America has reveled for two decades in an orgy of debt. The US national debt is now twice its net worth. From Wall Street’s `masters of the universe’ financial powerhouses, like Goldman Sachs, Merril Lynch, Lehman, and Morgan Stanley, to the humblest homeowners, America’s national motto became `borrow to the hilt and bet.’

The traditional regulated banking system was pushed aside by Wall Streets financial titans who created their own money in the form of complex securities, and furiously traded these exotic instruments and borrowed recklessly against them with little government regulation or oversight.

As Kevin Phillips points out in his prophetic book, `Bad Money,’ America’s primary business became non-productive finance. Manufacturing fell to only 12% of GDP. Wall Street titans grew obscenely rich by simply passing around paper. Inflated or semi-worthless securities increased in bogus value at each stage of the trading process.

Wall Street was allowed to virtually print money and peddle toxic securities around the globe because the big financial houses and heads of hedge funds bought the politicians of both parties. Equally important, the mammoth financial and housing bubble thus created was hailed by the Bush administration as proof positive of Republican free market philosophy and the true road to prosperity. More cautious European and Canadian bankers were dismissed by Republican chest-thumpers as financial sissies.

This Ponzi scheme worked as long as markets kept rising. When the music stopped, disaster.

It’s uncertain how far damage from America’s financial equivalent of hurricane Katrina will spread. Hedge funds, money market funds, and auto makers could be next. Real estate losses may reach $636 billion by 2012.

All stock market gains of the past 10 years have been wiped out in the most dangerous crash since the 1930s.

The `free market’ Republican administration has ended up nationalizing nearly $1 trillion worth of businesses, including the federal mortgage agencies Fannie Mae and Freddie Mac, Bear Sterns, and global insurer AIG. Welcome to Wall Street socialism.

One thing is now clear. When great empires run onto the financial rocks, their power quickly ebbs. France’s Sun King, Louis XIV, ended his once glorious reign in near bankruptcy caused by his long, ruinous wars with the British and Dutch. Louis XVI’s runaway borrowing to finance the American Revolution helped ignite the French Revolution. The Soviet Union’s collapse was caused by spending half its national income on arms, and failure to modernize industry.

Over the past decade, the US foreign debt doubled. Japan and China now hold 47% of the US foreign debt and finance Washington’s wars. The addition in recent days of at least $1 trillion in new debt will cause interests to rise and the dollar to weaken. Even the US government’s AAA credit rating is now in question.

Washington may no longer be able to spend half the globe’s defense budgets. The $12-13 billion a month wars in Iraq and Afghanistan will end up costing $750 billion by December, 2008. There will be less cash in Washington’s kitty to buy foreign dictators and prop up their regimes, as in the Mideast and Central Asia. Less cash to pay for little wars in Africa. Less for exotic anti-missile systems and death rays.

America’s enormous global power is based as much on its financial might as military muscle. Wall Street has been the vehicle and policeman of America’s hegemony. It shaped the destiny of the globe, and made many nations subservient to the demands of New York’s titan-bankers. Wall Street is essential to raising capitol for business expansion, but it often recalled New York’s ruthless loan sharks: once you borrowed from them, you never got off the hook.

Americans will have to relearn the hard truth that you can’t borrow your way to prosperity.