Economic effects of terrorist attack on United States

September 25, 2001

Free Market Foundation

The terrorist attack at the World Trade Centre threatens to damage American confidence enough to trigger a full-blown recession. The economic recovery of the United States originally expected in the latter half of 2001 is now expected to be delayed for at least six additional months partly due to the fact that New York City, and specifically the World Trade Centre complex, served as the centre of the financial world.

The highest cost of the attack is likely to be the loss of considerable human capital the towers held some of the top players in the financial world, including executives from Allstate, Bank of America, Delta Airlines, Oppenheimer Funds, Sun Microsystems and over 400 others.

The productivity of workers in New York.’s financial district has been shown to be about twice the average American worker’s.

The closure of New York complicates the financial picture, since the New York exchanges handle $90 billion in trade daily.

With most of the nation shut down for a day, the loss could translate into a one percentage point hit on gross domestic product.

An extended U.S. downturn, probably including at least one quarter of recession, is almost certain. But, according to experts, quick action from governments in Europe, Japan and in the U.S., combined with America’s underlying economic strength and stability, should lead to an eventual resurgence.

Within a day of the tragedies, Japanese and European central banks together released $80 billion in additional funds to ensure sufficient credit (liquidity).

The quick action stemmed losses suffered by European exchanges on Wednesday and nudged the dollar higher after last Tuesday’s plunge.

Similarly, the Federal Reserve injected $38.25 billion 10 times the daily average into the banking system.

New York City may be a global centre, but it is not the only economic hub in America’s decentralised economy. Baltimore, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, Philadelphia, San Francisco and St. Louis have their own independent infrastructures and economic bases.

Sources: U.S. Economy Will Rebound After Hit, Stratfor Online Intelligence, September 13, 2001, and Editorial, Capital Restoration, Investor’s Business Daily, September 13, 2001.

For Stratfor Text http://www.stratfor.com/home/0109131730.htm
For More on Terrorism and the Economy http://www.ncpa.org/pi/congress/cong9.html

FMF\18 September 2001