Economist here.<p>For what it’s worth I cannot find evidence that this paper was ever published, so I think it’s safe to say they did not convince the rest of the profession that this was the (or even a) trigger.<p>I’m sure it’s being shared to suggest that high current gas prices will do the same now. I doubt anyone has any good reason to be confident in such a suggestion.
They are somewhat right, but for the wrong reasons.<p>If energy prices were at all responsible it is that in late 2008 when the central bank had its planning meeting, they were looking at Core Inflation. In that meeting they decided to raise rates because they thought inflation was a little high. This was because of high energy prices in their core inflation metrics.<p>You can actually go back and read the minutes of those meetings. As Scott Sumner writes:<p>> And many forget that the United States was not zero bound during the great NGDP collapse of June to December 2008; indeed, interest rates fell to near-zero levels only in mid-December. Consider the Fed meeting of 16 September 2008 two days after Lehman Brothers failed. The Federal Open Market Committee (FOMC) voted to hold rates at 2%, citing an equal risk of recession and inflation. The risk of recession is obvious; we had already been in recession for nine months. But why the perceived risk of high inflation? By the day of the meeting, five-year TIPS spreads had fallen to only 1.23%, far below the Fed’s 2% target. In fact, the real risk was excessively low inflation, not high inflation. The Fed should have cut rates dramatically. Why was the Fed decision-making so misguided? It adopted a ‘backward-looking’ policy, focusing on the relatively high inflation of the previous 12 months (mostly due to high oil prices that were already plunging by the time the Fed met). It was like trying to steer a car while looking only in the rear-view mirror. A forward-looking policy would have allowed the Fed to be far more aggressive.<p>There would maybe still have been a small recession and a housing bubble in some states, but the real failure was to not react to the liquidity demand and in 2009 there was a deflation. This is the real cause for the majority of what we now call Great Recession.
> "The key word is, 'triggered,'" said JunJie Wu, an OSU economist and one of the authors of the paper. "This theory recognizes the role of subprime mortgages and lax lending practices as inflating the housing bubble, but high gasoline prices provided the trigger that burst the bubble."<p>Are we in another bubble? And if so what is the theory for why? I assume subprime and lax lending wouldn't be the cause after the lessons learned from last time
Had to read half the article before the word "gasoline" appears, indicating that the gas in the headline is vehicle fuel and not heating gas. After reading the whole thing, I'm still not 100% sure.
Too right, they did. As a peak-oiler at the time I paid close attention to the run-up to $150 and the financial crisis that followed.<p>And now fear we're in for a replay.
Well, high energy prices meant that when Lehman Brothers was collapsing in late 2008 the most recent data the Fed had said that inflation was running above 5% and they thought they had to be careful about that. In reality deflation had already started but it takes months to collect and process the data to show that. Fears that injecting money into the financial system would further stoke inflation made the Fed ask for and receive the power to pay interest on banks' excess reserves, to encourage them not to lend out the newly created money. This had never been tried before, the Fed didn't have any experience using this tool, and it seems that they set the interest rate they were paying banks to not lend out their money much too high.
As someone who worked on the inside of the mortgage industry at the time
(software and db) there is no doubt in my mind that the crash would have happened even if gas was at $1.<p>Insane loans were granted then loans bundled, sold, rebundeled,sold and so on.
The more established banks that bought our loans did zero due dilligence,
they just boundled things up and sold them.<p>We usually only had the loans less than 48h.
Wells Fargo (one of the banks that loved our loans) usually max of 96h
usually less.<p>We would sell loans that had $1500 - $2000 payments per month to someone
living in an appartment just able to afford $400 in rent.<p>Towards the end, we started having mortgages pile up that we could
not sell, and so we had to actually service them.
I think somehow the boss managed to give them away to some other entity
because we had 0 infrastructure, software, procedures to do it.<p>The boss and founder managed to sell the business about 3 months before
the big bang.<p>I quit 6 months prior. Glad I did.
I feel guilty and ashamed that I ever worked at that place.
It did not even pay very well.
The sales people made enomous bonuses if they were able to make sales.<p>I had friend who stayed until the bitter end.
Here is the paper (link in article is broken):<p><a href="https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.800.3891&rep=rep1&type=pdf" rel="nofollow">https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.80...</a>
People are extremely sensitive to rises in gasoline prices because they are so visible. But the crisis was triggered by a wave of people bidding prices on houses higher and higher, taking out loans they couldn't afford, hoping to flip or accepting balloon payments they thought they could escape by selling at a higher prices, because home prices are guaranteed to go up, right?<p>Some people bought houses a very long way from their jobs and may have been hurt by an increase in gasoline prices in some areas, but if so, this only affected the timing of the crash, perhaps moving it up a little. It was an unstable structure that was guaranteed to fall apart.
Now we have high oil prices (not yet at the high) also with general (corporate induced) inflation, combined with an even greater separation of wealth. All things that point to a a recession again. But war is the variable here.
This is what triggered the housing crisis.
<a href="https://fred.stlouisfed.org/graph/?g=MfJE" rel="nofollow">https://fred.stlouisfed.org/graph/?g=MfJE</a>
Taking a car that does 25mpg, at $2/gal gas you can do a 100 mile round trip commute each workday for $160/month in gas. At $4/gal it goes up to $320, etc. That doesn't seem like a big enough jump to me to cause people to default en masse on their mortgages and trigger the crisis - compared to the teaser rates which probably made mortage payments jump by $500-1000+ when expired?
Yeah well so its 2022 and we have another house bubble at least as big as the one in 2007. And oil prices are sky-rocketing. Do the math. I do not know about you but I am not buying property in this market. Market is meant to crash if we follow the logic from this article. But I could be wrong. Do not take my advice
High gas prices certainly preceded the housing crises, but good luck convincing anyone it caused.<p>Very subjective opinion ahead- High gas prices is probably this single most effective way to curb greenhouse gases and I am shocked that Biden and his climate Czar aren’t embracing it. As it stands, even prices doubling or tripling, I would conjecture that a very significant portion of Americans can make significant changes to their driving patterns at the great expense of a mere “minor inconvenience”. Carpooling to work and school, taking mass transit where available, planning errands/trips for efficiency, driving the more economical car in the family unit when no one else is using it (I.e. drive the wife’s wagon on the weekends instead of the big truck). A LOT more people can be driving motorcycles/ scooters. Complaining about high gas cost is almost a form of conspicuous consumption.<p>At least around city, most people do not think twice about fuel cost of running errands all over town, they just complain about the bi-weekly fill up. For one example, some families schlep their kids all over the city every day for a very packed schedule of events; carpool more or just don’t design up for such an erratic day from the first place. Don’t sign up for that basketball league with a daily practice on the opposite side of town from school. Don’t take as many YOLO trips up to Lake Tahoe or Napa or whatever… or at least pile in with other people to reduce the number unit cost.<p>Until people begin to reorganize their livelihoods and consumption patterns, then gas prices aren’t really too high, it’s just more than we are used to spending, and I’m not at all convinced an extra $100/mo at the pump is really that big of an impact for majority of folks to behave differently. We just complain instead.<p>(Caveat- Low income workers have a different story, but I anecdotally also don’t not see an embrace of more efficient transport means amongst low income population in my city. Late model luxury vehicles and large suvs and trucks remain very popular in low income areas. Gas cost is simply not a significant enough portion of the equation as it stands)
The more EVs penetrate the market the less vulnerable we are to oil price spikes. Oil has been the rate limiting reagent of our civilization. That is ending.