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Financial Effects of September 11th

September 11th, like few other dates in the history of our country, will be permanently engraved in all Americans memories. Even though the events of this tragic day are behind us, the economy is still feeling the burden of the terrorist attack on the World Trade Center and the Pentagon. The economy was already experiencing a fall off before the attack. Despite the struggling times, Wall Street analysts believed that with the six Federal Rate cuts, the United States economy could avoid recession. Then came September 11th an attack that shook the nation.

Never had an attack been made on United States mainland soil. Two United and two American Airline airplanes were hijacked by terrorists and flown into strategic targets in America. There were at least four to five hijackers on each plane. They were armed with knives, and having at least one person among them capable of piloting the plane. The hijackers took over the planes, ousted the pilots, and directed the planes on suicide missions. Two planes crashed into the World Trade Center’s Twin Towers in New York City, another into the Pentagon in Washington DC and a fourth in Pennsylvania.

The result of the attack, the Twin Towers collapsed, part of the Pentagon was crushed, and thousands of people died. The attack was part of a jihad, or holy war by the Muslims in the Middle East against America. They resent us for our freedom and for our occupation of the Middle East. Americans responded with true American spirit and patriotism by volunteering and donating goods. Despite the shock, long-term devastation, and disruption of public infrastructure and commercial activities in the world’s financial center, the U. S. financial system largely remained open throughout the day and thereafter.

Banks and other financial intermediaries stayed open. Key wholesale and retail payment system remained operational, like other financial activities, except that telecommunication disruptions had a temporary effect. Even firms in the World Trade Center were able to resume business from other offices or from contingency sites within hours of the attack. The response of the financial industry and the speed with which it resumed business was extraordinary and can be attributed only to its long-standing commitment to ensuring continuity of operations in the wake of physical or cyber disruptions.

The terrorist attacks of September 11th sent the United States economy spiraling into recession. Many economists believe the economy has entered its first recession in more than 10 years(Wash. Post 1) The attacks on the United States will have far-reaching economic effects, further slowing a world economy already growing at its lowest rate in a decade and hastening the contraction of many economies around the world. Retail sales fell 2. 4% overall… Excluding the auto sector, sales were off a smaller 1. 6%. Commerce said the drops were the largest since the government began compiling retail data in its current form in February 1992.

Millions of people have been effected financially from these acts. The main channel through which the attacks and continued threat of terrorism can affect the world economy is by raising the transaction costs of international economic exchange resulting in a drop in the potential output. Businesses may experience higher operating costs owing to increased spending on security, higher insurance premiums and longer wait times for activity. For example, over the long term, one of the greatest costs of September 11 to Hong Kong and U. S. businesses could be the impact on logistics and transportation.

Already Hong Kong exporters and many other trading partners have had to adjust their shipments to accommodate tightened Customs screening at U. S. ports of entry. Without an international effort to counter terrorism, there will be increasing pressure to slow down commerce, further regulate the movement of people and money, and tighten controls on what moves into and out of the United States and other countries. Imports will suffer the most due to increased insurance claims. Businesses will have to hold larger inventories than before due to delays in air and rail transportation.

Trade costs may increase reducing trade and the money made from trading. The immediate reaction in the U. S. has been to reduce risk tolerance and to step away from risky investments. Risk factors of the emerging market debt have widened. There is also a real economy effect. The recessionary impact of the terror attacks has increased difficulties in those countries that were already in serious trouble. The airline and travel industry also suffered greatly due to these attacks. Airports were closed all over the world for days following the attacks.

Many people are also afraid to travel after the attacks; areas that rely on tourism as a major source of income will suffer greatly. In all but two of the dozen Fed districts, Boston and Kansas City, Mo. , there were sharp declines in the hotel, airline and tourism industries right after the attacks, followed by partial rebounds( Wash. Post 2). The price of air travel will increase due to the increase in security, as well as the need to turn a profit due to fewer passengers per flight. Also, it is likely that there will be an increase in the price of hotel rooms, restaurants, and other tourist-related businesses.

It is hard to tell how hard some industries were hit But some of the weakness, such as in retail sales and manufacturing, might have already been in train before the attacks, so the longer-run effects [of the attacks] are more difficult to assess. (Wash. Post 1) Along with the attack of 9-11, have come huge increases in unemployment. Along with the jobs lost from the Twin Towers being destroyed, the crashing economy has caused large companies to downgrade their size. Tens-of-thousands of people have lost their jobs because of the decline in the economy.

An example of this is Outside Green Bay, Wis. , Don Schneider, owner of the country’s largest private trucking company, has concluded it does not make sense to sell his big rigs after three years, now that prices on the used-truck market have collapsed. Instead, Schneider National Inc. plans to run its trucks for five years, which helps explain why DaimlerChrylser AG’s Freightliner division announced last week that it would lay off 2,700 workers and permanently close two Canadian plants. There are many different beliefs on how exactly the attacks will effect the economy.

Some people believe that the short- term effects like loss of consumer confidence and spending will pick up within a year of the attacks, some improvements have already been noticed. A significant minority believes that these attacks can have a major impact on productive potential particularly if additional terrorist activities persist. This view is based on the fact that continued terrorist activities will create instability and uncertainty leading to higher transaction costs. Another popular belief is that these attacks will ultimately benefit the world in the long run.

This belief holds that the setbacks in the economy will enable producers to shed their unproductive activities and encourage them to adopt newer technologies. Also this devastating tragedy has brought the world together like never before. This could result in better trade and new relations among the trading countries of the world. The tragedy has also increased global risk aversion that is being felt in financial markets around the world. For emerging economies this could mean a decline in capital inflows and increase in borrowing costs.

Most trading countries of the world will also have to change their internal policies to meet with the new global realities. In conclusion, I believe that the economy will emerge from this disaster stronger than it was going into it. Americans have overcome all kinds of adversity in our short history, things more insurmountable than this. The government is taking steps to boost the economy as well, Washington policy makers have already taken a few steps to try to prop up the consumer sector. The federal government has approved $40 billion in spending for disaster recovery, improving security and to aid the hard-hit airline industry.

The Bush administration has said it wants an additional $60 billion to $75 billion, mostly in tax cuts, to provide further stimulus to the economy. (USA Today 2) America is the strongest country in the world and will not let a terroristic attack stop our progress. Traffic has returned to the malls, airline seats and hotels are beginning to fill up again, neighborhood restaurants are bustling and auto sales are booming. The stock market has cautiously clawed back to pre-Sept. 11 levels and consumer confidence has regained its footing. (Wash. Post 3) Our economy is already beginning to stabilize and grow.

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