Posted on 09/12/2001 10:42:06 AM PDT by RCW2001
Wednesday September 12 1:12 PM ET
By JEANNINE AVERSA, Associated Press Writer
WASHINGTON (AP)- The United States and its wealthy allies pledged that their central banks would engage in a coordinated effort to keep the worst terrorist attack in U.S. history from destabilizing the global economy.
``We are committed to ensuring that this tragedy will not be compounded by disruption to the global economy,'' the Group of Seven nations said in a joint statement.
The statement, issued in the name of the finance ministers and central bank presidents of the world's seven wealthiest nations said their central banks would make sure that sufficient money was supplied to major banks to prevent disruptions.
``Our central banks have indicated that they will provide liquidity to ensure that financial markets operate in an orderly fashion,'' the G-7 finance officials said. ``We will monitor economic developments and financial markets closely and stand ready to take further action as necessary.''
The G-7 statement was issued the day after terrorists crashed hijacked planes into the World Trade Center in New York and the Pentagon outside Washington.
The attacks disrupted business throughout the country. Stock trading was halted. Air travel was paralyzed. Business meetings were canceled and people were sent home from work.
Economists have expressed concerns that the attacks could so jar consumer confidence that consumer spending will be cut back sharply, pushing an already shaky U.S. economy into a recession that would drag the rest of the world with it.
The Bush administration, concerned about the threat of a recession from the terrorist attack, was striving in a variety of ways to bolster confidence, emphasizing that top officials from the administration, the Federal Reserve and various financial market regulatory agencies were closing monitoring developments in markets around the world.
``With some exceptions finance, commerce and banking systems have worked effectively and continuously,'' Treasury Deputy Secretary Kenneth Dam told reporters at a briefing Wednesday. ``Our financial system is and remains strong. The American economy is open for business.''
Dam said that Treasury Secretary Paul O'Neill had canceled a planned meeting with Japanese Prime Minister Junichiro Koizumi on Wednesday and was returning to Washington. Dam said that he had been in constant contact with O'Neill, who had been scheduled to remain in Tokyo, the last stop of an Asian trip, until Friday.
Despite the assurances from the administration, private economists expressed widespread concern that the terrorist attack could send an already weak U.S. economy over the edge to recession.
The administration had hoped that a series of seven interest rate cuts from the Federal Reserve and nearly $40 billion in tax rebate checks currently being mailed to consumers would be enough to put the economy on a strong growth path in coming months.
While some analysts said this still could occur, the most pessimistic said they had serious doubts about the ability of the Fed, even with further interest rate cuts, to restore enough consumer confidence.
``Hopes are gone for a recovery in the fourth quarter,'' said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.
Even before the attacks on the World Trade Center and the Pentagon, the economy was in bad shape, showing the toll of a yearlong slump. The economy barely grew in the second quarter, expanding at an annual rate of just 0.2 percent, its weakest performance in eight years.
And last week's news that the country's unemployment rate shot up to 4.9 percent in August, as job losses in manufacturing climbed above 1 million, rekindled recession fears and made some economists worry that the current quarter could turn out to be a lot weaker than many had thought.
Worries over whether consumers, whose spending accounts for two-thirds of all economic activity, will hang tough or collapse could be exacerbated depending on how financial markets react when they are opened, economists said. The major stock exchanges were shut down Tuesday and Wednesday.
Against the backdrop of the new uncertainties facing the economy, analysts said there's a much greater chance that Fed policy-makers might opt to cut short-term rates for an eighth time this year - before their next scheduled meeting on Oct. 2.
``I think the odds are high that they will respond to this by lowering interest rates before the October meeting,'' said Mark Zandi, chief economist at Economy.com.
``When it's all said and done, the economic impact of the attacks will be determined by how people and businesses respond,'' Zandi said. ``If they don't panic and cut spending and they work through this, then this will be just an asterisk in our economic history. But if consumers and businesses freeze, it will have a very debilitating impact and the attacks will go down in history as the main cause of the 2001 economic recession.''
The irony is, this move may actually save us from recession if it is enough.
The effects to the structure of our financial markets are as large as it was to the effects of the physical structures.
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