On the morning of September 11, 2001, Tuesday, the New York Stock Exchange was about to begin trading at 9:30 a.m. But it should never come to that. At 8:46 a.m. (2:46 p.m. CET), the first hijacked plane landed in the North Tower of the World Trade Center. The public launch was then postponed for the time being. When the second plane crashed into the South Tower at 9:03 am, there was no longer any doubt: it was not an accident, but a planned attack of a previously unknown dimension. To avoid panic, the exchange closed for the remainder of the week. The last time there was such a long disruption in trade was in 1933, at the height of the Great Depression. In Frankfurt, where trading continued, the Dax lost 8.5% on Tuesday alone, gold and oil suddenly became more expensive.
Nearly 3,000 people were killed in the attack on the Twin Towers in New York and the Pentagon in Washington. Al Qaeda terrorists wanted to strike a symbol of American capitalism, globalization and the Western way of life. They undoubtedly succeeded. It was on Wall Street, a few blocks from the World Trade Center, that the economic fallout from the terror first manifested itself. And the whole world could watch.
The Federal Reserve was the first aid in an emergency. Its boss Alan Greenspan tried to calm the markets by immediately specifying that the Fed would provide virtually unlimited money. Liquidity shouldn’t be an issue, which would happen anyway. When Wall Street reopened the following Monday, the mood was still extremely tense. The Dow Jones lost 7.1% or 684 points. In absolute terms, this is the highest daily loss in the history of the index. The week even ended with an overall loss of 14%. It was dramatic, but not an expression of panic. The Federal Reserve succeeded in stabilizing sentiment in financial markets.
The central bank was responsible for the rapid recovery
However, that did not change the fact that the consequences of the terror hit some businesses hard. For example airlines. Many people were now afraid to board a plane, air traffic fell 2.7% in 2001, the Belgian Sabena and the Swiss Swissair had to give up. In addition, high investments in security were necessary. New York City itself has also been hit hard: rough estimates show that 430,000 jobs have been lost in the metropolis as a result of the attacks and 18,000 small businesses have had to give up. Tourists avoided the city, which meant that one of New York’s most important economic factors was lost for months.
After that, we had to fear the worst for the world economy. She was in critical condition before September 11. In March 2001, a recession had started in the United States. The trigger was the collapse of speculation on new internet-based businesses, the so-called dot-com bubble. In fact, however, the great crisis after the terrorist attack did not materialize. New York quickly recovered and soon became more attractive (and expensive) than ever. The recession ended in November 2001, making it one of the shortest in history. The central bank was again responsible for the rapid recovery. The Fed cut its key rate four times during the year to 1.75%, the lowest level since the 1950s.
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There is a direct path from the September 11 attacks through the housing bubble to the 2008 financial crisis.
The cheap money policy worked as expected, but it also had unwanted side effects. Because loans were incredibly cheap, a real estate boom began in California, Nevada, Florida, and other states, driven by increasingly questionable funding models. In August 2007, the real estate bubble burst and the financial crisis erupted. In this regard, a direct path leads from the September 11 attacks to the bankruptcy of investment bank Lehman Brothers in 2008, which nearly caused a collapse of the global economy. The financial crisis has deeply shaken confidence in American capitalism.
One of the consequences of September 11, however, is that security has become more important and more expensive in the Western world. It starts with complex checks at airports and does not end with security barriers in high-rise office buildings.
Critical state of US public finances has something to do with 9/11
Above all, this includes the “war on terror”. President George W. Bush declared it before both houses of Congress on September 20, 2001. Barely two and a half weeks later, the United States and its allies attacked the Taliban regime in Afghanistan. The Iraq War followed in 2003. The United States funded the war on terror, like the Vietnam War once, mostly with debt, which was facilitated by low interest rates. It was a turning point in American financial policy. Before Bush, Democratic President Bill Clinton ended his predecessor’s deficit policy and generated growing budget surpluses. The level of US debt was declining rapidly. Bush has completed this course. The first step was a generous tax reform, which mainly relieved businesses and the wealthy. The second step was the fight against terrorism. Today, 20 years later, the debt burden of the US state is almost as high as it was at the end of World War II.
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US President George Bush after his speech in the House of Representatives on September 20.
(Photo: Gary Cameron / Reuters)
The turn in financial policy under Bush changed the country. An informative article was published in the latest issue of Foreign Affairs magazine. The author is Former Officer and Veteran Elliot Ackerman. Because the war on terror was financed on credit and waged by an army of volunteers, the majority of Americans were “stunned” at the cost of the war. This had “profound consequences for American democracy”, “consequences which can only be fully understood now”: spending for the war had been decided without public debate, while the government decided on other tasks, such as health care or the fight against the pandemic, always justify it. The critical state of US public finances also has something to do with September 11.
The economic and political consequences combine here. For economist Hans-Werner Sinn, September 11, 2001 was therefore a “turning point”. The terrorist attacks had “demonstrated the vulnerability and powerlessness of the United States in the eyes of the world,” said the former president of the Ifo Institute in Munich. The war in Iraq, the war in Afghanistan, the jasmine revolution in North Africa and finally the war in Syria followed. “The Islamic world was destroyed, while America was weakened and stripped of its shine and stood on the brink of rubble. The emaciated peoples of Arabia are pushing towards the EU and Germany. In the chaos that has taken hold, China is preparing a change of power, ”Sense said.
The West’s catastrophic defeat in Afghanistan – almost exactly 20 years after the terrorist attack on America – proves it.