Stardate 20010914.1146 (On Screen): The US economy was already in trouble before this attack, and it's likely to make things worse. Not only was the economy itself damaged (by the loss of the offices and people who worked in them in those buildings) but the loss in confidence is liable to change people's behaviors in a way which will negatively affect the possibilities for a short term recovery. US stockmarkets remain closed today, but stocks in Europe are
dropping like a stone. Which brings us to the Fed.
Usually, when the Fed wants to stimulate the economy it does so by manipulating interest rates. Early this year it engaged in the most rapid cutting of interest rates in its history, but usually there's a substantial time delay before that takes effect, if it does at all. The latency is generally considered to be nine months or a year, but of course if the results of this disaster do what is expected to the economy then the effects of the January cuts will now be nullified. But the Fed has a different way of stimulating the economy, and that's to pump up the supply of currency. The effect of that is more immediate but the Fed generally doesn't like to use it because it has a high chance of causing inflation. But when the economy actually faces disinflation because of people hording cash, that's the only answer. (Understand that this doesn't mean "hording paper bills"; you can horde cash in a bank account.) Facing concerns about a mass sell-off of stock next Monday when US markets are scheduled to open again, the Fed has pumped over a hundred billion dollars worth of cash into the economy to maintain liquidity. I've been wondering when they would come to this; I hope we don't regret it. (discuss)
