Greenie Blames Terrorists
Greenspan paints a grim picture
Globe and Mail
Barrie McKenna
00:00 GMT-04:00 Thursday, October 18, 2001
WASHINGTON -- The U.S. economy is paying a steep price for the Sept. 11 terrorist strikes as businesses and consumers grapple with the uncertainties of living in a hostile world, Alan Greenspan says.
Even a month after the attacks, the cloud of new terrorist threats still hangs over the economy, the U.S. Federal Reserve Board chairman told a congressional committee yesterday.
Companies are facing higher insurance premiums and new security costs, Mr. Greenspan noted, and businesses are also taking extraordinary steps to protect their production and sources of supply.
"The shock of the tragedies at the World Trade Center and the Pentagon has reshaped . . . assessments of risk and required an abrupt realignment of prices in many markets to reflect the expected costs of operating in what we now recognize as a hostile world."
In fact, U.S. markets are pricing in expectations of further attacks, he said.
"There is a discounting, an expectation that we will have other events occurring," Mr. Greenspan said. "Clearly, we don't know the extent to which the markets have discounted or to what level that discounting has occurred, and we probably will not know until we actually see, if at all, a new type of event emerges."
Anthrax exposures in New York, Washington and Florida have rattled a population that was already unsettled by the Sept. 11 attacks, which killed more than 5,000 people.
Mr. Greenspan said the new reality is taking a toll on business decision-making, not just because of the added costs, but because the future is suddenly so uncertain.
"It seems quite likely that a repricing of risk has already found its way into our markets, as many economic decisions are responding to shifting market signals."
And he warned that the sudden focus on security will take at least a temporary bite out of U.S. economic output without "contributing to our standards of living, as was the case during our military buildup of the Cold War."
The attacks are also likely to damage productivity growth, which helped contribute to the U.S. economic boom of recent years.
"The level of productivity growth will presumably undergo a one-time downward adjustment as our economy responds to higher levels of perceived risk, but once the adjustment is completed, productivity growth should resume at rates in excess of those that prevailed in the quarter-century preceding 1995," Mr. Greenspan said.
He also pointed out that while the economy is recovering from the initial shock of the attacks, progress remains "uneven" and many sectors are still suffering, including travel, car sales and retail activity.
He noted that there has not been the kind of "snap-back" that would be expected after a one-time event, such as an earthquake.
But Mr. Greenspan gave no clue about whether future interest cuts may be needed.
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