The US Economy after September 11th
. Decline or Rapid Growth?

Katya Banina, group # 110.

On a common Tuesday, September 11th
music on my favorite wireless station was interrupted by a particular intelligence block, which reported that an aeroplane torus into the one of the twin-towers of the World Trade Centre in New York. My first thought was about dramatic conditions conditions that could hold led to such a awful accident. I couldn & # 8217 ; t even conceive of that it might hold been a panic act or something like that. In some proceedingss together with 1000000s of people all over the universe I was watching positions of the calamity on Television and couldn & # 8217 ; t believe my eyes. If I hadn & # 8217 ; t heard about this before, I would hold decidedly thought that a new Hollywood film was on. The apprehension and feeling of what had happened and of the graduated table of this came merely after some hours of embarrassment and daze & # 8230 ;

But concern and economic domains can & # 8217 ; t afford vacillation and hold. On this twenty-four hours ruined non merely the walls of the World Trade Centre, but besides, which is much more of import for the economic system, the premise of the USA being a criterion of stableness, trust and prosperity. Businessmens, investors and agents recognised that the faster they reacted, the more they benefit ( or likely the less they lose ) in the state of affairs. Market response was immediate. Wordss of Alan Greenspan, president of the Federal Reserve, illustrate it: & # 8220 ; Greater uncertainness for concern and consumers hits economic activity, at least in the short term & # 8221 ; .

Already since the beginning of the twelvemonth 2001 economic experts have been reasoning about whether the economic system of the United States was worsening or non. The state of affairs, so, was non really obvious because of a figure of efforts of the Federal Reserve to excite the enlargement by cutting the involvement rate. Today, nevertheless, practically all of the specializers say that the American economic system is in recession. Now there is no common position on how long and how deep the recession will be and how to arouse the recovery. To exemplify this I want to observe that one group of economic experts believe that cause of this recession is non terrorist act, but instead the economic and fiscal instabilities that built up during the late 1990 & # 8217 ; s, and that the incident of the September 11th
was merely a jar to worsening the state of affairs. Firms overinvested and overborrowed due to hyperbolic outlooks about future net incomes. Households borrowed to a great extent excessively, believing that portion monetary values would lift everlastingly. Therefore, it will take clip to convey ingestion, investing and loans to their natural rates. Despite this, there is besides a point of position that the events of September 11th
hold made a V-shaped recession and recovery more likely: a Swift slide down one incline, sufficient to impel the economic system up the following. Now it is high clip to see facts, chiefly statistical, which are of import in the analysis. It & # 8217 ; s better, to my head, to get down with the pessimistic forecast.

Economic information published since September 11th
hold, non surprisingly, been glooming. America ‘s industrial production fell in September by 1 % . That was its 12th
consecutive month of diminution, the longest unbroken autumn since 1945. The current fabrication activity had plunged to its lowest degree since February 1991. The 5.8 % end product loss of the past 12 months is already greater than in the recession of 1990-91. Retail gross revenues besides fell in September, by 2.4 % , consumers cut back their disbursement in September by the largest sum in about 15 old ages. To get by with drooping gross revenues, makers have aggressively cut back production and caducous workers. The state ‘s unemployment rate leaped from 4.9 % in September to 5.4 % in October, the biggest one-month leap in more than 21 old ages. This is the highest unemployment rate since December 1996. 415,000 occupations were eliminated during the month, which represented the biggest cut in paysheets since May 1980. Manufacturing, air hoses, travel bureaus, hotels, retail merchants were among those enduring large losingss. ”Companies are in survival manner and they are cutting occupations to command costs, ” said economic expert Ken Mayland of ClearView Economics. ”The tragic events of September 11th
and their wake likely tipped the economic system into recession. Peoples are waiting for the other shoe to drop. ” There is one more indirect grounds of the tough province of staff policy in American companies: many of them are be aftering to call off traditional Christmas Parties due to their hapless fiscal status.

Therefore, harmonizing to the GDP study of the authorities, the economic system contracted in the 3rd one-fourth.

Even with a mild recession in America, so, this could still turn out to be the most terrible universe recession since the 1930s. ( Such a recession is normally defined as one-year growing of less than 2 % . ) Global growing is predicted to be mean 1.5 % in 2001 and 2002, its slowest biennial period during the past 50 old ages. This increases the hazards for America, because undertaking trade can magnify a rec

ession. Last twelvemonth the volume of universe trade grew by 13 % , this twelvemonth growing may fall to zero. When nominal GDP growing falls so low, cardinal Bankss have less range to utilize pecuniary policy to hike demand, net incomes grow more easy than expected by stockmarket investors, borrowers find it harder to refund debts.

There is besides one factor, which some specializers consider to be one more grounds of weakening economic system: net incomes of confectionery companies grew this twelvemonth by 15 % . Statisticss say that this is frequently an indicant of recession, as many people can & # 8217 ; t fulfill their luxury wants any more, but devouring larger sums of Sweets, which are relatively cheaper.

In add-on with the wide-spread position that the state has entered its first recession in a decennary, analysts are foretelling that rising prices force per unit areas, which have been chairing for a twelvemonth, will withdraw further, particularly in the country of pay force per unit areas, as the billowy unemployment rate dampens workers ‘ demands for salary additions.

Economists are afraid of that continued radioactive dust from the onslaughts, concerns about splenic fever in the mail, toppling consumer assurance and lifting unemployment, will maintain consumers tightfisting, farther weakening the economic system.

But allow us now switch to the more optimistic anticipation as many economic experts still reckon that America ‘s recession will be brief and mild. They predict that GDP of the USA will worsen till the 2nd one-fourth of the twelvemonth 2002, so will get down to retrieve with quite a strong growing, by 3-4 % . If the forecast turns out to be right, it will be one of the shortest and mildest recessions on record. And there are three chief grounds to believe in it:

1. It is argued that houses have already made stairss to cut back unwanted stock lists and overcapacity.

2. In contrast with three old recessions, oil monetary value has fallen.

3. America benefits much from pecuniary and financial policy. Interest rates have been cut 10 times this twelvemonth, including three decreases after September 11th
, to their lowest degree since the early 1960 & # 8217 ; s. President Bush, meanwhile, wants Congress to rapidly go through a bundle aimed at exciting the economic system through new revenue enhancement cuts, increased authorities disbursement, exigency alleviation, which could amount to 1.5 % GDP & # 8211 ; the biggest financial encouragement in one twelvemonth since 1975.

Indeed, the US economic system had an progress in October, mostly thanks to zero interest-rate funding for new autos. The value of retail gross revenues climbed by 7.1 % , the biggest addition of all time. Sadly, retail gross revenues dropped back following month, as the effects of the inducements ran out. But even non taking into history autos, retails gross revenues rose by 1 % in October.

Besides besides in October the US dollar reached a 3-month high against the Euro due to new hopes for a resurgence of consumer demand.

The hope that America ‘s recession will be mild appears to hold helped portion monetary values to retrieve worldwide. Many stockmarkets have about regained their degrees on September 10th
. Main indexes – Nasdaq, S & A ; P 500, DJIA – are inching up, though in comparing with December 31st
, 2000 they are severally 23 % , 13.6 % and 8.9 % lower. Sing Commodity Price index alteration on October and on the whole twelvemonth we face practically the same state of affairs: alteration of Industrials index on one twelvemonth is -15.7 % and on one month +2.7 % , alteration of Food index -2.7 % and +3.0 % severally. The same applies to other trade goods every bit good as for all points.

This might mean that gradual boosting of the Economy in the last one-fourth of this twelvemonth and in 2002 will counterbalance for the crisp slack in September and the recession will be left behind.

As for me I believe in the USA. There is one common characteristic of Russian and American folks I can separate and look up to, it is that in the most dramatic minutes each state unites and in malice of all obstructions, problems and troubles overcomes the crisis. This has been proved non one time in class of history of both states ( non without any exclusions, of class ) .

There are many grounds for a crisp diminution in the US economic system, but some factors that could magnify its recovery and farther growing besides exist. Both & # 8220 ; for & # 8221 ; and & # 8220 ; against & # 8221 ; were presented above and at the first glimpse the pessimistic expectancy seems to rule. But still I can & # 8217 ; t bury about this & # 8220 ; state spirit & # 8221 ; & # 8211 ; an unaccountable constituent, i.e. the alleged X-factor of success in the most unfavorable conditions. Although, by the manner, I may believe so under the influence of the American criterion of wellbeing. But still taking into consideration this every bit good as all other optimistic prognosiss, I am inclined to believe that the recession will non last for a long clip and may, on the contrary, excite the undermentioned rapid gait growing.

List of resources used in fixing the study:

1. www.economist.com

2. www.usatoday.com

3. www.reuters.com

4. The Economist, November 17th
, 2001.