Terrorist Attacks Seen Having Big Short-Term Impact on Economy
(Greenspan, O'Neill cite longer term economic strengths) (690) By Warner Rose Washington File Staff Writer Washington -- The terrorist attacks on the World Trade Center and Pentagon will have a significant short-term impact on the U.S. economy, but fundamental strengths remain in place that will make possible an economic recovery, say Federal Reserve Chairman Alan Greenspan and Treasury Secretary Paul O'Neill. "The terrorism of September 11 will, doubtless, have significant effects on the U.S. economy in the short term," Greenspan told a September 20 hearing of the Senate Banking Committee. Americans, however, "must not lose sight of our longer-term prospects, which have not been significantly diminished by these terrible events." Testifying at the same hearing, O'Neill said that U.S. financial markets continue to function "in spite of having sustained a terrible blow." "Shares are being bought and sold on the stock markets, firms are able to borrow funds for continued operations in the nation's debt markets." Greenspan said modern economies require confidence in free-market institutions that assures the participants that commitments made today will be honored in the future. The "shock of September 11" -- by raising uncertainty -- has the potential of causing those who had been involved in the markets to disengage, he said. "Indeed, much economic activity ground to a halt last week." The terrorist attacks disrupted the systems for payments transfers, and many firms and individuals owing money "temporarily lost their technical ability to pay on time," Greenspan said. The Federal Reserve took several extraordinary measures to make certain banks dealing with these disruptions had enough cash, he said. Greenspan said the Federal Reserve conducted record-level lending through its discount window -- its loans facility for banks -- and accomplished an extraordinary infusion of money into the banking system by open market operations - the buying of bonds. Thirty-day currency swap lines were arranged with other major central banks, again at record volumes, to assure dollar-liquidity to foreign financial institutions, Greenspan said. O'Neill said careful planning and preparation for potential disaster and swift action by private and public sectors made it possible for the U.S. financial system to continue operating "with only temporary disruption." O'Neill conceded that "at this very preliminary stage" it is not possible to know the effect of the terrorist attacks on the economy. There is not yet a "sound estimate" of the dollar amount of damages in New York, he said. During the past week, however, following the disasters, Americans have been making charitable donations, giving blood, gathering in prayer and otherwise demonstrating national unity and determination to overcome threats, he said. "While these activities may not appear in any economic report, they are a reminder of our humanity and our strength as a country." During August and early September, Greenspan said some economic indicators including consumer spending improved. But during the past week, the level of economic activity has declined, he said, noting that the airline and travel industries have suffered severe setbacks. Over the longer term, prospects for rapid technological advances and the associated faster productivity growth have "scarcely diminished," making possible "a promising future for our free nation," he said. Greenspan emphasized that the greatest concern about the September 11 attacks was that they struck at the "roots of our free society," one aspect of which is the market-driven economy. In the wake of the near universal support the United States has received from around the world, Greenspan said, the prospects for an agreement on a new round of multilateral trade negotiations appear more likely. "A successful round would not only significantly enhance world economic growth but also answer terrorism with a firm reaffirmation of our commitment to open and free societies," he said. O'Neill said Americans can help keep the U.S. economy strong by getting back to work and going forward with spending plans that were made prior to September 11. "No evil, no matter how unspeakable, can destroy America's productive spirit," he said. (The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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