Events on Wall Street suggest the day when the money flow stops may be approaching. Despite President Bush's assurance, echoing President Herbert Hoover nearly 80 years ago at the beginning of the Great Depression, that "prosperity is just around the corner," the American economy is in free fall.

After decades of frivolity, the U.S. economy now amounts to little more than a pyramid of financial pyramids, all requiring a constant inflow of borrowed money. The inflow is endangered by the developing Panic of 2008, in which the junk mortgage crisis and the collapse of the housing market combine to dry up lending. What happens to pyramid schemes when money stops flowing in at the bottom? Maybe a recession; maybe a depression. That's why pyramid schemes are illegal, unless the government runs them.

A tanking economy and world credit markets tighter than Scrooge's fist will require large cuts in federal spending. That will include the U.S. Department of Defense. If a new administration were to turn to the military reformers and ask us how to cut defense spending while still securing the country, what would we advise?

Here is what I would propose:

First, adopt a defensive rather than an offensive grand strategy. The United States followed a defensive grand strategy through most of her history. We only went to war if someone attacked us. That defensive grand strategy kept defense costs down and allowed our economy to prosper. We do not have to be party to every quarrel in the world.

Second, scrap virtually all the big-ticket weapons programs such as new fighter-bombers, more high-tech Aegis-class ships for the U.S. Navy and the U.S. Army's enormously expensive Rube Goldbergian Future Combat System. They are irrelevant to where war is going.

The United States should not plan for conventional wars against hypothetical "peer competitors," which can only be Russia or China. The United States should do its utmost to make Russia an ally, and the United States should make a fundamental, bipartisan national strategic decision that it will not go to war with China. Regardless of who "won" such a war, it would destroy both countries, just as the two world wars destroyed both Germany and Britain.

The world needs China to serve as a source of order in what will be an increasingly disorderly 21st century. The United States should welcome the growth of Chinese power, just as Britain learned -- reluctantly -- to welcome the growth of American power in the 20th century. It is only a threat to U.S. power if American policymakers make it one.

Next: Restructuring the U.S. Navy and Air Force

(William S. Lind, expressing his own personal opinion, is director of the Center for Cultural Conservatism at the Free Congress Foundation.)

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