Tags: computer | virus | gdp | wannacry | natural | disaster

Computer Virus May Have Same Economic Impact as Natural Disaster

Computer Virus May Have Same Economic Impact as Natural Disaster
(Dollar Photo Club)

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Monday, 15 May 2017 11:44 AM Current | Bio | Archive

The raging computer virus sweeping the globe could ultimately have the same economic impact as a natural disaster.

That said, when on Sunday, less than 48 hours after the debilitating WannaCry computer virus swept across the world, British intelligence officials warned that businesses must brace for further cyberattacks this week on a potentially “significant scale.”

Current data show that more than 1.3 million computer systems are still vulnerable to infection by WannaCry.

U.S. intelligence agencies as well as their European counterparts have warned large companies and organizations that the threat from the ransomware, which is a category of malicious software that encrypts infected machines’ hard drives and demands payment to release the data again, may escalate.

Anthony Ferrante, a former director for Cyber Incident Response at the U.S. National Security Council, said the U.S. government was taking the threat extremely seriously and that he thought the cyber-attack was not over yet.

President Donald Trump ordered emergency White House meetings on Friday and Saturday to identify the culprits and the threat posed by the cyberattack and directed Tom Bossert, his homeland security adviser, to convene the meetings, which were attended by senior security staff from agencies including the FBI and National Security Agency.

A senior British security official said the ransomware component of WannaCry could easily be swapped. “The payload could have simply been a command to wipe the hard drive of the machine entirely, which would have been devastating and it still could be.”

Now, from an economist’s standpoint, we could say that the impact of the computer virus should be containable.

In terms on the impact on the wider economy, the best parallel to offer is probably that of a natural disaster, of course in economic terms and not in human terms.

Businesses are disrupted with some businesses, and some supply chains being disrupted more than others.

Infrastructure is destroyed in the case of a computer vires infrastructure is rendered obsolete, and the public and the private sector must invest.

Just, as a disaster spurs investment in better defenses in other unaffected regions, so a computer virus spurs investment in other unaffected businesses.

A natural disaster will tend to increase GDP after the initial negative shock because GDP measures economic activity, and the need to rebuild and restructure, creates economic activity.

A natural disaster also tends to lower the standing of living because the stock of capital is damaged or destroyed.

It is the same with a computer virus.

GDP will receive a boost from the need to improve defenses, but scrapping existing systems lowers the stock of capital in the economy.

In simple words, all this means it will cost lots of money and serious losses, but also will result in some gains on many levels.

Meanwhile, Friday's U.S. retail sales came in at +0.4 percent overall and was up 4.5 percent year-on-year (y/y) following a 0.1 percent gain in March, which was revised up from a negative 0.2 percent reported initially, but which was lower than expected, but certainly not that kind of data that should sound the alarm bells and certainly not supporting comments that suggested the U.S. is running out of economic steam.

As an investor, there isn't any reason to turn negative about the U.S. economy overall.

U.S. retail sales is always an important guide to the willingness of the American consumer to indulge in the official national pastime of visiting the shopping mall, but to be fair, U.S. consumers don’t just go to the shopping malls alone, they also go to restaurants and bars, and service sector spending is not properly captured in this data.

The Consumer Price Index gained 0.2 percent in April following a 0.3 percent decline in March decline while the 2.2 percent y/y increase was down from February's y/y rise of 2.7%.

Consumer prices excluding food & energy ticked 0.1 percent higher after a 0.1 percent fall. The y/y gain in core pricing power declined to 1.9%, its weakest annual rate of increase since October 2015.

It’s a fact that the CPI slowed somewhat, but in reality, price increases are not slowing. This is due to the “wonders” of quality adjustment.

Being able to download more data to your mobile phone lowers the consumer price inflation index for mobile phone charges even if the charges themselves are rising and the U.S. consumer is probably not going to think that mobile phone charges are falling because mobile phone charges are not falling.

Investors should keep in mind that without the wild swings in the oil price to hide behind, this sort of nuanced change in inflation becomes more visible.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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HansParisis
In terms on the impact on the wider economy, the best parallel to offer is probably that of a natural disaster, of course in economic terms and not in human terms.
computer, virus, gdp, wannacry, natural, disaster
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2017-44-15
Monday, 15 May 2017 11:44 AM
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