Being of an evangelical persuasion, President Bush could be forgiven for wondering whether something apocalyptic isn’t afoot as he surveys the world from his Washington bunker this winter.

At home, the End Times have already been clearly signalled by the triumph of the Anti-Christ, otherwise known as the Democratic Party, in the midterm elections. Abroad, the leader of the world’s sole superpower must hear the ominous clatter of horses’ hooves and the steady swish of their riders’ scythes through the burning fields of his foreign policy.

War in Iraq is melting down US resolve. In Lebanon, another assassination and another political crisis have highlighted America’s weakness and the ascent of its adversaries, Iran and Syria, in the struggle for power in the Middle East. On the streets of London, lethal radiation strikes down an enemy of Mr Bush’s old friend, Vladimir Putin.

And just when you think War, Death and Pestilence have the field all to themselves, along on the rails comes the fourth horseman — the nightmare of every beleaguered US president — a collapsing dollar.

The US currency has been in something of a crisis this week, falling by three cents against the once-derided euro and by almost seven cents against the pound. Measured against a basket of the world’s main currencies it is down by more than 2 per cent in a week. That may not sound like much, but when you consider it is more than the dollar has moved over the previous six months, it qualifies as an Event.

Nothing seems to capture the symbolism of a nation’s decline better than a falling currency. For some countries — I’ll name no names, but think pasta and a penchant for loud, animated chatter — a foreign-exchange crisis is part of the national culture: a condition so habitual they contrive to achieve it even when they no longer even have their own currency.

For others, the spectacle of traders dumping the national currency down the nearest obliging central bank is unnerving but not always as devastating as it first appears. We used to have such crises periodically in Britain until we cured ourselves one night in September 1992 when Norman Lamont announced his humiliation and the pound’s liberation from the European exchange-rate mechanism. The dollar is still different, however. Its value on the foreign exchanges doesn’t matter to most Americans, who have little need of foreign money, But for years now policymakers have seen a strong dollar not only as protection against runaway inflation but as a sign of global confidence in the US.

With the currency closing in on its lowest level against the euro, and the mythically significant two-dollars-to-the-pound rate, that leadership looks as challenged on the trading floors of London and New York as it does among the sandbags of Anbar and Fallujah.

The last time the dollar fetched only 50 British pence for longer than a trading day or two was in the spring of 1981, when America was in its deepest recession since the 1930s, inflation was more than 10 per cent and the nation was still in shock from the attempted assassination of its president.

Is the dollar’s latest swoon another signal of declining American heft, an economic shock to match the political-military blows of the past few years? The short-term factors behind the dollar’s decline would suggest so. The immediate changes this week seem to have been prompted by a firming in trader sentiment that, for the first time since the euro was founded, conditions in Europe look rosier than in the US. This would mean the US Federal Reserve cutting interest rates next year, while British and European rates are going up.

In the longer-term perspective too, the dollar’s fall looks like a kind of great reckoning for profligacy. The fall this week has merely extended a decline that has been in place since January 2002. In that five-year span, the US currency has fallen by about 18 per cent against those of its main trading partners. This seems to have been driven in large part by America’s indebtedness to the rest of the world. The US is running a current account deficit of roughly $800 billion, or about 7 per cent of its total national output.

But none of this means the American economy is doomed. The exchange rate merely reflects the changing premium that investors demand for investing in the US. Investors may have grown more concerned about placing their money in the US in the past year, especially as European and Japanese performance has improved. But that simply means they demand a lower price for investing there to protect them against further dollar depreciation. The dollar surely needs to keep on falling. What matters is that its drop is an orderly and stable one, not a sudden collapse.

So far the decline has been remarkably steady over the past five years, and there is no real reason to think it will not continue — thanks mainly to China. While private investors may have grown wary of the US, the Chinese Government has been doubling its bets there, investing in US official debt, keeping American interest rates low and the economy expanding, and at the same time ensuring that American consumers keep buying Chinese-made goods.

The Chinese understand that the dollar needs to fall much further; but a sharp and disorderly drop is no more in Beijing’s interests than it is in Washington’s. They can presumably be relied on to manage the dollar’s decline.

Uniquely in the modern history of international financial markets, the world’s most important currency is underwritten by the economic policies of another country. That may be uncomfortable for both of them. But it represents far from an Apocalypse for the US economy — more a kind of Revelation for a beleaguered president.

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