Economics Today

Economics Today

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The Economics Today

     The opening bell on the floor of the New York Stock Exchange September 17, 2001 was a ring that no one was sure about. The Stock Exchange had not been open since the tragedies that occurred on September 11, and many were skeptical about how the market would fare on its first day of trading. We lost not only our stability of our nation the day the planes hit the World Trade Centers, but the stability of our economy as well.
     The Dow Jones closed at 8,920.70 and suffered the worst point loss since December of 1998. Many other indexes dropped just as sharply after the opening bell and stayed down until the market closed for the day. The losses could have been far worse had the Federal Reserve not cut short-term federal funds interest rates from 3.5% to 3%. It was the Federal Reserves’ eighth interest cut this year and the third to occur between scheduled meetings.
     Major banks, such as the European Central Bank and central banks in Canada and Switzerland also cut key interest rates in what was seen as a coordinated effort to restrict the financial damage of the terrorist tragedies.
     However, despite government efforts, the market losses were still great. Major financial companies lost ground as well. Bank of America Corp.’s stock dropped by 5.72%. Citigroup lost 6.71%. Broader indexes’ losses were slightly lower. The Wilshire 5000 lost 513.31 points, or 5.08%, closing at 9,590.69.
     Hit hardest were the airlines. Analysts predict that the airline industry, already weakened by the slowing economy, could lose more than $10 billion in the wake of that week’s terrorists attacks. Delta Airlines plans to cut 80% of its flights. Continental Airlines officials said in a statement they have seen a “drastic drop in bookings in an already-declining economy”. Since the FAA allowed flights to resume last Thursday, Continental has been running only about 50% of its flights, with an average of about half the seats full. Continental was also said to have $800 million in cash on hand, but that it was burning through it at a rate of $30 million a day to stay in business. Many companies have told their employees to avoid airlines in light of the recent tragedies, and without help from Congress or more people flying, Continental could go bankrupt by the end of October.
     Last Friday, the House of Representatives introduced a bill that would provide $15 billion in direct aid, loans, and credit to the nation’s airlines.

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Even with this aid many experts say the outlook for the industry looks bleak.
          However, not all airlines are in serious distress. Dallas-based Southwest Airlines is resuming its full slate of flights and keeping all employees on the job. Southwest’s financial situation is not as dire as that of the bigger airlines because of low airfare and operation costs and a huge cash reserve. Before the World Trade Center attacks the company had about $1 billion in the bank and drew about $500 million on its credit line. Travel demand already had dropped this year because of the weaker U.S. economy, rising unemployment, and a decline in consumer confidence. Although regional air carriers may see slight improvement, international flights will continue to suffer greatly. During the Gulf War, airline traffic dropped by more than 20% due to fears of terrorism.
     It is too soon to predict whether or not our economy will go into a recession or whether it shall bounce back. If recent trends continue, stocks will continue to plummet and airlines will become bankrupt. Some airlines will go bankrupt and others will survive. The U.S. economy is the strongest in the world and with government assistance and the help of other nations, we will restore or economy to where it once was.

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