STOCK MARKETS throughout the world have fallen dramatically since Iraq invaded Kuwait, and the conventional explanation is that investors fear war. But there has to be more to it than that, since wars are not necessarily bad for stock prices. Part of the explanation is doubtless uncertainty and the shock of the unexpected. But a larger part is the suddenly magnified risk of rising inflation.

Circumstances differ from one country to another. The Japanese stock market, carried wildly high by a wave of speculation, has been falling since the beginning of the year. European markets, particularly in West Germany, are showing the strain of helping Eastern Europe. But all of these markets are closely tied together, and all of them are responding to deep anxieties about the ways in which governments -- especially the one here in Washington -- are going to finance the rising cost of oil.

One way to do it, and the easiest way, is simply to let inflation handle it. That's what American governments have done in the past. There was never much discomfort at first. But the trouble is that once prices start to accelerate, it's hard to slow them down. The people who invest in stocks remember those experiences.

This financial pressure comes at an inopportune time for the United States. Inflation had already begun to speed up earlier this year. The quarrel about the budget deficit is bogged down, indicating a general reluctance among the country's political leadership to make hard decisions on money. Over the past couple of months the chances of a recession have increased sharply, further daunting any inclination for decisive action.

Mr. Bush has moved rapidly and skillfully to define for the world this country's political objectives and intentions in the Persian Gulf. It wants Iraq out of Kuwait, and until Iraq leaves it will cut off its income with a boycott of its oil. He needs a similarly clear and believable plan to deal with the economic consequences of these events.

The United States is counting on people, both Americans and foreigners, to keep investing and to keep the world's economy expanding. But it hasn't given them much idea of what to expect in the way of public policy. The result is that many of these investors, both here and abroad, have begun to pull their money out of the stock markets. Those that buy bonds, also uneasy about higher inflation ahead, have begun to demand higher interest. Mr. Bush is presiding over a country that now faces the possibility of war in the Persian Gulf and the certainty of higher oil prices. Instead of patching along from day to day, it needs a coherent economic strategy for the long haul.