Posted on 09/12/2001 9:14:08 AM PDT by MAD-AS-HELL
the Economic Effect of Catastrophe United Press International - September 11, 2001
WASHINGTON, Sep 11, 2001 (United Press International via COMTEX) -- Assuming that today's events are not an isolated incident, and that more such horrors, plus possibly military action, in the Middle East or elsewhere, lie ahead, what are the economic consequences?
The obvious effect is to raise the "insurance premium" on economic activity. The cost of repair of the disasters, and of protection against future disasters, will fall squarely on the productive sector of the economy. This will lower corporate earnings, capital investment and economic growth rates, and thereby sharply reduce the "equilibrium" price of common stocks, which is already far below current price levels.
If the equilibrium value of the Dow Jones Index was 5,000 before this, and the probable bottom of the lengthy bear market we have entered 3,500-4,000, this event will lower both still further, so that the equilibrium value (unless this is a wholly isolated incident, with no repercussions, which I find it very hard indeed to believe) will be perhaps 3,000-3,500, and the bottom for the index, overshooting as it normally does, around 2,000-2,500. In other words, over the years ahead we may see a stock market decline not far short of the 88 percent seen in 1929-32.
There are other implications, however. The big cities have to some extent lost their centrality because of continuing improvement in communication technology -- while there is still a stock exchange "trading floor" in New York, London's has been closed for a decade now, and all trading is carried out electronically. Hence, if the personal security of these very wealthy individuals who trade stocks is threatened, they will naturally move out to the suburbs, in low rise office buildings that are less vulnerable to this kind of attack, if only because they are so widely dispersed. Communication with clients and colleagues will increasingly be by electronic means as the airways, also, become uncomfortably hazardous. A collapse of high-end city services and the high-end urban real estate market will naturally follow. This will most affect those cities that are under the greatest threat of attack, probably London, Paris, Berlin, New York and Washington, above all. Some other cities, such as Singapore, will preserve their security by Draconian controls; this is unlikely however to be acceptable in the West except for very limited areas and periods.
U.S. immigration policy, which has been becoming more and more liberal, will almost certainly tighten up drastically.
It is likely that lax immigration controls will be found to bear a certain element of the responsibility for today's events; at the very least, the World Trade Center plane was a domestic Boston-Los Angeles flight that was hijacked, presumably by non-U.S. citizens. In a world of economic limitation, it is folly beyond belief to open the borders of the world's richest country to a flood of immigrants, whether ill-intentioned or simply impoverished. Furthermore, the pressure of increasing population accentuates the urban claustrophobia that needs to be reduced as quickly as possible before civilized, worry-free life can continue.
Economic depression will in any case remove many of the low-end jobs (and indeed the high-tech middle and high end jobs) on which these people have been depending. The result will be low-level as well as high-level harassment to law-abiding citizens as urban crime rockets, with the illegal immigrants in particular becoming desperate as neither jobs nor welfare are available to them.
Internationally, economic power will shift somewhat to those countries which are either not under immediate threat from terrorists (for example, central and eastern Europe, much of East Asia, and the "southern cone" of Latin America) or which are regarded by terrorists as either friendly or too dangerous to attack (Russia and China, which remain much more likely to be sponsors than victims of the terrorist wave). The U.S. and its allies in Western Europe will see a relative economic weakening, as their economies are repeatedly attacked by unfriendly forces.
It was always too good to last. Not only was the economic glow of the late 1990's an unsustainable bubble, irresponsibly fueled by Alan Greenspan at the Federal Reserve and Bob Rubin and Larry Summers at the Treasury, but the foreign policy calm of the 90's was equally spurious, lulled by appeasement of an increasingly aggressive Russia and China and a phony "Middle East Peace Process" that had no chance of success.
On the stock market, the chickens have been coming home to roost for almost a year now, albeit so far in a gentle, civilized fashion (after this, that will presumably change.) In the political arena, they are now beginning to.
Poor President Bush; a pleasant man yet one who by his appointments of Secretary of State Colin Powell, the man who lost the Gulf War and Treasury Secretary Paul O'Neill, still talking up the U.S. economy and appeasing China even as it has become obvious that both are counterproductive, has muddied the waters of who should bear responsibility for the economic collapse and political misery that lie ahead.
Welcome to the 21st Century, ladies and gentlemen. Taken as a whole, it will probably be no worse than the 20th, but that contained two world wars as well as the relatively cozy latter years of the Cold War, and the false quiet of the 90's.
Probably the next decade's economic and political/military nastinesses are inevitable, but what a pity that more wasn't done to prepare for them, spending the quiet decade of the 90's wisely, instead of frittering it away speculating about Monica Lewinsky and the dot-coms. Copyright 2001 by United Press International.
- Most WTC companies will NOT resume business in New York. What may start as a temporary solution (their relocation elsewhere) will turn into a permanent arrangement.
- Many companies, currently leasing 'skyscrapper' space will be relocating out of NYC, to 'low-rise' buildings.
- NYC's tax base will suffer dearly as: most affected businesses will not stay, those who stay will be doing so only after NYC will agree to offer them the kind of incentives that would translate into nearly zero $$$ to the NYC's treasury. There will be a steady exodus out of Manhattan of all the companies who can afford to do so.
- WTC will NOT be rebuilt. 10 years from now, we may be seeing a park there.
- NYC will go through a (possibly permanent) decline phase.
- NJ and possibly PA's real estate values may go up significantly as tens if not hundreds of thousands will be seeking to relocate there.
- There will be no new skyscrappers built in North America.
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