U.S. Economy is not on the verge of collapse

As we all struggle to understand the overwhelming loss of human life from Tuesday’s tragedy and to assess all that it means for the American way of life as we have known it, I find it troubling that so much of the immediate “punditry” emanating from Wall Street is suggesting that the economic outlook has suddenly worsened seriously.For sure the cessation of all air traffic for the last two days and its only gradual resumption over the next week will indeed have a negative impact on economic activity over the near term. Additionally, the shut down of the financial markets will have an impact as will the near halting of all but the most essential activity in NY City. However, to extrapolate that into a serious global recession with its concomitant impact on financial markets is an overreach. It is reminiscent of October 1987 when, within days of the stock market crash, many Wall Street economists and strategists wrongly foretold of a recession in 1988. But strong monetary support from the Federal Reserve as well as corporate capital commitments to buy back stock provided the necessary moral and financial support to help investors and the general public through a difficult period, and real GDP in 1988 grew a strong 3.5 While New York is the epicenter of the financial markets, it does not drive economic activity around the country much less the world. And while the spectre of terrorism is frightening, we are not likely to engage in bunker mentality.The core equilibrium of our society and our financial structure remains intact. The waves of anxiety produced by the terrorists do not disturb that equilibrium. The innate resilience of our people is the bedrock strength of our society. Historically, those who have bet on disintegration in the U.S. system have always lost, and those who have invested in its security have reaped enormous rewards. The messages sent over the next few days and weeks by our Government, the Federal Reserve, the SEC and corporations all over this country will have a significant impact on the state of mind of both the general and the investing public.A strong bipartisan commitment by the Congress to support the President in his efforts to bring to justice the terrorists has been voiced. But beyond that, Congress needs to support fiscal simulative for the already very weak domestic economy. The futile bickering over the budget surplus or deficit and the short run implications for the Social Security trust fund must end. Huge amounts of Government aid will need to be sent to New York, the financial capital of the world. If that results in a budge deficit, so be it. The return on that capital will be huge in the long run.The Federal Reserve has given assurance that it will provide the necessary liquidity to meet the needs of this crisis. Given the generally deflationary environment globally (the rising price of oil notwithstanding), there is ample room for continued easing of monetary policy. The SEC is considering making it easier for corporations to buy back stock should panic selling ensue when the markets reopen. It is also engaging in moral suasion to ensure that profiteering does not take place at the expense of liquidity in the markets. These are very positive steps, which should provide moral support to the financial markets. The sooner the markets can open, the better. The rest of the world’s markets are waiting to see what happens when our markets open to get their cue. If calm prevails over panic, if liquidity is evident, markets around the globe will fall in line. The state of the financial markets will have an influence on the state of the economy.While there no doubt will be some harmful fallout over the near term on the economy from the terrorism of September 11, the strength we derive from of our democratic system of government, our open markets and our economy based on capitalism will sustain us. New and very visible measures of security will change the way we lead our lives and we will accept those and live with them. Americans are an optimistic people who see the future as better than the past and in adversity we pull together. The spirit of generosity, support, sharing and compassion so evident throughout New York City during this most awful time is a reminder of our inner strength. I believe that optimism and hope will prevail over anger and grief.