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Any thoughts on the Financial Crisis being CAUSED by the recent oil price spike? Is there any evidence for this?

I know Kunstler is into this theory, but I'm wondering if he's just attributing his current favourite doomsday theory (P.O.) to be the cause of whatever he likes!

The high oil prices - after they had worked through the system, which took some weeks/months - MUST have had SOME effect on the economy.

I suspect we had a metastable and broken financial system ... which received a sharp kick.

jomtones wrote:Any thoughts on the Financial Crisis being CAUSED by the recent oil price spike? Is there any evidence for this?

I know Kunstler is into this theory, but I'm wondering if he's just attributing his current favourite doomsday theory (P.O.) to be the cause of whatever he likes!

Nearly all modern recessions in the USA were preceded by or associated with a significant increase in the price of oil.

It's presumably a major contributory factor - if only in terms of timing.

I think the financial Ponzi schemes were doomed to fall sometime, anyway, and the real world seems to have a nasty habit of having the final say.

jcw - that's very interesting, do you have any links? Would love to see something like GDP mapped against oil price...

There's a really interesting blog here: http://cynicuseconomicus.blogspot.com/

He argues that the cause of the financial crisis is "the massive input of labour into the world economy, which has happened as a result of both India and China entering into world markets. This has led to the effective doubling of the available global labour force in a period of about ten years."

I started by reading 2009 - The Year of the Fall of the West

Given the collapse in oil prices due to removal of the huge amount of debt supplied by the big brokers I would think it's the other way around. Oil rocketed because all that money was looking for the next bubble. It was all going down the pan long before oil got over $100.

The way I see it oil is just another factor amongst many. I certainly wouldn't lay the blame for the credit crunch at the door of peak oil.

Thanks murpen, but I'm looking for anything that specifically shows the oil price caused a major hit on the world economy (or at least, tends to, as jcw stated)...

I've seen a dozen other theories on why it happened, I like Nassim Taleb's version best so far (Goes something like - 'Endemic high risk packaged as SAFE INVESTMENTS by people who didn't know what they were doing for way too long - was bound to fail sooner or later.'

jomtones wrote:I'm looking for anything that specifically shows the oil price caused a major hit on the world economy

This is the best thing on this I have found:



It was used to illustrate this article: http://www.theoildrum.com/node/4727

Is this the one you mean? Looks great

http://www.theoildrum.com/node/4727

jomtones wrote:Is this the one you mean? Looks great

http://www.theoildrum.com/node/4727

Hehe, yeah, I thought I could edit my post above quicker than you could find it... I was wrong!

Hehe, nice to know we're on the same page

Yeah looks like a good article, I'll be sure to include that graph in my talk next week. If it's this damn obvious I dunno why everyone isn't talking about it!!!!

DUH! How many economists does it take to change a lightbulb?

I'm not an expert on economic theory, though I did gain an MBA qualification a couple of years back, and have been immersed in the oil market (and by extension all financial markets) for the past few years.

My thinking is that the oil price did 'trigger' the recession in the sense that the oil price was the brake that prevented the economy expanding fast enough to pay back the debts which had been taken on.

One can certainly argue that the debt itself was 'too risky' and had to cause a collapse 'at some point', but what defines that point? For me it's precisely when energy and resource prices reach a level where economic growth stalls and the inability to repay the debt thereby becomes apparent.

And one could also argue I suppose that levels of subprime debt were simply so huge that the economy would have gone into recession whatever happened to energy prices. But then one is left with the question 'how huge is too huge?' Some people had been arguing that US consumer debt was unsustainably high for five years or more. What made 2H08 the key months? For me it's high energy costs. They kill the real economy and leave only the fake bubble economy to inflate and then burst.

It's also highly likely that the cheapness of credit allowed speculators to push up the price of commodities more quickly than the fundamentals justified, but this was itself part of the feedback loop that put a halt on the rapidity of global economic expansion (that would have been necessary to pay back debt).

So yes, I think oil/energy/resource costs were ultimately the brick wall that the debt bubble burst against (to mix my metaphors).

Which begs the question :

If the extreme oil price of last summer reflected the unaffordability of additional oil supply due to easy reserves' depletion,
(aka Peak Oil)
then how is investor confidence ever going to be restored to permit the end of the Depression that PO has generated ?

While very few in MSM are discussing the first half of this question, the latter half seems ludicrously taboo.

Maybe it's time for a guerrilla postering campaign ?

Regards,

Billhook

oilslick wrote:Given the collapse in oil prices due to removal of the huge amount of debt supplied by the big brokers I would think it's the other way around. Oil rocketed because all that money was looking for the next bubble. It was all going down the pan long before oil got over $100.

The way I see it oil is just another factor amongst many. I certainly wouldn't lay the blame for the credit crunch at the door of peak oil.

The USA went into recession in late '07.

That's now official.

I agree that oil is not the only factor, but high oil prices are probably the biggest single factor.

Financial Ponzi schemes are in their nature not connected with reality, which makes the timing of the tops of financial manias nigh on impossible - unless physical reality intervenes.

Chris Martenson's Crash Course explains it all very nicely

http://www.chrismartenson.com/crashcourse