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STRATFOR.com
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THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
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Anti-Terrorism War To Slow Economic Growth
May 6, 2002
Summary
The U.S. Treasury Department is issuing $33 billion in government securities this week to close a budget gap largely triggered by higher defense spending following Sept. 11. But, by tapping the financial markets, the government may be hampering the current economic recovery. One upside, however, is that this should delay the Federal Reserve's pending interest rate hike until July or August, giving debt-burdened Americans a break before they have to resume payments in full.
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Analysis
The U.S. Treasury Department May 6 began selling $33 billion in government securities, $3 billion more than expected, to cover the expected budget deficit for the second quarter. The brief 2001 recession and the post-Sept. 11 increase in defense spending has caused the first U.S. deficit in five years. Of the $33 billion total, $24 billion is to raise fresh cash; the rest is debt rollover.
The government's need to finance its war on terrorism will take investment capital out of the private market at a time when it is dearly needed to help strengthen the economy in the mid-term. The move will dampen the robust recovery that has emerged of late and will hit mortgages and long-term financing in particular. But the news is not all bad; lower interest rates will probably be extended for a few months, giving Americans a bit more time to get their debt under control.
The recession and anti-terrorism campaign have both affected the government's bottom line in many ways. First, the recession has reduced government revenues; April tax receipts were down 30 percent in 2002 from a year earlier.
(The Rest of the Story)
(c) 2001 Stratfor, Inc.
Dan
Anti-Terrorism War To Slow Economic Growth . . .