Tags: Greenspan | Sees | Recovery | After | Attacks

Greenspan Sees Recovery After Attacks

Thursday, 20 September 2001 12:00 AM

Greenspan added, however, that he was confident that the U.S. economy would recover and "prosper as we have in the past," after a tough period of emotional and economic readjustment.

"The terrorism of Sept. 11 will doubtless have significant effects on the U.S. economy over the short term, and enormous effort will be required on the part of many to cope with the human destruction," Greenspan said in prepared remarks before the Senate Banking Committee. "But as we struggle to make sense of our profound loss and its immediate consequences for the economy, we must not lose sight of our longer-run prospects, which have not been significantly diminished by these terrible events."

The Fed chairman was updating committee members on the state of the U.S. financial markets following the terrorist attacks. Joining Greenspan in testifying before the committee were Treasury Secretary Paul O'Neill and U.S. Securities and Exchange Commission Chairman Harvey Pitt, as well as New York Stock Exchange Chairman Richard Grasso and Nasdaq Chairman Hardwick Simmons.

O'Neil urged caution in assessing short-term economic reports.

"Americans should not react with fear that the stock market has declined but rather marvel in that it is open (and) that for every seller there is a buyer," said O'Neill. "Financial firms that suffered devastating losses are operating,. Serving customers, clearing transactions, and ensuring that the financial lifeblood of our economy continues to flow."

Greenspan noted that the U.S. economy has "quickly regained its previous levels following the devastation of hurricanes, earthquakes, floods, and myriad other natural disaster" that have battered various regions of the country. But he said the economic disruption caused by the Sept. 11, attacks are different from previous economic upheavals.

On the issue of confidence in the financial markets, Greenspan said "The greater the degree of confidence in the state of future markets, the greater the level of long-term investment. The shock of Sept. 11, by markedly raising the degree of uncertainty about the future, has the potential to result, for a time, in a pronounced disengagement from future commitments."

Greenspan added that "before the recovery process gets under way, stability will need to be restored to the American economy and to others (economies) around the world," saying that saying that while before the attack there were some signs of renewed stability and recovery, that economic data for production, employment and business spending "continued to be weak."

Also, he noted, that while there was some encouraging economic signs of higher consumer spending, steady motor vehicle sales, and improved purchasing manager orders, the Sept 11 attack brought much of this to, at least, a temporary halt.

"During the past week, of course, the level of activity has declined. The shock is most evident in consumer markets where many potential purchasers stayed riveted to their television and away from the shopping malls," said Greenspan of the dramatic halt in consumer spending post-attack.

"Both motor vehicle sales and sales at major chain stores, (which provides) some of our most current information on consumer spending, appear to have fallen off noticeably. And the airline and travel industries have suffered severe cutbacks," he added.

The Fed has already acted to keep the U.S. economy from sinking still further by slashing the federal funds target rate by a half-percentage-point at the beginning of the week. The move, which took financial markets by surprise Monday, nevertheless did not provide much relief, at least in the short-term. Greenspan did not indicate in his statement whether the Fed would be prepared to act further to keep the economy afloat.

On Wednesday, the Fed chairman met behind closed doors with Senate Majority Leader, Tom Daschle; D-S.D.; Sen. Minority Leader, Trent Lott, R-Miss.; House Speaker, Denny Hastert, R-Ill., House Majority Leader Dick Armey, R-Texas, and House Minority Leader Richard Gephart, D-Mo, accompanied by former Secretary of Treasury, Robert Rubin and Lawrence Lindsey, senior economic adviser to President Bush.

Financial markets are wary, however, of what the Fed could actually do to keep the economy from entering a downright recession. Even before the acts of violence, the U.S. economy was weak enough with second quarter gross domestic product at 0.2 percent, and struggling with an unexpectedly higher unemployment report for August, together with weak corporate earnings forecasts, as well as lukewarm consumer confidence.

The Fed Funds target rate is currently at 3.0 percent, and many on Wall Street expect a further rate cut when the policy-making Federal Open Market Committee next meets Oct. 2. But given that the Fed has already eased the rate this year by a near record 350 basis points, or 3.5 percent, without much impact, it is doubtful whether further rate cuts alone could stimulate the economy from its precarious state.

Thus far, the Fed has cut the key Fed Fund rate eight times this year.

On the economic front, post attack, analysts estimate that for the destruction of property and lives from the air attacks alone, the insurance total is expected to hit upwards of $30 billion. Meanwhile, airlines estimated they collectively lost $1 billion a day during the flight halt.

Also, with the expected drop in traffic resulting from the attack, the major air carriers are cutting flights, staff, and asking the government for a potential multi-billion billion in assistance.

Thus far, a proposal for a $17.5 billion airline bailout package is on the fast track though Capitol Hill, including $12.5 billion in loan guarantees.

Within the last several days the airline layoffs alone have been stunning, totaling quickly into the tens-of-thousands. As of Thursday, the layoff count was nearly 100,000 in the industry

While Greenspan and O'Neill endorsed some kind of assistance to the airlines, both cautioned, in general, a short term wait-and-see approach to further government assistance for the complete spectrum of industry sectors and businesses affected by the Sept. 11 attacks.

Greenspan cautioned on too-quick government economic intervention in response to post-attack economic problems, saying "It's easy in haste to do things which are not right. It's better to be right than to be quick."

Since the post-attack reopening of the markets on Monday, the major indexes have taken a dive, with the key Dow Jones industrial average Monday suffering its largest point drop in history.

Copyright 2001 by United Press International. All rights reserved.

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Greenspan added, however, that he was confident that the U.S. economy would recover and prosper as we have in the past, after a tough period of emotional and economic readjustment. The terrorism of Sept. 11 will doubtless have significant effects on the U.S. economy...
Greenspan,Sees,Recovery,After,Attacks
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2001-00-20
Thursday, 20 September 2001 12:00 AM
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