Democrat witch-hunt threatens global prosperity

Standard & Poor's chief European economist Jean-Michel Six painted a bright picture of continuing world economic expansion and low inflation in a presentation in Dubai at the end of April. US interest rates are likely to go down by the end of the year and there will be no recession in America. Even sluggish French and German economies are looking perky.

World capital markets seem to agree. The New York Stock Exchange hit a record high the following day.

Morgan Stanley chief economist Stephen Roach, speaking at the Arabian Hotel Investment Conference (AHIC) less than a week later, sounded a more cautious note. Roach spotted a bump in the road that could wreck everyone's hopes. US congress under Democrat control is on the offensive against the Bush administration. Four months after taking power, it is backing protectionism, trying to micro-manage American foreign policy, and doing more harm than good to the US' international reputation.

Practically everything in US politics today is connected with events in Baghdad. The Republican Party's defeat in American mid-term polls last November was mainly punishment for the invasion of Iraq and its aftermath. That vote, and opinion polls, since show most Americans have lost faith in the war. The Democrats believe this sentiment will put two of them in the White House in November 2008.

Washington's new strategy, which involves stepping up security in Baghdad, is the administration's last throw of the dice. The Baghdad government supports it and there is evidence it is helping to reduce sectarian killings. The surge probably won't work, but it deserves more time. Senate majority leader Harry Reid's declaration that it has already failed shows his party disagrees. In reality, Reid's words have little to do with what is happening in Iraq. It is about the race for the White House.

All this suggests the world is facing a lengthy period of uncertainty about the direction of US policy. President Bush has lost congress and the support of the American people. The Democrats are yet to pick their standard bearer for 2008. Without a leader, it is showing signs of getting out of control. Both sides of the US political divide are drifting.

This is bad news for America's Middle East friends. Congressional nitpicking about the proposed US free trade agreement with the UAE has increased since the start of the year. This could escalate into a repetition of the rough treatment dished out to one of America's closest regional partners over Dubai's purchase of P&O.

Foreign policy meddling by Congress has come at a bad time. The State Department, for the first time since 9/11, seems to have regained control over US Middle East policy. In the first week of May, Secretary of State Condoleezza Rice was at the Iraq neighbours' conference in Sharm el-Shaikh attended by Iran and Syria. She is also embracing a strategy of diplomatic engagement with the Palestinian government, which is dominated by Hamas. It will be tempting for Democrats to curry favour with Americans who support Israel and accuse the administration of dealing with terrorists by taking these two sensible steps.

Congress' guerrilla war against the administration has implications beyond Middle East affairs. Since January, it has passed 12 protectionist laws, compared with fewer than 30 approved by the previous congress. Morgan Stanley's Roach said more are coming, many targeting China. He said they could be so provocative that Beijing might decide to respond by shifting out of the dollar. That could cause a slump in the value of the US currency and precipitate the American recession most forecasters now believe will be avoided. The result would be a reversal of the globalisation wave, which is the main cause of the long, inflation-free world boom.

This depressing scenario can probably be avoided. But hopes of a Middle