The US Economy after September 11th. Decline or Rapid Growth? (Экономика США после 11-ого сентября. Снижение или Быстрый Рост?)

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    Тема: The US Economy after September 11th. Decline or Rapid Growth? (Экономика США после 11-ого сентября. Снижение или Быстрый Рост?)

    The US Economy after September 11
    Decline or Rapid Growth?
    Katya Banina, group #110.
    On a common Tuesday, September 11
    th music on my favourite radio station was interrupted by a special news block, which reported that an airplane tore into the one of the twin-towers of the World Trade
    Centre in New York. My first thought was about dramatic weather conditions that could have led to such a terrible accident. I couldn’t even imagine that it might have been a terror
    act or something like that. In some minutes together with millions of people all over the world I was watching views of the catastrophe on TV and couldn’t believe my eyes. If I hadn’t
    heard about this before, I would have definitely thought that a new Hollywood movie was on. The understanding and feeling of what had happened and of the scale of this came only after
    some hours of embarrassment and shock…
    But business and economic spheres can’t afford hesitation and delay. On this day ruined not only the walls of the World Trade Centre, but also, which is much more important for
    the economy, the assumption of the USA being a standard of stability, trust and prosperity. Businessmen
    , investors
    and brokers recognised that the faster they reacted, the more they benefit (or probably the less they lose) in the situation. Market response was immediate. Words of Alan
    Greenspan, chairman of the Federal Reserve, illustrate it
    : “Greater uncertainty for business and consumers hits economic activity, at least in the short term”.
    Already since the beginning of the year 2001 economists have been arguing about whether the economy of the United States was declining or not. The situation, indeed, was not very
    obvious because of a number of attempts of the Federal Reserve to stimulate the expansion by cutting the interest rate. Today, however, practically all of the specialists say that the
    American economy is in recession. Now there is no common view on how long and how deep the recession will be and how to evoke the recovery. To illustrate this I want to note that one
    group of economists believe that
    cause of this recession is not terrorism, but rather the economic and financial imbalances that built up during the late 1990’s, and that the incident of the September 11
    th was only a jolt to aggravating the situation. Firms overinvested and overborrowed due to inflated expectations about future profits. Households borrowed heavily too,
    believing that share prices would rise forever. Thus, it will take time to bring consumption, investment and loans to their natural rates. Despite this, there is also a point of view
    that the events of September 11
    th have made a V-shaped recession and recovery more likely: a swift slide down one slope, sufficient to propel the economy up the next.
    Now it is high time to consider facts, mainly statistical, which are important in the analysis. It’s better, to my mind, to begin with the pessimistic prognosis.
    Economic
    data
    published since September 11
    th have, not surprisingly, been
    gloomy
    . America's industrial production fell in September by 1%. That was its 12
    th successive month of decline, the longest unbroken fall since 1945. The current manufacturing activity had plunged to its lowest level since February 1991. The 5.8% output
    loss of the past 12 months is already greater than in the recession of 1990-91. Retail sales also fell in September, by 2.4%, consumers cut back their spending in September by the
    largest amount in nearly 15 years. To cope with sagging sales, manufacturers have sharply cut back production and shed workers. The nation's unemployment rate leaped from 4.9% in
    September to 5.4% in October, the biggest one-month jump in more than 21 years. This is the highest unemployment rate since December 1996. 415,000 jobs were eliminated during the month,
    which represented the biggest cut in payrolls since May 1980. Manufacturing, airlines, travel agencies, hotels, retailers were among those suffering big losses. ''Companies are in
    survival mode and they are cutting jobs to control costs,'' said economist Ken Mayland of ClearView Economics. ''The tragic events of September 11
    th and their aftermath probably tipped the economy into recession. People are waiting for the other shoe to drop.'' There is one more indirect evidence of the tough state of
    staff policy in American companies: many of them are planning to cancel traditional Christmas Parties due to their poor financial condition.
    Thus, according to the GDP report of the government, the economy contracted in the third quarter.
    Even with a mild recession in America, then, this could still turn out to be the most severe world recession since the 1930s. (Such a recession is commonly defined as annual
    growth of less than 2%.) Global growth is predicted to be average 1.5% in 2001 and 2002, its slowest two-year period during the past 50 years. This increases the risks for America,
    because contracting trade can amplify a recession. Last year the volume of world trade grew by 13%, this year growth may fall to zero. When nominal GDP growth falls so low, central
    banks have less scope to use monetary policy to boost demand, profits grow more slowly than expected by stockmarket investors, borrowers find it harder to repay debts.
    There is also one factor, which some specialists consider to be one more evidence of weakening economy: profits of confectionery companies grew this year by 15%. Statistics say
    that this is often an indication of recession, as many people can’t satisfy their luxury wants any more, but consuming larger amounts of sweets, which are comparatively
    cheaper.
    In addition with the wide-spread view that the country has entered its first recession in a decade, analysts are predicting that inflation pressures, which have been moderating
    for a year, will retreat further, especially in the area of wage pressures, as the surging unemployment rate dampens workers' demands for salary increases.
    Economists are afraid of that continued fallout from the attacks, worries about anthrax in the mail, tumbling consumer confidence and rising unemployment, will keep
    consumers
    tightfisting
    , further weakening the economy.
    But let us now switch to the more optimistic prediction as
    many economists still reckon that America's recession will be brief and mild. They predict that GDP of the USA will decline till the second quarter of the year 2002, then will
    start to recover with quite a strong growth, by 3-4%. If the prognosis turns out to be right, it will be one of the shortest and mildest recessions on record. And there are three main
    reasons to believe in it:
    It is argued that firms have already made steps to cut back unwanted inventories and overcapacity.
    In contrast with three previous recessions, oil price has fallen.
    America benefits much from monetary and fiscal policy. Interest rates have been cut ten times this year, including three reductions after September 11
    th, to their lowes...

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