- The Washington Times - Thursday, September 20, 2001

Worries about the toll the terrorist attack is taking on the U.S. economy sent the stock market gyrating yesterday, with the Dow Jones Industrial Average losing more than 420 points before partially recovering to end down 144.
The market resumed its downward spiral on word from the Boeing Co. that a sharp retrenchment in buying by commercial airlines will force it to lay off as many as 30,000 workers. American Airlines and United Airlines announced another 20,000 job cuts each on top of the 26,000 layoffs already announced by major airlines. Continental Airlines executives have predicted the toll in the airline industry alone could reach 100,000.
Other economic news unsettled the market, with Eastman Kodak saying further layoffs in the photography industry are "inevitable" in light of the attacks. The company already ordered 3,500 job cuts in April.
Charles Schwab Corp. became the first brokerage to report a substantial hit on earnings from the attack that destroyed the World Trade Center in the heart of New York's financial district. Analysts say even worse news is in store from investment houses like Morgan Stanley Dean Witter and Bear Stearns Cos., which unlike Schwab suffered the loss of employees and offices in the attack.
"We are in a recession. The bombings have brought things to a standstill," said global financier George Soros in a speech in Hong Kong summing up the fear in the markets. He predicted that the global downturn would be "deeper" and "steeper" than some predicted before the attacks, "but hopefully shorter" as well.
"The early signs are that the financial system has survived the trauma," Mr. Soros said, but he warned that U.S. military action against Afghanistan and suspected terrorists is likely to buffet the market for some time to come. "The market would not take [retaliatory strikes] well," he said. "It would have a negative impact on the world."
The Dow reached its lowest point during the day, down 423 points, around the time the Pentagon ordered dozens of aircraft into the Persian Gulf region in what appears to be a prelude to a retaliatory attack. The overwhelming focus of the markets, however, was on the economic fallout from the attacks.
The Dow ended at 8,759, a new three-year low, building on its record 685-point loss Monday. The Standard & Poor's 500 Index dropped below 1,000 for the first time in three years before rallying at the end of trading.
Concern about the devastating impact of the attacks on the airline industry and the broader economy prompted House Speaker J. Dennis Hastert to convene the leaders of both parties to discuss the enactment of an "economic security" bill. Also attending the meeting were Federal Reserve Chairman Alan Greenspan, former Treasury Secretary Robert E. Rubin and White House economic adviser Lawrence Lindsey.
In addition to rushing assistance to the airlines by the end of the week, the Illinois Republican is envisioning a second round of tax cuts aimed at stimulating the economy, said Mr. Hastert's spokesman, Peter Jeffries. Republican leaders are advocating a capital-gains tax cut and investment tax credits to try to jump-start the stock market and revive business capital spending after a yearlong collapse.
Democratic leaders are pushing for a second round of tax rebates for consumers, this time to be taken out of payroll taxes. While that would dramatically deplete the $156 billion Social Security surplus this year, aides said such political considerations are no longer an obstacle.
"We've got to fight for the economy. We have suffered too many layoffs," said Mr. Jeffries. "We want to help rebuild confidence in the American economy by putting forth an economic-security package that shows lawmakers are indeed responsive to the needs of the American people."
The financial markets have reacted positively to the display of bipartisanship and cooperation in Washington since the terrorist attacks, with many on Wall Street saying that is the best thing to result from the tragedy. Many economists say the pickup in spending on defense, reconstruction and targeted aid for hard-hit industries could be instrumental in reviving economic growth in the months ahead.
"The damage caused by the terrorist attck is much larger than any natural disaster," said L. Douglas Lee, president of Economics from Washington Inc. He believes the attacks have plunged the economy into a recession that will last for the rest of the year.
But the $40 billion in rescue and reconstruction assistance already approved by Congress, and any additional stimulus, should help to lift the economy back to growth next year, he said.
Mr. Lee said the big setback in air transportation and other production industries, combined with the drop in incomes caused by the proliferating job cuts, is what is throwing the economy into recession, not the drop in consumer confidence that has been widely predicted to result from the attacks. Initial surveys indicate that confidence did not take as big a hit as anticipated in the last week.
But a survey by the Federal Reserve in the first week of the month found that consumers already were pulling back on purchases before the attacks, with spending "flat to down" around the country despite the arrival of $40 billion in tax rebates in July and August.

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