What Did 9/11 Actually Do to the US Economy?

6 posts


The most widely acknowledged financial effects of 9/11 on the US is that it prompted an enormous boost in government spending on Homeland Security and it convinced the citizenry to permit expensive military occupations in Afghanistan and Iraq. This has all been paid for with borrowed money, and has contributed to the national debt. But did 9/11 have a wider effect on the US economy than helping to swell an already broken budget? Is 9/11 a critical root of the current economic condition in America?
Was 9/11 a big splash the waves of which have long settled, or was it a rock to the windshield that's been cracking to this day?


Mohammed Atta effectively shoved the US into the housing bubble, the bank bailouts, and all that's come as a consequence?

- Vice Chairman of the Federal Reserve Board 2003
- Marc Faber

Good work, Ango.

I don't think 9/11 itself was responsible for this per se , but the response in monetary and fiscal policies as a result were the cause.

Also, the above shows the muddled thinking with the policy-makers. They believe confidence is the engine of economic growth, and the bedrock of stability.
In an economic sense, they're wrong. Economic activity drives the economy, be it saving/investing or spending. But in another sense they're right; they rely on public's confidence in policy-makers. If they lose confidence in the economy, they've lost confidence in the policy makers, then the political order could be disrupted. That would also cause economic problems. Their economic reasoning about the economy is incorrect, but their political reasoning about the economy is correct.


In short, without 9/11 the Fed would have had far less cause to lower interest rates as low and as long as they did, which would have lessened the number of adjustable-rate mortgages, which would have lessened the defaults the banks incurred and failed to incur.

Xenophon, the question is then; what would have happened if the Fed didn't lower interest rates in the wake of 9/11?
Short, severe recession, followed by recovery driven by savings and re-liquification of funds. This might have been politically unpalatable.

Also remember that the dot-com bubble was usually a reason cited for the fed's activity during this period.