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The Economic Aftermath of Sandy

By Rick Ackerman Posted on November 1, 2012, 12:01 am EDT Last Updated November 1, 2012, 3:45 am EDT

The markets will be limping badly when they open for trading on Wednesday, numbed  by the destructive power of Hurricane Sandy. The cleanup is going to take many weeks if not months, and cities up and down the East Coast will be in a daze until basic services have been restored. Pumping out the saltwater that gushed into tunnels and subways will be relatively easy compared to fixing and replacing electrical switches and components. Because New York’s subway system is very old, many of the parts that will be needed are no longer available. Of course, the trains will run again, and soon, but how smoothly is a question that looms large for those who live in, and commute to, New York City.

Although it will be a while before we can know the extent of the economic damage, the markets themselves cannot but give an instant assessment when stocks start to trade Wednesday morning. The shares of property and casualty insurers are all but certain to dive, but there will be a bullish offset in stocks tied to the rebuilding effort.  The cities themselves will be under enormous financial strain to rebuild transit systems, roads and beaches, and the logistical challenge to FEMA in particular will be considerable. President Obama has promised that there will be as little red tape as possible, and there is no doubting that he intends to make good on that promise.

A Keynesian’s Dream

On Wall Street, pent-up demand could cause the markets to be quite volatile in the days ahead, especially because the four-day trading hiatus has occurred in the middle of the Q3 earnings season. My hunch is that the remainder of the week will see a continuation of the bearish trend in stocks, perhaps with an added kicker from the storm. From a Keynesian perspective, restoring and rebuilding the Eastern Seaboard is as pure and powerful a stimulus as you could ask for. Tens of billions of dollars are going to be spent in the effort.  But where will those dollars come from? There’s no getting around the fact that they will have to be borrowed.  Ironically, the dollars when considered as an investment may have a much better chance of paying off than the Government’s bailout of General Motors.  If so, the rebuilding of the Eastern Seaboard cannot begin soon enough.

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  • Marc Authier November 5, 2012, 10:14 am

    US corporate fascist neocons running Wall Street did more damage to humanity than Sandy.

  • roger erickson November 3, 2012, 4:31 am

    another reference you may find interesting, Rick
    http://larspsyll.wordpress.com/2012/11/02/mmt-and-the-wicksell-connection/

  • roger erickson November 2, 2012, 1:47 am

    “Tens of billions of dollars are going to be spent in the effort. But where will those dollars come from? There’s no getting around the fact that they will have to be borrowed.”

    For Pete’s sake, Rick! Have you ever looked into how our fiat currency system works? Try this.
    NY Fed Chairman: “Taxes For Revenue Are Obsolete.”
    http://www.curiousevidence.com/(S(faywdhz4fgqyhvkosps5wjyv))/samples.aspx?id=21

    After we left the gold-std in 1933, it only took the Fed 13 years to catch on. It’s been 79 years, and the rest of the populace STILL hasn’t noticed?

    Please look up the word “fiat” in a dictionary. How, exactly, does one borrow fiat? If you think we borrow our fiat currency from China, what do you suppose they buy it with, THEIR fiat currency? And who do they borrow THEIR fiat currency from? US? Get real.

    If you can’t understand how a non-convertible, floating-Fx fiat currency works, then you may as well BELIEVE anything. How about Alice in Wonderland? The alternative is to think it through for yourself.

    Hint, fiat currency supply is an automatic stabilizer. For ANY real assets to be created, exchanged and amortized, there will ALWAYS be enough currency created to record the transactions. It’s that simple. And that’s also why the valuation of fiat units has to float (in terms of conversion to commodities). Fiat incomes have to constantly rise, to offset the unit-buying power of the constantly growing supply of the unit-of-account – which naturally grows, as a function of both population and per capita transaction rates.

    To unleash the productivity of a larger, more active workforce, you need constantly increasing liquidity. This isn’t rocket science.

    Yes, a penny buys less today than in 1799, but we also get paid more than a half-penny per day. All of fiat currency economics boils down to managing incomes and inflation well enough so that we can always consume everything we’re able to produce.

    That should be simple. Any ancient tribe could do it, without even pencil or paper. We’re obviously making this harder than it has to be.

  • gary leibowitz November 1, 2012, 4:42 pm

    Interesting that at a time when we have a major natural destruction the economic numbers are down right optimistic. The consumer is back, and every single indicator suggests a really strong Christmas. I expect the best in over 5 years. The last few years the spending habits, debt consolidation, and savings of U.S. and U.K. citizens is pretty encouraging. If only we can cut government spending in line with personal and corporate spending.

    To ignore the fundamental data and trend thses past 3 months makes mw question how you all get your information. Clearly the idea of a crash now is counter to all the government and private news concerning the consumer.

    I expect the SPX to hit 1480 within 2 weeks time. Looks like I might have timed this one pretty good.

    As for the election I believe the consensus is that Obama has the needed electoral number of 270. Not a lock by any means.

    • redwilldanaher November 1, 2012, 5:12 pm

      Breaking News!

      http://www.zerohedge.com/news/2012-10-31/adp-cancels-365000-private-jobs-created-2012?fb_action_ids=4817886443448&fb_action_types=og.likes&fb_source=other_multiline&action_object_map={%224817886443448%22%3A344929222269214}&action_type_map={%224817886443448%22%3A%22og.likes%22}&action_ref_map=[]

      Read about more statistical fraud. We now return you to Dr. Pangloss’ Fantasy Hour Extravaganza! (That’s you cue Gary)

    • gary leibowitz November 1, 2012, 6:09 pm

      Red,

      You keep watching the extremely biased blogs while in reality everything is picking up. If you can explain away all the data point from the consumer, corporate earnings, orders, housing, manufacturing, inflation, income, etc.. than I will listen.

      It seems to me you hear exactly what you want to hear and discard reality. This whole board does exactly that. You conclude that wall street has no clue what they are doing these past 4 years.

      I guess even earnings are faked. Please come up with a conspiracy theory on that. Since no one has all I get is “They are making money purely on cutting workers”. Well if that was true than there would be no positive retail numbers, no housing prices up the most in many years, no low housing inventory.

      So let me ask you. Where you right to listen to these blogs these last 4 years? What is their track record. If I was investing in a company that had a track record like that I would be considered an idiot.

      Clearly wall street and corporate income is in line with reality. Clearly they have been right to double this market in 4 years. Clearly you should find something that works in the real world, not in some parallel universe.

      If all the employment figures are fake and the consumer has cut back on borrowing, and at the same time drew down debt and increased savings, how is it possible we are afloat? How is it that companies still manage to make money? Your math is like Romney’s. Makes no sense. Surely something is amiss.

      In my simple world, if corporations are lean and consumer has drastically reducing debt, increased savings, isn’t possible they are starting to spend again? Are you suggesting every data point is faked?

      I will anxiously awaiting another moment where the “crash” is upon us and the omnipotent controllers of the universe managed yet again to thwart an economic disaster.

      I’ll stick to using economic numbers, no matter how faked they are. Afterall that’s what the market uses.

      I find it strange that the powers that be aren’t telling us the truth and have managed to allow every single public company to fake their earnings to stay in collaberation.

    • 1987dejavu November 1, 2012, 6:44 pm

      redwilldanaher, I will add more, to your 365,000 FAKE jobs report.

      I have read in 3 business articles (david rosenberg being 1),
      that the current miraculous ‘improvement’, in u.s.a. gdp,
      from 1.3% growth 3 months ago, to a whopping (haha) 2.0% now,
      was due solely to GOVT. spending; yet STILL, private gdp, is STILL at 1.3%.
      PLUS it is contracting. and even the sawtooth-shark from omaha, admits it.

      so, current 1/4 of american gdp, is coming only from yur [pal Obama].

      but hey, the sharptooth shark from omaha, just made a big ‘bet’ on him—
      and how sharptooth sharkly ‘coincidental’—right before, the elections.
      since sharptooth-shark from omaha, just made a huge bet, on ‘u.s.a. housing.’

      hahahaha.

      reminds me of how this omaha old shark, gave 5 billion to da boyz, in ’08. and at very high price. yet, due to announcement, g.s. stock soared, for days– however, due to something called REALITY, it then CRASHED, for months.

      but in the LONG RUN, this octagenarian shark from omaha got it all back,
      and THEN SOME (2 bil). PLUS, his other 5 billion play, on bofa 1 yr ago,
      (to keep it from bankruptcy, was also politically inspired–like bet now–)

      to help dah jungle-drum alinsky-rad-organizer obumba get a 2nd term,
      since dah 2 are locked in, in concert of screwing, americanus boobicanus.

      as goldfinger said:
      1st time–we meet. 2nd time—coincidence. 3rd time—-enemy action.

      I STILL SAY: market will crash, VERY soon. in 2012.

    • KS November 1, 2012, 8:19 pm

      Gary, didn’t you say you were leaving? Or did I misunderstand?
      You haven’t answered my last question about your actual asset allocation, which Rick has asked you as well.
      I don’t see any obvious statements above, that say “the Crash is here”, “we all are doomed”, and so on…yet you comment again and answer a question that no one really asked. Kind of like talking to yourself.
      I cannot understand what is it you are protecting so much by spending so much time writing up these comments.
      We all have access to the same sources, and everyone chooses what to believe and what not too. The article was about actual consequences of the storm and the economical impact…what do earnings and fake statistics have to do with anything?
      ” …This whole board does exactly that…”,
      “…Where you right to listen to these blogs these last 4 years? What is their track record. If I was investing in a company that had a track record like that I would be considered an idiot…”
      The above seems like a direct assault on RA and the community…Do you consider yourself an idiot as well for hanging out here? Cause, frankly, as said before, I don’t need the mainstream agenda education here. Post on MSNBC.
      And yes, there is a conspiracy above the conspiracies, which affect and control almost everything in our daily lives. It is above money, above market, above the economy. You can feel free to disagree, but please be concise as to the topic on hand, and not spew the same regurgitated statistics and information which you have provided in your previous 100 posts, no matter what the article was about.

  • DK November 1, 2012, 7:43 am

    Can’t believe I forgot this one… http://www.weathermodification.com

  • Mercurious October 31, 2012, 8:32 pm

    If you have not had much experience with salt water inundation, you may be excused for thinking this will be a really big job. It won’t be…it’s going to be STUPENDOUS to get everything that was touched by that sea water fixed or replaced eventually. The corrosion has already begun even as I write this, in 100 million places you don’t want to have it.

    We saw this along the Gulf when Ike left. It’s not the “Dan Rather Winds” that really do the long-term damage. It’s the ruination of ungodly amounts of machinery, switches and other accouterments of infrastructure that is going to be astronomically expensive over time.

    All up and down the eastern seaboard, there has been the overwhelming of these essential bits of our infrastructure by billions of gallons of salt water. Where will the money come from to repair the damage? In the words of one of New York’s finest political minds: “Mr. Bernake…get to work!”

    That shows you just how damaged New York was even before the storm came ashore.

    • John Jay October 31, 2012, 9:49 pm

      Mercurious,
      “Where will the money come from to repair the damage? In the words of one of New York’s finest political minds: “Mr. Bernake…get to work!”

      I see debt people!

  • Darren October 31, 2012, 5:20 pm

    Sacre bleu, Rick! You forgot the old Frenchman’s lesson. All those broken windows up & down the east coast have made us poorer not richer:

    I. THE BROKEN WINDOW
    (snip)
    Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

    But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen.”

    It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
    (snip)
    http://bastiat.org/en/twisatwins.html#broken_window

  • Anthony F October 31, 2012, 3:03 pm

    US under water ? Great for the EURO now bumping against resistance 130.30, next 130.80 ? or back to 129.20?
    US futures just follow along this path…. S&P resistance 1420, then 1433 support 1396.
    Bears will look to bring it back from 1413 or higher to (fade the open to 1407 and as usual a couple of point lower)

  • John Jay October 31, 2012, 11:00 am

    To see the future, look to the past.
    I see more debt added to the pile.
    More debt is the solution to every problem.
    By the way, did you see the sandbag pile in front of the GS building?
    Thick enough and high enough to stop at least a five inch artillery shell!
    It’s nice to be the king!

  • DK October 31, 2012, 8:29 am

    http://finance.yahoo.com/blogs/the-exchange/economic-impact-hurricane-sandy-not-bad-news-150458002.html

  • buck novak October 31, 2012, 5:14 am

    This is not a Keynesian fantasy, this is a nightmare. Who will buy the bonds? Yes the Fed can buy the bonds but I suspect taxpayers in Texas won’t be to thrilled about paying for New York City Bonds when Texas had a drought and Obama told Texas to suck it up. Socializing all this debt for the benefit of some Wall Street Fat Cats and New Yorkers who never imagined a hurricane of this magnitude would strike the Big Apple. These bankers and lawyers were bailed out by the taxpayers for the bad loans in 2008. If you asked a lawyer or a banker for some slack because you were a farmer and had a weather event ruin your crops, how much slack do you think a banker would give you? I wouldn’t hold my breath. The same goes for the IRS and the rest of the government. These Wall Street Wizards of Finance can cook up ingenious economic schemes but this is much different. Now someone has to build something real. These Wall Streeters are not very good at building things.

  • Jill October 31, 2012, 4:55 am

    Well, as conspiracy theories go, that one is at least entertaining, if not likely.

    • jon maneul November 6, 2012, 7:44 pm

      the off the charts annomoly is very interesting .. could be the smoking gun in huricane control. it is interesting to watch in these weeks how the huricane affects overall economy and election ..who ever benefits from the results will point to posible interests who may control such things…
      all very amusing and interesting in a time when all one hears about is the toxic nosense of election “news”·

  • jon maneul October 31, 2012, 4:44 am

    i recently reviewed an interesting book.. “Where Did the Towers Go” by Dr Judy Wood.. in it she presents the fact that there was a huge lack of debris after the towers “collapsed”. She also points out that on that ill fated day there was a category 1 hurricane 90 miles off the shore of nyc.. that suddenly tracked 90 degress out to sea after the event.. moreover, it was never reported or tracked by the local or national news stations..
    .
    she goes on to state that some say there are people who can direct and create hurricanes… all in an effort to harness ” directed free energy”” used for such things as pulverizing buildings or what what ever..?? (review tesla free energy)

    if one could create and control hurricanes, to what end might one want one to hit new york at this time?? One reason could be the keynesian effect of resulting spending, as mr rick points out will inevitably occur. Ccreate mayhem in markets or nudge them in the way they may not have gone had the storm not hit?? influence the presidntial election?

    lots of other interesting questions…maybe all just science fiction. maybe not.

    think about it…


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