LONDON: When the stock market falls for a record 10 consecutive days, as it just has done, you take notice. Falls like these are usually the portent of something bad, even calamitous, ahead. The worry is obvious; Bush’s intentions on Iraq could have potentially disastrous economic repercussions.

The US’s economic position is far too vulnerable to allow it to goto war without cast-iron multilateral support that could underpin it economically as well as diplomatically and militarily. The multi-lateralism Bush scorns is, in truth, an economic necessity. America may be a superpower that spends more on defence than the next nine countries combined and is preparing to increase defence spending this year by an enormous $48 billion, equivalent to Britain’s entire defence budget, but it is a strategic position built on economic sand.

On latest estimates, its net liabilities to the rest the world are more than $2.7 trillion, nearly 30 per cent of GDP, a scale of indebtedness associated with basket-case economies in Latin America.

Its industrial base is so uncompetitive that it consistently imports more than it exports; its current-account deficit, the gap between all its current foreign earnings and foreign spending, is now a stunning 5 per cent of GDP, continuing a trend that has lasted for more than 25 years and which is the cause of all that foreign debt. As a national community, it has virtually ceased to save so that government and individuals alike live on credit.

To finance the current-account deficit, a reflection of the lack of saving, the US relies on foreigners supplying it with the foreign currency it can’t earn itself. The Old Europe that Donald Rumsfeld mocked last week has been helping to prop up the US economy, buying shares and bonds on Wall Street, taking over American companies and investing in real estate, compensating for the saving that the Americans aren’t doing themselves.

But if foreigners got windy about the prospects for share and property prices and stopped buying, or began to withdraw some of the trillions they have invested in the US economy, then the dollar would collapse. Already, it has fallen nearly 10 per cent against the euro over the last six weeks, but that could just be the beginning. Economists at the Federal Reserve have estimated that the dollar needs to fall by 30 per cent to bring the flow of imports and exports into balance, but in today’s markets such a fall doesn’t happen gradually. It happens precipitately.

If America and Britain spurn a second UN Resolution and go to war with the active opposition of key members of the Security Council like France and Russia, be sure the flow of dollars into the US will slow down dramatically, and be sure there will be a stampede of foreigners trying to sell. Shares on Wall Street that Bush is so anxious to prop up are still massively overvalued. Against this background, there could be a devastating sell-off, with all the depressing knock-on consequences for American consumer confidence and business investment.

—Dawn/The Guardian News Service.