Saturday, August 27, 2011
The straw that breaks the camel’s back?
Hurricane Irene is working its way up the coast. The first concern is for people. After that, it’s worth considering all the economic damage that such a storm can do.
The storm is working its way though some high priced real estate. Crops that are just about ready for harvest are not going to make it to market. Many vehicles: cars, trucks, boats and planes will be lost. Infrastructure: roads, bridges, power, phone, Internet, water, and waste treatment will be damaged. Commerce will be disrupted -everything from tourism, to day to day business.
What will all this do to an already fragile economy? The insurance industry is pretty stretched. This storm might push one or more major companies over the edge. The insurance industry will be stressed -perhaps to the point of breaking? Food is already expensive and now supplies will tighten. Where will the money to effect repairs come from?
One branch of economics believes a storm like this is good for the economy in the long run. The economic activity involved in rebuilding provides a boost. Funds just sitting around not doing much are put to work. To me, that theory is only valid if there are big piles of wealth not doing anything.
I don’t think thinks those funds exist in any great amount. The government can come in and spread cash around, but only because they can get the Fed to print more. However, the government can’t create any real wealth that way. All they can do at that point is create inflation.
There is every chance that Irene could be the straw that breaks the back of the economy.