Oil Price Shocks and the Current Recession

[phk]

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via econbrowser.com

James Hamilton explains that the increases in oil prices from 2006 – 2007 (and the greater commodity price bubble) go a long way towards explaining our current recession.

[Southern Senator North Carolina Yankee]

It was part of what caused the recession but other factors played a much bigger role. Its also represented the best way to stimulate industry in this country because of the political pressure it caused and ironically we largely missed the opportunity.

[jokerman]

Not only is the evidence there, but it is intuitive that the massive rise in oil prices would be the reason that the bubble burst.  Bubble's burst for a reason, after all; in some sense they must be a working model for economic activity and don't simply collapse spontaneously.  There must be some sort of trigger, a change in conditions that destabilizes the status quo.  Who knows how much longer the bubble would have inflated if it had been allowed to (with only incremental adjustments along the way), with Asia progressively churning out more products and the U.S. buying them up with various forms of investment income, financed by the Asian glut.