Are we underestimating the effect oil prices had on the economy?

[rwemyss]

We continuously blame the recessionary signs on sub-prime mortgages and bank failures. I was wondering if there is a possibility that the extremely high oil prices seen for the last year have a hand in the recession the US economy is now facing? While I agree that the sub-prime issues have set off a ticking time bomb, what about the excessively high prices for fuel? It has effected everything, from the food we buy, to the clothes on our backs... driving prices up on ALL goods and services.

Thoughts?

 

[volinbham]

The housing mess is still the disease - oil prices may have caused it to hit the critical point a bit sooner than it would have otherwise but it was coming.

 

[BigPapaVol]

The oil prices might have depressed earnings, but it isn't what destroyed the capital bases of all of these financial institutions.

 

[rwemyss]

So we don't believe it is a major factor to the economic downturn?

 

[volinbham]

It accelerated the problem but it was not the problem.

 

[BigPapaVol]

To McCain's point about the economy being fundamentally solid, the broad measures of the economy remained solid throughout the ordeal.

Unemployment rose due almost exclusively to loss of RE jobs, but corporate earnings remained solid as did broad employment. The problem has been partitioned away in the RE arena until now, when the financial institutions have been hamstrung by the destruction of their capital and can no longer lend.

 

[rwemyss]

:good!: I stand corrected in my thought process then.

 

[BigPapaVol]

:good!: I stand corrected in my thought process then.

I don't want to give the wrong impression. Rising oil pricing definitely drove up the default rates on homes a tiny amount, reduced what people could pay for property and certainly hammered the credit card companies who have been lending to people walking a tightrope.

To completely write off the fuel pricing is just wrong, but devalued RE assets due to default levels and lack of available financing has been the killer.

 

[volinbham]

what he said

 

[TheDeeble]

So we don't believe it is a major factor to the economic downturn?

I thought of it being a "throwing lots of old dead dry wood on a fire" effect.

 

[joevol320]

I don't want to give the wrong impression. Rising oil pricing definitely drove up the default rates on homes a tiny amount, reduced what people could pay for property and certainly hammered the credit card companies who have been lending to people walking a tightrope.

To completely write off the fuel pricing is just wrong, but devalued RE assets due to default levels and lack of available financing has been the killer.

yeah, you have to figure that gas has tripled over the last 8-10 years. so people are budgeting for gas and their mortgage with very little wiggle room, once mortgage adjustable rates kicked in and gas rose, it was just too much for too many people.

it seems that the high gas prices and mortgage mess always go back to the dems. if they let us drill when Bush proposed it in 2002 or 03, we would be pumping more oil out and it would kept prices low. but they blocked it and here we are. it's the same as the mortgage mess, they blocked mccain and bush's proposals to control fannie and freddy.

it's alway 80% of the dems fault.