20 September 2001
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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