Periodically I receive commentary from Silicon Valley Bank with opinion pieces. The following opinion piece comes from Jim Anderson, their Chief Investment Officer with the following disclaimer "Investment Strategy Outlook is published each week to highlight issues we hope you find relevant and topical. The views expressed in this newsletter are solely those of its authors and do not reflect the views of SVB Asset Management, Silicon Valley Bank, or any of its affiliates."
Now that I have the disclaimer out of the way, I'll add that I liked what Anderson had to say. The blogosphere is full of broken hearts and desperate plees and fitful disappointments about all of the very human, very tragic, dramas of Katrina. There are basic humanitarian reasons to worry about New Orleans. But I'd like to add that, as usual, if it is bad for people then it is just bad for business...which in turn makes it worse for people.
From Anderson's commentary, the implications are that the Fed will rightfully need to stall the economy while the United States flounders around the process of saving New Orleans. The impact of this stall is that for everyday we don't rescue a person stranded in New Orleans, for everyday we don't provide for those in need so that the economic vitality of the port is re-established, the business of the nation will be stalled by an order of magnitude of about ten.
What I mean is that if you were unemployed and in your future you were going to get a job, a job you didn't know about yet, say three days from now--that job is now 30 days in your future. In aggregate across the nation if your business was going to make one sale tomorrow that was affected by Katrina--for each day New Orleans's vitality is not re-established that one sale moves out ten days. So if New Orleans takes 100 days to get back to 50% of its vitality, that sale is about 5 years in the future. Now multiply that sale in aggregate across time, across industries, and across the nation and you have this skimming effect...the economy as a whole will lose all its cream for a period of time yet to be determined.
Economies are but interrelationships of trust and belief. The delay in New Orleans' recovery keeps broken down the physical interelationships of the Misissippi Delta economy--and the delay further breaks down the trust of the nation in its economic viability: a bad combination. The Fed has to, and will, assume the reins of the economy to stabilize the ripple effects of Katrina.
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