Bush assurances at odds with evidence

US President George W. Bush sought at the weekend to reassure Americans that the nation's deeply-wounded business and financial structures would rapidly recover from the September 11th attack on the World Trade Centre, even as evidence accumulated that it has delivered a crippling blow to an already flailing economy.

A special survey of US economists conducted after the attacks concluded that the world's biggest economy is now in a recession. The good news was that the majority predicted this economic contraction would be milder than the 1990-1991 recession.

"The terrorists who attacked the United States on September 11th targeted our economy as well as our children," Mr Bush said in his weekly radio address on Saturday. "They brought down a symbol of American prosperity but they could not touch its source."

However Mr Bush did not spell out what specific actions the administration could or would take, other than a $15 billion bailout (€16.4 billion) for the airline industry, which he signed on Saturday. Congress is already dividing on partisan lines on how to rally the economy. The administration is considering a special package of measures to give the economy a boost, including permanent tax cuts for businesses and a reduction in corporate income taxes, officials said.

Some Republicans are pressing for a reduction in capital gains tax to make investment more attractive, but Democrats want temporary tax cuts for workers and special measures to help the 100,000 people thrown out of work last week as the airlines struggled to avoid bankruptcy.

Meanwhile Wall Street is bracing itself for a further round of heavy losses after falling 14.3 per cent in its worst week since the Great Depression. Calls for patriotic support of the stock market came to nothing when big investors had no choice but to unload shares because they needed the money to make margin calls. More than $1 trillion in stock market wealth has evaporated since Monday. In the week the Dow Jones industrial average plummeted 1,370 points to 8,235. The Nasdaq composite index sank 272 to 1,423 and the Standard & Poor's 500 tumbled 127 to 965.

Institutional sellers and investors who trade on margin with money borrowed from a brokerage are considered responsible for the big sell-off on the market, where, as one analyst said, "there are no patriots, just people trying to make money".

The current post-trauma slump has been compared to the aftermath of a bomb attack on the New York Stock Exchange 81 years ago that killed 30 people and injured hundreds. The September 16th 1920 explosion in a horse-drawn carriage was allegedly carried out by foreign criminals. Then as now it occurred in the middle of an economic slump, with the Dow index down 22 per cent, according to Markethistory.com.

Investors looking for clues about the coming months will note that for 11 months after the 1920 incident the markets continued to fall, but that when they did bottom out in August 1921 the great bull market of the 1920s began, lasting for eight years.

The reason investors are selling stocks in the aftermath of the Trade Centre attack is the same: corporate earnings will get worse and it could take months before the effects are fully felt in all sectors of the economy.