- The Washington Times - Thursday, September 13, 2001

World markets plummeted yesterday on fears that the U.S. and global economies will fall into recession if the worst terrorist attack in history causes American consumers to hunker down and rein in spending.
Japan's main stock index, the Nikkei 225, plunged below 10,000 for the first time in 17 years in a head-spinning 7 percent drop that left the Tokyo stock index at 9,610 — within striking distance of the Dow Jones Industrial Average for the first time in nearly a half century. Wall Street's financial markets were closed yesterday amid shock and mourning for the thousands of financial workers who lost their lives with the leveling of the World Trade Center.
Regulators announced that the New York Stock Exchange and other U.S. stock markets would remain closed today and may not open until Monday to prevent any interference with the rescue of workers trapped in the rubble. Trading in futures and bond contracts was scheduled to resume today on the Chicago Board of Trade.
"Acts of evil will not cripple the markets. Our financial system is, and remains, strong," said Deputy Treasury Secretary Kenneth Dam, like other officials seeking to put the best face on the tragedy engulfing the world financial center.
Hong Kong's Hang Seng index plunged 9 percent to its lowest level in 21/2 years, but European markets steadied out some after falling to three-year lows on the news Tuesday. London's FTSE100 Index managed a 3 percent gain, but remained down by more than 6 percent from its levels before the terrorist attacks. The dollar stabilized and gold markets settled back after Tuesday's initial flight into safe-haven investments.
Aiding the markets yesterday was a concerted move by the world's leading central banks to pump more than $100 billion into the banking system in a move akin to cutting interest rates. Banks, which were for the most part open for business in the United States despite the devastation on Wall Street, reported substantially elevated levels of withdrawals in the wake of the attacks.
"We are committed to ensuring that this tragedy will not be compounded by disruption of the global economy," the Group of Eight finance ministers said in a joint statement.
Despite efforts to show that business continues as usual, regulators decided against reopening Wall Street's stock exchanges in view of the rescue efforts, the loss of critical financial workers and worries about a panicky reaction by investors. The Dow, the Standard & Poor's 500 index, the Nasdaq Composite Index and other major stock barometers already were at or near their lows for the year before Tuesday's devastating attack.
Federal Reserve officials, Wall Street financial houses and major business groups said that while the terrorist attacks in themselves are not enough to sink the economy into recession, investors and consumers could bring that about if they panic, pull money out of their banks and investment accounts, wall themselves off in their homes and stop spending.
"This is a big shock for everyone, so I think it may affect consumption and that may then push the economy into a recession," said U.S. financier George Soros in remarks in Beijing.
Consumers so far this year have been the main prop keeping the U.S. and global economy out of recession. Some economists said that this week's work stoppages and travel disruptions caused by the attacks may be enough in themselves to tip the teetering U.S. economy into recession.
Robert McTeer, president of the Fed's Dallas reserve bank, noted that growth had stalled even before the attacks. But he told businessmen in Dallas that the economy should stay afloat as long as consumers don't throw in the towel.
Mr. McTeer noted some similarities between Tuesday's attack, apparently motived by Mideast tensions, and the 1990 Persian Gulf crisis, which prompted a consumer retrenchment that plunged the economy into recession. A key difference, however, is that energy prices are not threatened by the suicide bombings as they were by the breakout of war in the Persian Gulf, he said.
"In a horrible situation like this, the first reaction is to sell," said Tobin Smith, founder of Changewave.com, an investment company that expects massive selling of insurance, airline and financial stocks when the markets reopen. "That is exactly the wrong decision."


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