Why I Believe High Gas Prices Led To This Economic Mess

This is a formula I wrote up to explain why I believe high gas prices was the reason for this whole economic mess.

really high gas prices = higher cost of shipping = rapid inflation = less spending = companies forced to lay off workers = higher unemployment = people losing their houses because they can't find another job = banks going under = bad economic news = ECONOMIC DISASTER

 

In a few years it will not really matter because the world is really starting to focus on electric powered vehicles. I believe in 2010-2011 detroit electric will be coming out with 2 versions of a very nice looking car that runs on electricity alone. The base version will get 100 miles to the charge and the souped up version will get 200 miles per charge. The chvy volt will also be coming out by this time also. Im gonna love to see those big oil companies go out of business. They have been doing enough to ruin our economy allready.

 

I hope you are right pingpong123. I plan on driving my car (Toyota Echo 1999 .. or is it 2000? I don't know actually) until it falls apart (it's got about 140K now) and then buying a good American electric or hybrid if they are being made by then.

 

Oh, I have always believe that high gas prices were/are the source of the problem. I know its hard to think long term at this point in time, but this will end up being good for our economy and good for the environment several years down the road. The high price of gas has kind of forced the world to find ways to cut its gas usage and created more pressure to seek alternate energy options. After our economy recovers, whenever that may be, it is going to end up being better because of it and America (and other countries who import oil) will be sending much less money to foreign countries for oil and that money will be able to be kept here.

 

But that doesn't explain / include how house prices doubled and in many areas tripled in the last 8 years, which must also have contributed to the mess.

 

But it does explain why people that were living paycheck to paycheck couldn't afford to pay their mortgage anymore.

 

Finally, somebody with common sense. Anybody who says otherwise is definitely biased and wants to blame Obama and Clinton for all our problems.

 

High oil prices and other inflated commodity prices were just a symptom of the economic problems.

 

Nice one but I don't buy it. Bush was behind the high gas prices and not the economy. Republicans just don't like to admit that because they can't put the blame on Nancy Pelosi, Harry Reid, Obama, and other Democrats.

 

Let's not turn this into another Republican vs Democrat debate. They seem to get really bad on here, and both I absolutely hate how both sides are so arrogant and think that there party and its views is so all and mighty and anything contradicting it is wrong.

 

High gas prices are gonna come back before you know it. Unless there is a shift to electric vehicles being charged by renewables (which can't happen, there just aren't enough resources to do it), then as soon as the economy recovers, it would crash again under the stress of high oil prices.

But for those who believe electric vehicles are the future, here is an excellent resource --> AutoBlog Green

Electric bike


Electric Scooter


Electric Car


Electric Commercial Vehicle


But believe me, oil prices have to come back up. Supply is shrinking rapidly... and permanently. The world has reached a plateau in oil production way back in 2005 and we still haven't broken those production levels. And they may never be broken. Oil production is declining at 7% per year.

 

I am watching 'Wall Street Meltdown' on TV right now. It blames credit default swaps for the mess.

This makes much more sense. There was a link explaining it last week, originally posted by Bernard

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print

Read that and come back with a new equation

 

did gas prices lead people to spend irresponsibly over years and years and continuously abuse of their credit cards?

 

Here is an article dated 7th May 2007, almost 2 years ago, when the economy was "booming", Warren Buffet issued a warning, to which no one paid heed. Everyone though Warren Buffet was a fool, because finance companies were making insane amounts of money...

In Derivatives Cause 'Mass Destruction', the Wall Street Journal reports on what Warren Buffet thinks...

Source: http://seekingalpha.com/article/34606-buffett-on-derivatives-a-fool-s-game

 

In reality there is not 1 single source to blame. Our economy was pretty stable, and 1 factor was not going to cause it to come crashing down as fast and hard as it did. But I do believe high gas prices was one of the biggest reasons that it did.

And I'm not sure about the future of electric vehicles. But there are other ways to cut oil usage. Vehicles are becoming much more fuel efficient and companies are becoming much more green. All in all we are wasting much less gas. It took an economic crisis to pound this into our heads, but we are going to be better for it in the long run.

 

I agree... when oil prices were at record high, companies had started going green. But in this new climate of deep economic recession, I don't believe people would be wiling to do anything. Going green costs a lot of money upfront... and I suspect cash-strapped copanies would want to do that.

I found an excellent article which you may like...

Get Real

 

So you're saying that banks are doing so badly because of credit cards instead of mortgages? When somebody bails out on their mortgage or can't afford to pay it a bank can lose up to $50,000 or more. When somebody doesn't pay off their credit cards you're usually talking about much smaller amounts.

 

I agree. There are other smaller factors that contributed to this mess. One problem that is repeatedly brought up is the fact that so many subprime loans were given out to people who were living paycheck to paycheck. However, many of these people couldn't afford to pay their mortgages because they lost their jobs due to the bad economy. By the time some of them got back on their feet it was too late and their home was being foreclosed on. This whole idea that these people should have never been approved is absurd because if things were doing good they may have been able to pay their mortgage off in the end.

 

Commodities were insanely high because of mainly two things, I believe. 1) People hedging against the dollar 2) Speculation

People were hedging against the dollar because many people saw this problem coming in mid 2007 and even a few before that. The speculation may have been a symptom of the credit bubble in general. Money was chasing investments instead of the other way around.

Your entire premise is flawed. This "mess" didn't occur after gas prices went high. The problem was already there, it just hadn't reached critical mass yet. Commodities were high because of the mess, although high gas prices may have helped us into a recession, we were already going there.

 

The gas idea is absurd.

There were way too many cr@ppy @ss mortgages sold. Too many new homes, too much refinancing, too many cr@ppy @ss mortgages with non existant risk(credit) analyses, and far far too many mortgages that were at, close to, or above value on houses. It was a rampant speculative market.

Then the financial institutions were selling so much of this stuff through bundled complex securitized loans. The credit ratings on this stuff was pure bunk. The more this stuff got sold...the more the originators of the loans...got new money to make new cr@ppy @ss loans.

The cr@ppy @ss securitized loans heightened the problems with derivatives and credit swaps. Humongous amounts of financial leverage by the financial institutions that sat on the books....just waiting for a collapse.

Things like the housing bubble/boom slowing and stopping, the increase in gas prices, etc. all turned the dangerous financial situation into a full blown crises....but it started w/the cr@ppy @ss mortgages.

Suppose instead of 100% loan to value mortgages there were 75% loan to value mortgages. The whole thing would have been reduced by a thousand fold.

First of all there wouldn't have been the volume of real estate loans because lots of borrowers couldn't have bought.

2nd if things turned like sh!t because of high oil prices....people wouldn't have been so apt to walk on loans because they would have had so much equity into the homes.

If one looks at US borrowing and how it accelerated over the decades it normally gets subdivided into the following categories:

Individual debt....so much of it is mortgage debt
Corporate debt....big businesses (non financial institutions) borrowing money
Financial institution debt (banks, insurance companies, etc. borrowing money
Govt debt...including federal, state, govt type entities (bridges, hospitals, etc.)

Over the last 15-20 years individual debt and financial institution debt have skyrocketed and grown dramatically faster than corporate debt and government debt....by amazing amts.

Higher gas prices were like a tiny lit match that was one of a number of things that set off a dangerous situation in place thru all that borrowing and excessive leverage.