Will Katrina "Cause" a Recession?

[Barkley]

I was listening to Johhny Windell (sitting in for Randi Rhodes) today (Monday) and he brought up possibility of a recession. In addition to higher fuel prices, the loss of the New Oleans ports will impact trade and the economy. Not to mention that hundreds of thousands of people will have NO income in the short-term. The amount goods and services produced and consumed by the displaced people is now zero.

And they're not all poor and low income workers.

However I feel the Fed really manages much of the business cycle. And unlike 9-11 (when the economy was already in a recession that started in 03/01) lowering interest rates might not be the Fed's response to Katrina.

The federal funds rate was rising before Katrina; presumably in an effort to 'maintain price stability' (read control inflation).

Before Katrina, there were legitimate concerns that higher fuel prices and inflated real estate prices would conspire to produce inflation.

If anything Katrina has exacerbated these fears; fuel price have risen.

I believe, the Fed will not risk inflation and lower the interest rates as he did following 9-11.

It will be easy to blame a recession on Katrina, and she bears some blame. But if rates stay high or go higher then the Fed shares some responsibility.

What you think?

[skooooo]

1. Forget recession...

this could spiral downward to leave us in an economic depression.

[rzemanfl]

2. Second that. They need to postpone the new bankruptcy law

until the Dems can get Congress back.

[Lost-in-FL]

3. That's true

I was talking about this bankruptcy law with my husband the other day. This is worrysome. I even mentioned the "D" word... I think we will get it this time around. And what is scarry is that W will implement more tax cuts since he is to FKNG stubborn just to show his tough side.

[mandyky]

7. GWB has been working us into a depression

since day one, hoping it would not start til he was outta office. Katrina has made that next to impossible.

[despairing optimist]

4. Markets topped before Katrina, but hurricane will be used as red herring

because it coincided with, or actually preceded, the major downswing that should begin very shortly. It's going to make 2000 look like a blip. It will be a Category 5 stock and bond market crash. Lots of people will lose their investments for good this time.

We can thank the ruinous economic policies deliberately implemented by the Bushistas in the guise of fighting the war on terror and stimulating the economy by giving tax cuts to millionaires while greatly increasing defense spending on Bush's corporations and worsening the already huge trade deficits with Asia, Europe, and the Middle East.

The dollar may stage a brief rally, but after that it will go into a downward spiral reminiscent of what happened in Germany during the 1920s. Entitlement programs will continue to receive funding, but the dollars will be virtually worthless. It's not so much "starve the beast" as it is "kill the beast." Rough times ahead for most of us, but Bush and friends have their holdings offshore, so they won't feel much pain.

[enid602]

5. Katrina

The disaster in of itself should not cause a severe recession. Remember, the stock market was highly overvalued prior to 9/11, and ready for a tumble. The same market reaction in the aftermath of Katrina is not likely.

Evacuees SHOULD (hopefully) be able to swiftly access unemployment insurance, welfare and Medicaid benefits. Increases in construction during the rebuilding phase should boost the economy. An increased expenditure on our woefully underfunded infrastructure would provide benefits as well. Remember, insurance claims will be shouldered by a large number of companies, many of them foreign. The WTC was insured primarily by a French outfit, which might explain French interest in speculation that the US Gov't had something to do with 9/11.

That said, the above scenario would assume that our Gov't will end foreign adventures, manage its currency and clean its house by attacking the federal and trade deficits. Such a policy would appear unlikely to be adopted by Bushco.

[wli]

6. The Iranian oil bourse is a bigger threat by far.

Katrina will hurt badly, but the bourse opening up next year will blow the petrodollar to smithereens. That's going to be a permanent landscape shift. We'll be in Argentina-like hyperinflation, with no manufacturing base, no domestic oil production, and probably even heavy sanctions once the rest of the world isn't so afraid of our military.