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America's Economy
An Essay by Kevin Phillips

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Sept. 17, 2001 -- Comparisons between Pearl Harbor 60 years ago and last Tuesday's events are misleading once you get beyond the sneak attack parallel. In 1941, the U.S. economy was at the tail end of the Depression, and the Dow Jones industrial average was just over 100, as opposed to the roughly 10,000 level of September 2001.

The United States of 1941 was an up-and-coming world power, not the half-century dominant force it is today. The United States of 1941 was about to reach the global heights. The United States of 2001 has to keep an eye peeled for possible slippage -- economic, financial and geopolitical.

Vulnerability No. 1 for the U.S. economy needs little elaboration. Even eight to 12 months ago, naive talk about the new economy and the end of the business cycle had subsided with the tech stock crash. Even before the attack, we were seeing a drift towards both a global recession and a global bear market.

" Even before the attack, we were seeing a drift towards both a global recession and a global bear market."

Kevin Phillips

The second vulnerability, that of a still very elevated U.S. stock market, has become a new ingredient in any global military crisis. For example, the Dow is now about four times as high as it was in 1990, when Saddam Hussein invaded Kuwait. The Gulf War was over so quickly that the Dow never dropped much. But this time could be different if the fight against a faceless enemy drags out.

The 68-percent collapse of the NASDAQ already ranks as one of the major modern stock crashes, and the market slippage may not be over, especially if the Dow has to digest a full-fledged U.S. recession, as well as deepening corporate earnings declines in industries like airlines, insurance and tourism.

The economic chess game in the shadow of Washington war planning also has a third dimension. If you look at the three nations that proceeded the United States as the leading world economic power -- Hapsburg, Spain, Holland and Britain -- each lost that leadership by being overstretched. They lost it by being bled economically during major wars that represented a new breadth, technology for expensive fighting. These were the Thirty Years War for Spain, the almost continuous wars between 1690 and 1713 for the Dutch, and World Wars I and II for the British.

If we're beginning a five-, 10- or 15-year war with Islamic terrorists and fundamentalists from North Africa to the Himalayan foothills, the resulting destruction, economic attrition, computer hacker attacks and oil and currency crises could do the same for the United States. There is no firm evidence that terrorists plan their long-term, or even short-term timing with these economic dominoes in mind. But Washington strategists, at very least, have to be mindful of the possibilities.

Kevin Phillips' newest book is "The Cousins' Wars: Religion, Politics and the Triumph of Anglo-America."