Weakened U.S. Economy Braces for a War With No Likely Spoils
The outbreak of war in the Middle East would almost certainly send a shock through an already fragile U.S. economy. Oil prices would climb quickly. Stock and bond markets would gyrate wildly. Decisions and plans would be put off by people running businesses and households all across the country.</br></br>But whether such an economic ruckus lasts hours or months will hinge on what happens in the fighting, economists and financial analysts say.</br></br>A rapid triumph over Iraq without serious damage to oil facilities could boost consumer confidence and send oil prices tumbling below levels that prevailed before the Iraqi invasion of Kuwait. A military stalemate, coupled with an interruption in oil supplies, could plunge the economy into a deeper recession as inflation is ignited, interest rates climb, federal budget deficits balloon, real estate values plummet and consumer confidence collapses.</br></br>Initially, experts expect a period of confusion as people try to figure out the course of the fighting. How markets react at first could depend on what time of day war begins.</br></br>"If we wake up and find that the air war has already been decided, then maybe {the markets} won't go down that much," said Charles Lieberman, managing director of Manufacturers Hanover Securities Corp. "If the war starts during the working day, then it will be much worse." "In the short run, it will lead to utter paralysis," said Frederick N. Khedouri, a managing director of the investment house Bear Stearns and a former official at the Office of Management and Budget. "Nobody's going to do anything because they won't know what to do."