Katrina may pack an economic wallop.
The Christian Science Monitor has a story on the hurricane’s effect on the economy, currently growing at a 3.3% annual rate. (*)
The macroeconomic challenges are many. Rising energy prices will have an inflationary effect, even as fuel shortages may disrupt supply chains causing shortages, especially in consumer goods. With the federal budget deficit and trade deficit being nearly out of control, the Fed probably can’t lower interest rates much if at all.
President Bush should take the initiative to use this event as a catalyst to bolster efforts to free America from our dependence on foreign oil.
Price caps should not even be considered. A large profit margin in the oil drilling and pumping business helps everyone in the long-run, because it will attract investment capital to develop more energy resources for the country.
The risk is unfortunately very real of the US economy slowing or even slipping into a recession.
September 1st, 2005 at 18:07
When most people see rising prices at the gas pump, the immediate focus is on the supply of petroleum. Very few seem to understand that the source of the problem now is not crude oil but refinery capacity. U.S. refineries have been operating at essentially full capacity for some time now. 16% of that capacity was just shut down by Katrina.
Having all the crude oil in the world would not solve the current gas price situation. We need more refining capacity.
September 1st, 2005 at 20:30
I’m afraid you could be correct Andrew…there are a number of bubble forces in our economy that are fragile at best.