People say it is unfair that Asian stocks are suffering for the accounting sins committed on Wall Street. Yet the rout in regional markets yesterday, for instance, was led by the exporters and there is a reason they are being targeted. The concern is that exports to the land of the free-spenders will tumble if the shaky stock market upsets the economic recovery. Goldman Sachs chief economist William Dudley this week said he had never seen markets behave so poorly at a time when the economy was in recovery mode. In the six months following every post-World War II United States recession, US stock markets have risen. The least they have ever risen after a recession is 20 per cent - yet in the first half of this year, when the economy was rejuvenating, the Standard & Poor's 500 Index fell 18 per cent - a 38 per cent under-performance. Mr Dudley believes this reflects just how big the bubble was before it burst. While on the way up, bubbles send positive vibes throughout an economy. They attract overseas investors, for instance, which strengthens the currency and keeps inflation in check. On the way down 'the downward dynamic becomes self-reinforcing', he said this week. Confidence and spending takes a knock, the currency weakens, tax revenues decline and so on. The result is sub-par economic performance. Take for example household savings. The savings rate has risen only slightly since Wall Street crashed in March 2000 but a greater rise is likely as investors face the reality that the stocks they own are dogs. Mr Dudley estimated the US savings rate could rise to 8 per cent from the current 3 per cent. For that to happen consumer spending would have to rise more slowly than income, dampening income growth and the momentum of the economic recovery. Another equity-market related drag on the economy was what Mr Dudley called 'deleveraging'. As stocks decline and more companies restate earnings, corporate gearing rises. This leads to forced asset sales, equity issuance and cutbacks in capital spending. Of course Asia cares. More than 20 per cent of the exports of South Korea, Malaysia, Taiwan, Thailand, Hong Kong and China go to the United States. Who will take up that slack? China? Perhaps. Salomon Smith Barney this week pointed out that in the past year, China and Hong Kong combined soaked up 14 per cent of a Asian exports compared with a 13 per cent share for Japan and an 18 per cent for the US. Thanks to World Trade Organisation accession, Salomon economist Cliff Tan thinks Asian sales to China could grow between 55 and 85 per cent in the next four years. That would mean US$375 billion to $450 billion a year, compared with $96 billion worth of imports bought from China last year.