One major international financial institution, Deutsche Bank, is taking a much more optimistic view of the medium-term prospects for the American economy. In a report issued in the aftermath of the Sept. 11 terrorist attacks, Deutsche Bank reserachers predict a short-term fall in confidence but a recovery coming much more quickly than most analysts are predicting.

“[The] tragedy in New York is a watershed event with strategic, political, economic, and financial ramifications of a magnitude not seen since the end of the Cold War,” the report says. “It marks the beginning of a new age of American foreign policy (and, probably, also that of the rest of the industrialised world) that is likely to be characterised by higher security spending and more activist economic and military intervention into overtly hostile states.”

In light of this, the bank is developing a view that it admits is “diametrically opposed to the evolving market consensus.” The bank feels that the “combination of an unanticipated by permanent fiscal stimulus supported by an accommodating Fed will prove highly expansionary for the U.S. economy by the early part of next year.”

JCK