Greenspan-Attacks to disrupt economy, foundation solid

Greenspan-Attacks to disrupt economy, foundation solid
By Glenn Somerville

WASHINGTON (Reuters): The U.S. economy "ground to a halt"
after last week's attacks and will suffer disruptions for a time,
Federal Reserve Chairman Alan Greenspan told Congress on
Thursday, but he expressed confidence that the foundations are
intact and recovery was assured.

"The shock of Sept.11, by markedly raising the degree of
uncertainty about the future, has the potential to result, for a
time, in pronounced disengagement from future commitments," the
Fed chief told the Senate Banking Committee in his first public
appearance since the attacks.

"Indeed, much economic activity ground to a halt last week,"
he said in remarks that appeared to do little to halt selling on
Wall Street. "But the foundations of our free society remain
sound, and I am confident that we will recover and prosper as we
have in the past."

But, President George W. Bush on Friday put a brave face on
the economic outlook, declaring that while terrorists had
attacked a symbol of American prosperity they had not touched its
source.

"America is successful because of the hard work and creativity
and enterprise of our people," said Bush in a speech to a packed
congress. "These were the true strengths of our economy before
Sept 11, and they are our strengths today."

Greenspan and Treasury Secretary Paul O'Neill together urged
lawmakers, who are worried about how to help large and small
businesses suffering because of last week's dislocations, not to
rush into new stimulus measures before the full impact of last
week's events becomes clear.

"I would strongly suggest that while there is an obvious
strongly desired sense to move rapidly, that it's far more
important to be right than quick," Greenspan said. But he added:
"That does not mean that future actions are not going to be
required."

O'Neill said options under consideration included cutting
taxes on capital gains from stock sales but, like Greenspan, he
suggested moving in a measured way "to make sure that in the name
of trying to do right that we don't actually do damage."

Both the U.S. central bank chief and O'Neill were at pains to
emphasize that prospects for the world's No. 1 economy were sound
and that financial markets were working.

"Our economy -- our prosperity -- will not be destroyed,"
O'Neill said in prepared remarks to the committee, while
conceding that, "we cannot say at this very preliminary stage
exactly how these events will affect the economy."

Testimony from the nation's top economic policymakers failed
to stem losses on U.S. stock markets as worried investors drove
the Dow Jones industrial average down by about 300 points. Since
stock trading resumed on Monday -- after a four-day halt
following the attacks -- the blue chip index has plunged more
than 10 percent as of Wednesday's close.

The index had racked up another 3 percent in declines as of
midafternoon on Thursday.

Greenspan offered no hints to lawmakers about whether the Fed
was considering further rate cuts, but analysts predict more are
coming. The policy-making Federal Open Market Committee next
meets Oct. 2.

The Fed chief said elements for a recovery in the already
shaky U.S. economy were present before last week's attacks. The
economy barely grew at a 0.2 percent annual rate in the second
quarter but it still had some resilience.

"The system was holding up...The American economy kept getting
battered and battered and battered and it was still standing and
indeed, as of Sept. 10, it was still standing," Greenspan noted
in a clear bid to give consumers faith in a future rebound.

O'Neill, who has been urging investors all week to "buy
American," said the best thing ordinary citizens could do would
be to carry on normally to help the nation back to its feet.