Economic growth slowed, yet on its way up; disasters stifle growth
Michael Kheifetz
Issue date: 10/21/05 Section: Ed-Op
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The tragic events of hurricanes Katrina and Rita, and the associated death toll of both, brought sadness to the entire nation. When such a menace as a hurricane is approaching, methods of preventing human casualties must be a priority. After a disaster of this nature occurs, the goal should be to save as many people as possible.
After these priorities are met, the economic effects must be analyzed because they can play an important role in the financial future of all the nation's citizens. Both hurricanes Katrina and Rita had only a moderate impact on the state of the US economy; they should also not be used as an excuse for decreased consumer confidence.
Even though I can tell you right now that it is unlikely that we will have a great economic boom in 2006, the economy will be fine. The effect of this season's hurricanes economically is expected to be moderate by the majority of economists surveyed by the Wall Street Journal. Their predictions for the end of this year and the first half of next year remain almost intact from one poll to the next.
In September, economists revised their expectations for GDP (Gross Domestic Product) by 0.6% points from 4.2% to 3.6% for the third quarter of 2005 and from 3.6% to 3.2% for the fourth quarter, a slight negative change for the state of the economy. There are plans for reconstruction efforts which should slightly increase the GDP for 2006 as the government is planning on spending quite a bit to rebuild New Orleans. Only 18% of economists believe that a recession will occur within the next 12 months, which only increased slightly in past months. The Federal Reserve raised interest rates on Sept. 20 to 3.75% and is likely to keep increasing them until June 2006 in a fight against inflation.
So what is the biggest economic problem right now that was amplified when hurricanes Katrina and Rita hit us? Obviously it is the price of oil, which has increased rapidly. Now there is now a fear of overall inflation. Why are oil prices high? First of all, oil was plenty expensive before the hurricanes because of the surge in its demand. There was a huge increase in demand for oil products by nations including the United States, China and India, countries where there is rapid growth in the industrial sector. The supply problems for oil exist because it is a finite natural resource that is expected to be depleted before the end of this century-possibly much earlier. I believe that it is absolutely essential that we find several alternative energy sources as soon as possible. Research in this area needs to continue at a rapid pace to make sure that when the oil supply does end, we will have already gradually adopted other energy sources. This will minimize the panic, including financial problems this change can bring.
After these priorities are met, the economic effects must be analyzed because they can play an important role in the financial future of all the nation's citizens. Both hurricanes Katrina and Rita had only a moderate impact on the state of the US economy; they should also not be used as an excuse for decreased consumer confidence.
Even though I can tell you right now that it is unlikely that we will have a great economic boom in 2006, the economy will be fine. The effect of this season's hurricanes economically is expected to be moderate by the majority of economists surveyed by the Wall Street Journal. Their predictions for the end of this year and the first half of next year remain almost intact from one poll to the next.
In September, economists revised their expectations for GDP (Gross Domestic Product) by 0.6% points from 4.2% to 3.6% for the third quarter of 2005 and from 3.6% to 3.2% for the fourth quarter, a slight negative change for the state of the economy. There are plans for reconstruction efforts which should slightly increase the GDP for 2006 as the government is planning on spending quite a bit to rebuild New Orleans. Only 18% of economists believe that a recession will occur within the next 12 months, which only increased slightly in past months. The Federal Reserve raised interest rates on Sept. 20 to 3.75% and is likely to keep increasing them until June 2006 in a fight against inflation.
So what is the biggest economic problem right now that was amplified when hurricanes Katrina and Rita hit us? Obviously it is the price of oil, which has increased rapidly. Now there is now a fear of overall inflation. Why are oil prices high? First of all, oil was plenty expensive before the hurricanes because of the surge in its demand. There was a huge increase in demand for oil products by nations including the United States, China and India, countries where there is rapid growth in the industrial sector. The supply problems for oil exist because it is a finite natural resource that is expected to be depleted before the end of this century-possibly much earlier. I believe that it is absolutely essential that we find several alternative energy sources as soon as possible. Research in this area needs to continue at a rapid pace to make sure that when the oil supply does end, we will have already gradually adopted other energy sources. This will minimize the panic, including financial problems this change can bring.
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