Sep. 1st, 2005

dexfarkin: (Writing)
This link captures the official White House statement on the effects Americans can expect from the hurricane. Fairly bland, mostly downplaying the idea of wide spread or lasting damage to the United States as a result.

http://news.yahoo.com/s/nm/20050831/pl_nm/economy_katrina_bernanke_dc

My response, of course, is that the official White House position is sadly naive, and either shows a lack of economic expertise or is a deliberate effort to mislead the American public on the existance of a potentially destructive crisis that may be developing.

First, and foremost, the immediate impact is that gas prices will climb past $4/gallon in the United States, and several areas will begin to suffer from shortages.

http://money.cnn.com/2005/08/31/news/gas_prices/index.htm?cnn=yes

The United States' economy is based on two factors; cheap energy, and motive power. The gas price increase will severely effect the motive power, with ripples felt all down the economy and in every region of the nation. Being a car-based culture, the price of gas drives basic inflation across the board, in virtually every industry. A 20-30% jump in low term pricing, combined with possible shortages on a smaller term will wreck havoc on recent economic growth, further depressing an already embattled wage index and savaging base consumer confidence.

More importantly, the White House belief of a modest economic impact is based on the rapid restoration of port and transfer services in New Orleans. The city is the 5th largest port in the world, and the single largest and most important energy port in the United States. The massive infastructures required to support that supply line have been critically damaged or entirely destroyed. It will take months, if not years to repair or reroute to alternate systems to handle the flow.

Oil is the most discussed topic, but more important is the natural gas. With Henry Hub off-line (where the entire natural gas index for North America is managed), the pipeline network is struggling to reposition both pricing and supply through alternate venues in New York, and new Northern Canadian sources. But replacing a double digit loss in supply isn't as simple as turning a valve a little further open, especially in a time when NG stocks are at an all-time low and power demands at an all time high. The United States relies on natural gas fired co-generation plants for a significant percentage of its power. Should something like a second heat wave hit to strain the grid, you could see rolling blackouts and brownouts all over the United States as demand outstrips supply.

The Louisiana Offshore Oil Port is closed. It is the only terminal in the US capable of receiving very large oil tankers, such as those used to ship Saudi or Venezuelan crude to the US. Much of the US Gulf of Mexico crude output is probably shut in right now, and will likely remain shut in for some time to come. Shipping will also be disrupted for a while, too. Refining is also concentrated on the Gulf coast. If a large enough number of refineries are closed -- and stay closed -- gasoline prices will skyrocket.

So not only is the situation more serious than the White House is predicting, but it relies on the assumption that port/transfer facilities in the south with be quickly restored, and that energy demands will either remain consistant or decline during the period of their repair. Despite the modest growth in the US economy, the over all status is fragile, using the real estate bubble and low financing to fuel much of that growth. An event like energy spikes and prolonged shortages directly effects those two elements drastically, and could flash start a severe economic crisis.

The extent of the damage and the time required to repair it could very well be tagged to President Bush and his administration.

New Orleans had long known it was highly vulnerable to flooding and a direct hit from a hurricane...When flooding from a massive rainstorm in May 1995 killed six people, Congress authorized the Southeast Louisiana Urban Flood Control Project, or SELA.

...after 2003, the flow of federal dollars toward SELA dropped to a trickle. The Corps never tried to hide the fact that the spending pressures of the war in Iraq, as well as homeland security -- coming at the same time as federal tax cuts -- was the reason for the strain. At least nine articles in the Times-Picayune from 2004 and 2005 specifically cite the cost of Iraq as a reason for the lack of hurricane- and flood-control dollars.

...In early 2004, as the cost of the conflict in Iraq soared, President Bush proposed spending less than 20 percent of what the Corps said was needed for Lake Pontchartrain, according to a Feb. 16, 2004, article, in New Orleans CityBusiness.


http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1001051313

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