spending in such a scenario would need to rise by at least 60 per cent. Other strategic analysts say our defence outlay in such circumstances would more than double, or perhaps triple.

Or course, there's a great political irony to all this. In its hatred of all things US, the Left fails to understand that it is the US military umbrella that has enabled Australian governments to spend billions on butter rather than guns. All those schools, hospitals and welfare programs so beloved of progressives are, in essence, being subsidised by the 82nd Airborne.

Retired Major General Jim Molan, former chief of operations for the coalition in Iraq, declared: "America's allies - Australia included - have been freeloading for years and now they'll have to face the burden of their own national defence. And it's about time."

Ted Lapkin is a research fellow at the Institute for Public Affairs