Resilience best for rebound<\/p>\n
SINGAPORE: Besides dealing with the tragic loss of lives
\narising from the terrorist attacks on New York and Washington,
\nthe United States will also have to deal with the economic
\nconsequences of the tragedy. Stock exchanges that were closed on
\nTuesday, the day of the attacks, are set to re-open on Monday,
\nbut trading may be thin.<\/p>\n
Not only was the World Trade Center completely destroyed, but
\nmany buildings in the area, the financial heart of the U.S., also
\nsuffered serious structural damage. Prominent brokerages and
\nother financial houses that were located in these buildings lost
\nkey personnel.<\/p>\n
The survivors are now without office space, let alone the
\ncomputers and telephone lines to conduct business. More
\nseriously, consumer confidence across the country, already shaky
\nbefore the attacks, may have suffered a body blow. People are
\nsitting at home, glued to television sets; restaurants, shopping
\nmalls and theaters are empty; air travel, when it resumes, will
\nprobably fall; hotels and tourist attractions across the country
\nwill see sharp declines in business.<\/p>\n
Consumer spending, which constitutes two-thirds of the
\neconomy, had remained resilient in the first half of this year,
\nbut may soften now. As a result, growth may be negative in the
\nnext two quarters, meeting the technical definition of a
\nrecession. The severity of the downturn, as well as the speed of
\nthe recovery, will depend on how policy makers respond. Their
\nresponse thus far has been reassuring.<\/p>\n
The U.S. Federal Reserve, together with its counterparts in
\nEurope and Japan, has acted quickly to pump liquidity into the
\nsystem in an effort to reduce the possibility of panicky
\ninvestors and depositors causing a financial crisis.<\/p>\n
In just two days, the world's major central banks injected
\nmore than US$80 billion (S$139 billion) into financial markets;
\nand on Wednesday alone, the Fed purchased US$38.2 billion worth
\nof Treasury bonds from investment houses. In the meantime,
\nPresident George W. Bush has announced that he will seek as much
\nas US$40 billion in extra spending from Congress to pay for
\nrescue efforts, re-construction work, airport security and
\npossible military deployments.<\/p>\n
The debate that raged in Washington just a week ago on whether
\nor not the federal government should \"raid\" the Social Security
\nTrust Fund to finance next year's budget has thankfully subsided.
\nThe debate was absurd before the attacks; now it seems trivial.<\/p>\n
As welcome as all these measures are, however, they are but
\nthe first steps. Quite aside from the danger of problems in the
\nbond and stock markets affecting the broader U.S. economy, there
\nis also danger of a worldwide downturn.<\/p>\n
In addition to providing immediate liquidity, the world's
\nmajor central banks should accelerate interest rate cuts to buoy
\ninvestor and consumer confidence. Unfortunately, European Central
\nBank president Wim Duisenberg downplayed the possibility of such
\ncoordinated cuts, saying they would suggest \"panic\".<\/p>\n
But with the euro-zone's inflation rate falling, the ECB can
\nafford to be more aggressive. It is difficult to see how that
\nwould constitute \"panic\", especially since the anemic state of
\nEuropean economies suggests the necessity of further monetary
\neasing.<\/p>\n
The Fed, for its part, has already slashed rates seven times
\nthis year, and will probably cut rates again when its policy-
\nmaking committee next meets in early October. On a broader front,
\nthe U.S. government should move fast to restore public
\nconfidence, as it has already begun to do. Recovering its natural
\nresilience would be America's best answer to terror.<\/p>\n
-- The Straits Times\/Asia News Network<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/resilience-best-for-rebound-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }