Oil spill in the Gulf of Mexico can lead to a severe recession in the US
The tragedy that has struck the Gulf of Mexico because of the massive oil spill by the petroleum giant BP can have severe repercussions for the US economy and may even lead to a spiraling recession, economical experts said on Monday. The analysis that has been done by a financial firm indicates that the money required to control, and then roll back the damage done by this tragic accident could be to the tune of billions of dollars, and this unexpected expenditure has the potential to wreck the already fragile economy. This body blow to the US economy can have serious consequences that may well carry over to the next generation.
“The oil spill has only three scenarios left for the future, bad, worse, and the ugliest,” said David Kotok, investment officer, Cumberland. If we look at the worst possible case, it may take months to fill the crack in the well that is spewing around 21,000 gallons of oil into the Gulf of Mexico coastline. He is of the view that the entire process of roll back can take up a decade or so to complete.
“The Gulf becomes a damaged sea for a generation. The oil slick beyond the Florida coast, enters the Gulf stream and reaches the eastern coast of the United States and beyond,” added Kotok. Monetary cost is now measured in the many hundreds of billions of dollars.”
Kotok is of the view that even if the damage control exercise starts at a war footing, it may take months to first control, and then to completely stop the oil spill that threatens to hit the economy very hard. Irrespective of the time taken to plug the oil spill, the expenses involved will drain the treasury to the tune of tens, or may be hundreds of billions of dollars that will jolt the economy, still reeling under the heavy strains of recession. What is worrying is that on the one hand damage control will drain the Fed reserves, and on the other hand revenues that come from the gulf will stop altogether. “At the same time, federal and state revenues tied to the Gulf-region businesses will fall,” opines Kotok.
Kotok feels that the central government is not going to take the remedial action soon as far as raising the interest rates is concerned and they may not be raised at all this year. This may lead to a situation next year when the US economy will be reeling under the pressure of this massive oil slick.