The Katrina Premium

Why the hurricane may hurt the economy more than 9/11.
By Daniel Gross
Posted Thursday, Sept. 1, 2005, at 12:42 PM PT


Economically speaking, Katrina is no 9/11. It may be much worse. In the months after 9/11, stocks rallied. The Federal Reserve slashed interest rates, unleashing a wave of liquidity and paving the way for economy-boosting gimmicks like zero-percent financing. The airlines suffered a grievous blow. But prices didn't jump; there were no shortages of anything. Looking back, the catastrophe of 9/11 had a relatively minor impact on the broad economy.

And the consensus thus far seems to be that Katrina will be much the same. "As long as we find that the energy impact is only temporary, and there is no permanent damage to the infrastructure," Ben Bernanke, chairman of the White House Council of Economic Advisers, said yesterday, "the effects in the overall economy will be fairly modest." Traders are already having the 9/11 reaction, bidding up stocks and buying long-term bonds.