Tuesday, September 26, 2017

The Federal Reserve's Disconnect From Disaster Reality

Hurricane Harvey's floods in the Houston area
Sheesh. For a long time I have believed the Fed does harm as often as it does good. While that is a topic for another day, here is an article that is excellent example of the Fed's disconnect with the real world economy:

"GDP is a measure of effort, not standard of living," says David Ranson, director of research at HCWE & Co. "This is an egregious example of where the two are completely at odds."

In other words, we as a country will work a whole lot harder just to get back to the situation where we started from in August before the two storms hit.

That is to say, you start with a perfectly adequate house, then it gets trashed. So you rebuild it at great expense to yourself and with considerable effort by everyone involved. In the end, you get back a perfectly adequate dwelling. You are right back where you began, but having expended Herculean effort.

It can hardly be considered economic progress.

Worse still, collectively the country will drain its cash reserves. That is money that might have been invested in new factories. 

It is an excellent summary of the huge hit the real world economy is going to take from these hurricanes.

One other thought: A few have been critical of AccuWeather's estimate of total economic damage of $290 billion from Harvey and Irma. Keep in mind that our estimate includes items like lost tourism dollars that other estimates to not.

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