http://www.theoildrum.com/node/4727 Jeff Rubin, Chief Economist at CIBC World Markets, in a recent report, is now saying that the current recession is caused by high oil prices. Defaulting mortgages are only a symptom of the high oil prices. We should be blaming the underlying cause--higher oil prices--rather than the symptom. These higher oil prices caused Japan and the Eurozone to enter into a recession even before the most recent financial problems hit. Higher oil prices started four of the last five world recessions; we shouldn't be too surprised if they started this one also. Discuss.
98.9% nonsense. Just another TV talking-head trying to bring attention to himself by going outside the mainstream. Yes, oil prices probably contibuted the remaining 1.1% to the problem but the greedy/shoddy bank practices was clearly THE prime mover.
I would agree the banks failure had alot to do with it, but consider this analogy: If you have a economic house of bank cards, the slight touch will collapse it all. For example the chart: Please Register or Log in to view the hidden image! Shows the general pattern of oil prices rising spiking just before or at the start of a recession, now cause and effect are of course a big question, which causes which (in reality both likely effect each other in complex fashion) for example into a recession oil prices drop as US/world demand for oil drops.
Actually greed caused it more than anything else. Take, Take , Take! That's all I see around me.Please Register or Log in to view the hidden image!
I think it could be a larger factor than first supposed. The question is why did the rash first appear on the financial institutions, and only then spreading the fever to other sectors?
Bank failures had a "lot to do with it"???? They had practically EVERYTHING to do with it. That chart is valueless because, just as you said yourself, cause and effect is a BIG question. With just a little effort you could probably find numbers that indicate crop failures in China, a bump in birthrates in Indonesia and dozens of other things were precursors for recessions. Correlation and causation are frequently light-years apart. I still say, "BAH!" It's a bum theory and just an attempt by Rubin to promote his name in the news - and possibly sell a future book on the lame idea.
The problems were coming. The high oil prices may have made it come sooner. It would be just as true to say the high oil prices caused the Madoff Ponzi scheme or that bad sub prime mortgages caused the Madoff Ponzi sceme. High oil did not cause anything but it may have hastened the exposure of problems. The high oil prices themselves were a symptom of too much leverage and of a distrust in currencies resulting from many people seeing larger global macro economic problems.
Yeah, the greed on Main street. People buying houses too big, living off of credit cards, trying to "flip" houses and begging banks for creative solutions to extend their personal credit. The problem was the consumers of loans, not the producers. NONE of this would have happened if we allowed interest rates to float according to supply and demand. ALL of this happened because government loves to keep interest rates low during their reigns in order to promote false, unsustainable growth. If interest rates moved with demand, they would have gone up to 12-15%, removing the easy profits in housing, and putting on the brakes at the appropriate time. This entire mess is a result of TOO MUCH REGULATION, not too little. Everything that the government is doing to fix this problem is going to make it last longer and hurt more. What we really need is a long period of recession or depression to put a stop to inflation, promoting savings rates instead of borrowing. With inflation over 3%, people are suckers to save up cash, watching it devalue in a bank account. We've been pretending for years that a growing DOW is a sign of economic health, while the price of a burger doubles...
Including the consumers of loans on Wall Street - the bigtime financiers. People are a given. A certain percentage will borrow beyond their means, if permitted. That's why banks are regulated, by sensible governments. A few points boosted in the default rate on some mortgages did not crash the five biggest financial institutions on Wall Street and the entire US economy with them. The housing bubble was going to pop, and it was going to be ugly, but not like this. The big takedown was the collapse of the derivatives market, and that bubble and bust was a direct result of too little regulation.
My point is that there wouldn't have been a housing bubble in the first place if the interest rates were allowed to float with supply and demand. Investors are like water running down a hill, they find the easiest path. Low interest rates and tax incentives made flipping houses the easiest path to riches. Government regulation created false cracks and valleys into which they could flow. If this rush of demand was met with higher rates, it would create a natural leveling of the landscape, instead of the canyon that actual policy helped gouge. Low interest rates right now are the WORST remedy. High interest rates would mean that savings would become a good investment, promoting people to raise their production so they can stuff money into banks, where they would get a high return in exchange for the funds being there to be loaned out to those that need the money the most, enough to justify the interest. Depressed prices and a tightening of everyone's belts would heal the economy, getting it back to a healthy rate of growth. We should be celebrating today's economy, not fighting it!
