New York – The terrorist strikes of Sept. 11, 2001, changed the U.S. economy in ways that no one expected five years ago.
Instead of plunging the U.S. into a recession, as many economists predicted, the attacks helped set the stage for a consumer-powered recovery as the Federal Reserve slashed interest rates and the federal government increased spending and cut taxes in response. Since the tragedy, the economy has grown at an average annual rate of 3.1 percent, close to the pace set in the 1990s.
The economy’s resilience came with a half-trillion-dollar increase in government spending on homeland security and wars in Iraq and Afghanistan, a $4.3 trillion jump in household debt and a 50 percent increase in house prices. While these helped speed the recovery from the attacks, they may have left the economy more vulnerable should such a shock occur again.
“We’ve become more unbalanced and fundamentally more precarious as a result,” says Stephen Roach, chief global economist at Morgan Stanley.
In 2001, the government ran a budget surplus of $128 billion. Now it’s in deficit to the tune of $318 billion in the fiscal year ended Sept. 30, according to the Congressional Budget Office, thanks in part to spending on the war on terrorism and tax cuts to stimulate the economy.
Consumer debt, including mortgages, credit cards and car loans, mushroomed in five years to $12.2 trillion from $7.9 trillion as Americans used the low interest rates engineered by the Fed to finance a spending spree. The median price of an existing home ballooned to $230,000 from $153,000 in September 2001.
War in the Middle East following the Sept. 11 attacks helped push the price of a barrel of crude oil to $68 this month from $28 five years earlier. A gallon of regular gasoline averaged $2.73 last week, compared with $1.53 on Sept. 10, 2001, according to Energy Department figures.
