February 2009

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Our will is to keep the torch of freedom burning for all.

-John Paul Jones

Katrina and the World Economy

Katrina has been downgraded to a Depression... but would it be more accurate to classify it as a Recession?

The world economy runs on oil, and that is the crux of the problem Katrina has left those of us who are lucky enough not to live in the area affected by the storm. If you are not currently fighting flooding, loss of power, looting, chaos, and picking through your neighborhood for your belongings and loved ones, you still will not go unaffected.

About half of the gasoline used in the USA comes from the refineries along the Gulf coast. We don't know yet how much damage was done to these refineries or the port facilities on the Gulf, but the nation's emergency reserves are unprocessed crude oil, which will do us no good for running our cars. That's an immediate concern.

Still, sustained by the oil industry has helped boost crude to over $70 per barrell. The impact of higher oil prices on the American economy could be terrible.

From the Economist (emphasis mine):

As a rule of thumb, every $10 sustained increase in the price of a barrel of oil is estimated to result in a loss of something like half a percentage point of GDP. In a research report from Merrill Lynch, David Rosenberg, an analyst, calculates that every one-cent rise in the price of a gallon of petrol takes $1.3 billion out of consumers’ pockets, which could trim as much as a full percentage point off consumer spending this winter. Some economists are worried that if there are extensive shutdowns of oil and gas production, this could push the economy to the brink of recession.

And of course, it is a global economy. A hit in the States will be felt around the world, where industrialized nations are already struggling due to the $70 per barrell oil on which their economies also run.

The outlook?

Well... what's worse than category 5?

Posted by Wulf on August 30, 2005 at 08:11 PM

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Our will is to keep the torch of freedom burning for all.

-John Paul Jones

Katrina and the World Economy

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