2001 - Commerce

Commerce

A controversial tax bill signed into law by President Bush June 7 echoes 1981 legislation, cutting income taxes by $1.3 trillion over the next 10 years, phasing out estate taxes and providing for almost immediate disbursement of checks to ordinary taxpayers, but making it difficult to fund federal programs supposedly favored by both parties. It soon becomes apparent that federal revenues will fall far short of expectations. The Bush administration releases projections August 22 that for the current fiscal year the government will run a surplus of only about $600 million outside of Social Security, down from the $122 billion estimated in April; President Bush tells reporters at his Texas ranch August 24 that the lower surplus projection is "incredibly positive news" because it will create "a fiscal straitjacket for Congress" and stop the growth of the federal government, but the country will soon be running a deficit rather than a surplus; critics warn that money is lacking for military appropriations, that revenue shortfalls will force cutbacks in education, health care, police protection, and other services, and that lower taxes will soon put funding of Social Security, Medicaid, and Medicare in jeopardy (see 2002).

Some 100,000 opponents of globalization demonstrate at Genoa in a more violent continuation of the movement that tried to shut down Seattle in December 1999; police kill agitator Carlos Giuliani July 19 as protests against the G-8, International Monetary Fund, World Bank, World Trade Organization, and other multinational institutions escalate. Environmental groups and labor unions generally reject use of weapons and violent confrontations, responsible business leaders and most of the press dismiss the demonstrations as expressions of neo-Luddite anarchism, noting that global poverty has actually decreased. While economic growth has slowed in most countries, it has grown in China and India, home to more than half the world's poor. Some reputable economists break ranks with their peers, however, and recognize that there is some legitimacy to the protests (see Nonfiction, 2002).

The Bush administration acts August 22 to support an International Monetary Fund proposal to provide $8 billion in new loans to Argentina on top of a $13.7 billion loan package provided in January. The IMF plan includes putting pressure on private lenders to help Buenos Aires reschedule some loans, but the IMF has loaned Argentina $18 billion since 1999, the money has gone mostly to servicing the South American country's external debt rather than to helping it expand its export trade, President Fernando de la Rua has been unable to push through budget cuts promised as a condition for another IMF loan, and the Monetary Fund announces December 5 that no more loans will be forthcoming but that it will work with the Argentine government to develop an acceptable economic program that will trigger release of $10 billion in previously approved loans. Outstanding loans to foreign banks and bondholders total $135 billion, and the bonds have been trading at 20 to 35 cents on the dollar; economic minister Domingo Cavallo, now 55, resigned last year, having guided the nation's policy of deregulation and privatization; he designed the Convertibility Plan that tied the peso to the U.S. dollar on a one-to-one basis, and he resigns again in December as Argentina defaults on her $155 billion debt, the largest in the world. The banks and bondholders will have to accept lower rates and longer repayment terms, and the peso will be devalued, either by being allowed to float freely or by being pegged to the dollar at a lower exchange rate (see 2002).

The World Trade Organization (WTO) admits both the People's Republic of China and Taiwan in ceremonies in Qatar November 10 and 11, bringing membership to 144 countries (see 2000). Delegates from the other 142 countries then agree after years of wrangling to begin a new round of trade talks intended to keep the global economy on track toward freer trade and investment.

The worldwide recession brings demands that Congress support a stimulus package that would revive the flagging U.S. economy. Opposition to government spending dwindles after September 11 as Americans of all political stripes turn to the federal government for solutions, but a Bush administration plan based on accelerated (and permanent) tax cuts draws criticism that it includes elimination of capital-gains taxes and that most of the income tax reductions will benefit the rich, providing no quick stimulus to the economy. Some economists urge repeal of the legislation signed June 7 to minimize deficit financing of new needs for government action.

U.S. exchanges do not open September 11 following the attack on the World Trade Center and remain closed until September 17, the first such shutdown since the outbreak of World War I in 1914. Wall Street's Dow Jones Industrial Average closes at a new low for the year September 17, falling a record 684 points (7.1 percent) to 8920, despite a cut in the fed funds rate from 3.5 percent to 3 percent. Heavy selling continues all week, and by Friday's close the Dow has sustained its worst one-week fall since July 1933, dropping 14.26 percent and losing $1.4 trillion in value.

Bethlehem Steel Corp. files for Chapter 11 bankruptcy protection October 15 as the third-largest U.S. steel producer struggles with cheap foreign imports plus high labor and retiree costs.

The Dow Jones Industrial Average closes December 31 at 10021.50, down from 10876.84 at the end of 2000. The NASDAQ closes at 1950.40.