Snow: economic impact of Katrina temporary (Reuters). Reuters - Hurricane Katrina's impact on the U.S. economy will likely be temporary and limited to the last six months of the year, Treasury Secretary John Snow said on Thursday. [Yahoo! News: Top Stories]
I do not know what Secretary Snow is smoking in his off-hours, but I wish he would share his rose coloured glasses with the rest of us that live in the real world. Like most of the rest of the Administration, this is an individual that is so out of touch with what is going on, it simply boggles the mind. The effects of Katrina will spill over into next year and if we are all very lucky, that is as far as it will go. Allow me to point out some of the real issues:
1) An estimated 500,000 people are out of work and most of their jobs no longer exist. That means that they will shortly begin defaulting on their obligations if they cannot find work where ever they are currently housed. Now some would argue that the people who have lost everything will start buying to replace. I agree that there will be a spike in certain items, but if you have no positive cash flow and worse, no collateral, it will make it difficult to secure credit for things like houses and cars, especially if there is still money owning on your last house and car.
2) It will cost the federal government an estimated $100 billion to settle all the bills. This includes the two authorized payments thus far of $27 and $50 billion. This is on top of the $100 billion already allocated for fighting in Iraq and Afghanistan. That is a lot of money that does not exist now. That means either an increase in interest rates (which is going to happen anyway, it is just the amount of the increase) and/or an increase in taxes. If the federal government does neither, there will be an increase in the deficit, which will only push out the damage.
3) Localities are already strapped. Who is going to pay for the rebuilding of New Orleans and all the other little towns and cities, not to mention businesses and tourism that will be lost during the rebuilding? Reality says it will be next year before most of these places are even capable of starting the rebuilding process, and that is all predicated on being able to get into some of these areas before the end of September and there being no more storms greater than a gentle rain for the next six months. I am not rolling those dice. Given the damage still being cleaned up in Florida, I cannot begin to imagine the region will be even close to capable until well into 2007.
4) Which brings up the issue of travel. Gas is at $3 a gallon. Oil prices are expected to be 30%-50% over last winter while natural gas is predicted to be close to 70% and those numbers are based on a normal winter. If it is cold in the north, you can expect that people, who are already short on their budgets, will be even shorter, which will reduce spending, both at Christmas as well as for travel and all the associated fall out that goes with it. Retail is not a strong industry at the moment and a week Christmas on the heals of less than stellar numbers last year and increasing trade deficits could result in some major economic shocks.
5) While we are on the topic of gas prices, remember that increase to the individual also mean increases to the corporate bottom line. If it costs a company 50% more to do business, they will pass that on to the consumer or they will eat it. Many are so close to their margins now that a 50% hit is not possible and even if they do decide not to pass it on, it could result in internal reorganizations and lay-offs. Add to that the costs of travel and you will see an even greater cutback in corporate travel, which following September 11 was just starting to get back on its feet and more parts of the economy will slow down.
I am sorry, but I do not see a silver lining. The only saving grace at the moment is that the price of oil has dropped a little in the days following Katrina, but the drop in price does not mean that there is an increase in supply when major refineries are still out of operations. Let us revisit this in six months and see where we are at.
1:43:06 PM 
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