The US government is on a ‘burning platform’ of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon, the country’s top government inspector has warned.

David Walker, comptroller general of the US, issued the unusually downbeat assessment of his country’s future in a report that lays out what he called “chilling long-term simulations”.

These include “dramatic” tax rises, slashed government services and the large-scale dumping by foreign governments of holdings of US debt.

Drawing parallels with the end of the Roman empire, Mr Walker warned there were “striking similarities” between America’s current situation and the factors that brought down Rome, including “declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government”.

“Sound familiar?” Mr Walker said. “In my view, it’s time to learn from history and take steps to ensure the American Republic is the first to stand the test of time.” . . .

In an interview with the Financial Times, Mr Walker said he had mentioned some of the issues before but now wanted to “turn up the volume”. Some of them were too sensitive for others in government to “have their name associated with”.

“I’m trying to sound an alarm and issue a wake-up call,” he said. “As comptroller general I’ve got an ability to look longer-range and take on issues that others may be hesitant, and in many cases may not be in a position, to take on.

“One of the concerns is obviously we are a great country but we face major sustainability challenges that we are not taking seriously enough,” said Mr Walker, who was appointed during the Clinton administration to the post, which carries a 15-year term.

The fiscal imbalance meant the US was “on a path toward an explosion of debt”.

“With the looming retirement of baby boomers, spiralling healthcare costs, plummeting savings rates and increasing reliance on foreign lenders, we face unprecedented fiscal risks,” said Mr Walker, a former senior executive at PwC auditing firm. 

Current US policy on education, energy, the environment, immigration and Iraq also was on an “unsustainable path”.

“Our very prosperity is placing greater demands on our physical infrastructure. Billions of dollars will be needed to modernise everything from highways and airports to water and sewage systems. The recent bridge collapse in Minneapolis was a sobering wake-up call.”

Global share prices tumbled again on Thursday, with a brutal round of losses in Asia and Europe as investors took flight on fears of fallout from the US housing market crisis.

Traders are worried about a global credit squeeze as more banks and investment funds around the world reveal their exposure to the slumping US subprime or high-risk home loan sector, analysts said.

From London to Tokyo, Shanghai to Mumbai and Hong Kong to Sydney, weary traders' screens were awash with red again on Thursday as fears over US housing continued to buffet stock markets.

Across Europe, markets nursed more heavy losses after further dramatic falls in Asia that were sparked by yet another overnight slump in New York.

Mr. Karzai characterized Iran as “a helper” in a CNN interview broadcast Sunday. But when the two men greeted reporters here on Monday, Mr. Bush pointedly disagreed, saying, “I would be very cautious about whether the Iranian influence in Afghanistan is a positive force.”

Iran has sent workers to Afghanistan to provide aid to villages, but American officials contend that Tehran is also funneling weapons into the country.

Bush said he had not seen the report that Beijing was hinting at such a move, in Britain's Daily Telegraph newspaper, but warned against any attempt by China to hit back at Washington using vast foreign currency reserves.

"That would be foolhardy of them to do that," Bush said in an interview with Fox News, adding he doubted the report was based on sources from the office of Chinese President Hu Jintao.

"If that's the ... position of the government, it would be foolhardy for them to do this."

Facing an economy beset by volatile stocks, troubled mortgages, a struggling housing market and questions about the stability of the nation's infrastructure, President Bush sought Thursday to reassure Americans that the economy is strong and that his policies will ensure it stays that way.

But the stock market at least remained beyond Bush's reach, as the Dow Jones industrials dropped more than 200 points within minutes of the opening bell and plummeted a total of 387.18 points by day's end to 13,270.68.

The 2.83 percent decline came after more signs that the credit crunch rippling through the nation is spilling into overseas markets. Thursday's big sell-off, the second biggest of the year, was sparked by a French bank, which froze three funds that had invested in subprime mortgages in the United States.

Bernanke told Congress on March 28 subprime defaults were “likely to be contained”. The Fed chief, who declined to comment for this story, changed his assessment last month. On July 18, he told the Congress that “rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities — problems that likely will get worse before they get better.” Paulson said June 20 subprime fallout “will not affect the economy overall”. This week on CNBC, he provided a less definitive assessment, saying markets have been “unsettled largely because of disruption in the subprime space”. “We’ve had a major correction in housing sector,” Paulson said. “It will take a while for the impact of that to ripple through the economy as mortgages reset.” Among the other executives joining the chorus was Bank of America CEO Kenneth Lewis, who said June 20 that the housing slump was just about over. “We’re seeing the worst of it,” Lewis said.

Within the week, he was contradicted by a team of Bank of America analysts, who called losses in the mortgage market the “tip of the iceberg” and predicted “broader fallout” from adjustable-rate loans resetting at higher interest rates. The US housing prices will fall this year, the first annual decline since the Great Depression of the 1930s, says the National Association of Realtors. The inventory of unsold US homes in May was the largest since the realtors group started counting them in 1999. Defaults and foreclosures may increase because about $1 trillion of payments on adjustable-rate mortgages are scheduled to rise this year, hitting a peak in October, notes Credit Suisse.

[Ken Pollack] said Mr Bush would prefer the British to stay: "What Bush needs is for there to be a Union Jack flying somewhere in Iraq so he can trumpet that as full British participation, but that participation has been meaningless for some time."

Mr Pollack, who wrote on his return that there were signs that the surge was working, was dismissive of the British contribution over the past 12 to 18 months. He said: "I am assuming the British will no longer be there. They are not there now. We have a British battle group holed up in Basra airport. I do not see what good that does except for people flying in and out.

"It is the wild, wild west. Basra is out of control."

Frequent tours for U.S. forces in Iraq and Afghanistan have stressed the all-volunteer force and made it worth considering a return to a military draft, President Bush's new war adviser said Friday.

"I think it makes sense to certainly consider it," Army Lt. Gen. Douglas Lute said in an interview with National Public Radio's "All Things Considered."

"And I can tell you, this has always been an option on the table. But ultimately, this is a policy matter between meeting the demands for the nation's security by one means or another," Lute added in his first interview since he was confirmed by the Senate in June.

When taxes were cut in 2001 and 2003, supporters of the policy made several arguments. Lower taxes would spur growth was one. Lower taxes are desirable in their own right was another; people should keep as much of their income as possible. And a third was that lower taxes help to keep government small. This idea -- "starve the beast" -- is popular in supply-side conservative circles. Some top-tier academic economists, including Robert Barro and Milton Friedman, no less, have endorsed it. . . .

Here is the puzzle: Advocates of "starve the beast" tend to be the very politicians and economists who do not care much about the deficit. They want to cut taxes even when the government is already borrowing heavily, partly (they say) to put further downward pressure on spending. The question is, what downward pressure? What is wrong, in their view, with simply running a bigger deficit? Nothing, really. Given the choice between a) raising taxes and curbing the deficit, and b) cutting taxes and watching the deficit grow, they would always choose b. . . .

"Starve the beast" exponents are not demanding packages of lower taxes and lower spending. They are saying that lower taxes will sooner or later wear spending down anyway. When you look at those cases -- instances where taxes have been cut independently, with no connection to new spending plans -- spending does not fall, say the Romers. In fact, it rises a bit. "Starve the beast" does not work.

I hope they are right. The idea that a kind of political extortion is needed to contain the growth of government may possibly be correct -- but it is certainly unappealing. The case for low taxes can be made perfectly well on the merits: Arguments one (pro-growth) and two (pro-liberty), as mentioned at the start, ought to be enough. Then, if you can convince people that persistent large budget deficits are bad for the economy (which they are), the case for limited government is made as well.

The worst thing about "starve the beast" is the idea that a straightforward argument for low taxes and spending cannot be pressed successfully. You have to cut taxes, which the voters will like, and let them think they can have high spending, too. Later, if all goes according to plan, they will see they were mistaken. It is a strategy based not only on outwitting the Democrats, but on outwitting the electorate as well. It would be a pity if it worked.