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Economists say that high gas prices triggered the housing crisis in 2007 (2012)

56 points by ddubski 5y ago

benlumen 5y ago
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. And now fear we're in for a replay.
FollowingTheDao 5y ago
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.
- willcipriano 5y ago
  > (corporate induced) inflation Why did the corporations wait for the government to print tons of money to decide collectively to raise prices?
  - pavlov 5y ago
    Did you notice there was a multi-year pandemic that destroyed supply chains and greatly increased labor costs? The causality is not as simple as “governments printing money -> inflation”.
    - HarryHirsch 5y ago
      Yes, this time it's a stuff shortage, not an oversupply of money. But the central bank still wants to raise rates, which is silly. The current prices and shortages are a result of longstanding policy, just not monetary policy.
  - FollowingTheDao 5y ago
    You say "government prints tons of money" like that goes to the people and not to the corporations. See, inflation would not be a problem if wages kept up with rising prices. But they do not? Why? Because profit and stock buybacks. Corporation are not paying you a fair wage based on the cheapness of the money they can get from the fed. Instead of keeping profit stable they aim at not raising your salary and keeping that profit so their company looks better and their stock price goes up. I guess you still believe in trickle down economics?
  - long_time_gone 5y ago
    When did the governments stop printing tons of money?
- ejb999 5y ago
  I don't have the figures handy, but based on what I am seeing I suspect we are entering a period of the biggest wealth gap in recent history between the rich and everybody else. Massive, massive asset inflation, for those that own things - and the bigger and more you own, the more you have benefited, and then massive inflation in consumer/everyday products like food, energy and clothing and for those seeking to buy their first house, as well as renters finding out the rent is being jacked up rapidly - i.e. the people who can afford inflation, are seeing massive gains in their asset portfolios, and the people who can least afford it - are on the verge, if not already at, a disaster in the personal economic situation. We are heading for a train wreck of massive proportions imo, best to get prepared if you can.
  - ryanSrich 5y ago
    I feel this. 2021-2022 has been insane as a person looking to buy a new house, car, and get kids into daycare. Luckily we already own a house with good equity, have a good car, and have childcare. But we’re looking at moving and upgrading a few of these things, and let me tell you. The demand for housing and vehicles is beyond anything I could have imagined. Houses routinely selling for 30-50% over list. Car dealerships selling new cars at $10k over MSRP because the two year old version of that car is selling for the price of a new one used. If we didn’t have existing assets like a house or quality cars we could trade in I don’t know what we would do. Just having two good salaries, a lot of cash, and high credit isn’t cutting. You need assets.
- ejb999 5y ago
  we are not seeing 'corporate induced inflation' we are seeing government policy induced inflation - very big difference.
  - FollowingTheDao 5y ago
    This is from BUSINESS INSIDER: https://www.businessinsider.com/corporations-using-inflation-as-excuse-to-reap-fatter-profits-reich-2021-11 https://www.businessinsider.com/corporations-using-inflation... "Corporations are using the excuse of inflation to raise prices and make fatter profits," he said.
  - mirntyfirty 5y ago
    I’d claim inflation responsibility is on both sides. I forget the number off the top of my head, but a rather large proportion of the price increased were collected as profits. Given that a number of industries are dominated by a handful of large conglomerates, the incentive to price products competitively seems rather low. However, this is also correlated and reinforced with the actions of the federal reserve for a number of reasons.....
chrisan 5y ago
> "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." 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
- newsclues 5y ago
  Canada’s housing bubble didn’t pop a decade ago, and continued to inflate.
  - etimberg 5y ago
    Housing in the Toronto area has been even more insane than usual the last few months. Houses an hour away from downtown that were selling for ~850k in November 2021 were selling for $1.05M in January and February.
    - Ensorceled 5y ago
      All of Southern Ontario really; prices in Midland, Owen Sound, etc. etc. are all much higher.
    - newsclues 5y ago
      I live two hours from Toronto and a house in a bad area of town that I personally know was a crackhouse 2 years ago, sold for slightly under half a million and is getting gutted and renovated into a duplex. Last time I was in the house, crackheads were shitting in buckets. Literally. And there isn’t a lot of good jobs here!
  - abeppu 5y ago
    Is there a convincing explanation of why the US and Canadian markets behaved differently? Were Canadian banks smarter about what loans were issued? Not being a Canadian, most of the stories I hear about Canadian real estate are about international investment by the global rich -- is that a large enough share of market to support prices even through a recession?
api 5y ago
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.
- ejb999 5y ago
  yea, all those poor people who can't afford to fill their cars should just run out and buy Teslas instead.
  - api 5y ago
    It's an entire economy. When someone else buys a Tesla, oil demand is rendered less inelastic. This also primes the market so that more EVs get sold, including cheaper ones, and eventually used EVs become available at a much lower price. You can get a used Nissan Leaf for <$10K now in good condition with enough range for most commuter needs, and those things are super reliable and require virtually no maintenance. I guess we should not do anything if it can't immediately be made affordable to everyone in the very first generation. So we should never have done ocean travel, air travel, non-emergency medicine, higher education, personal computers, ... Everything is always expensive when it's new.
    - ejb999 5y ago
      so what you are saying is you are in favor of trickle-down economics? - where people who make $300K+ a year, buy government subsidized Tesla's, and somehow, somewhere, the poor single mother who now has decide between filling her car to get to work, and buying food - will somehow benefit from wealthy tech-bros driving $100K cars.
      - tandymodel100 5y ago
      - api 5y ago
        Bash that straw man! I agree that current inequality is excessive, but the argument I made applies if there is any inequality at all. There has never been a human society with absolutely zero inequality. If there is any inequality at all there is always some "trickle down" effect in the form of aftermarkets, priming of industrial production leading to future lower prices, etc. It's possible to simultaneously acknowledge certain "trickle down" effects and believe they can be beneficial while also being in favor of reducing inequality.
alkonaut 5y ago
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.
- bin_bash 5y ago
  In the US the term "gas prices" will virtually always refer to gasoline. Heating gas we call "natural gas".
- fireflash38 5y ago
  Almost the entire article is talking about commuter distances & times. Natural gas used as a vehicle fuel is exceedingly rare in the US.
- simula67 5y ago
  Why Americans refer to petrol as gas, even though it is liquid, is still a mystery to me.
  - zekrioca 5y ago
    maybe from gasoline?
  - brendoelfrendo 5y ago
    It’s short for gasoline, a word that, etymologically, has no relation to the word gas.
  - causi 5y ago
    Gas is short for gasoline, which is what we're putting in our cars. Petrol is short for petroleum, which is not what Europeans are putting in their cars. Remind me again which colloquial wording makes the most sense?
    - Doxin 5y ago
      Well I dunno, last time I checked by far most of Europe does in fact not call it petrol. I can't claim to know which word is most commonly used, but as an anecdote the dutch call it "benzine" which is also "wrong" but in a different way from both gas and petrol. Seems to me no one can figure out what the proper name for this stuff ought to be :P
jjtheblunt 5y ago
i wonder how often Economists are right, and never tried to measure it.
- jdrc 5y ago
  The frequency is assumed to be so low that nobody even bothers to measure it
- travoc 5y ago
  Economists are never wrong. They just have “updated forecasts.”
  - jjtheblunt 5y ago
    that's the best thing i've read today
rotanibmocy2 5y ago
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
Beltiras 5y ago
As opposed to the greed of the banks and the ratings agencies being catatonic?
martinald 5y ago
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?
- HideousKojima 5y ago
  Higher gas (and petroleum product and energy in general) prices have a lot of knock-on effects on prices beyond just the cost to make a commute. The costs of delivering goods goes up, higher energy prices means lower profit margins for virtually every industry, etc.
- ryanSrich 5y ago
  I agree. But then again, most of my knowledge of the housing crash comes second hand. It didn’t impact my parents (rural area, one mortgage), and I don’t personally know anyone that defaulted or had their parents default. On the other hand I acutely remember the gas prices at that time. I was a senior in high school and filling up my tank was something i specifically had to save a decent amount of money for. So perhaps that was the bigger issue, but it does feel like an insignificant amount of money in the grand scheme.
- asteroidp 5y ago
  It's amazing how tight people budgets are they simply can't absorb a relatively small increase
- dazc 5y ago
  From memory, people were getting large mortgages they couldn't afford once the teaser rate had expired (usually 1 - 2 years). The reason they were able to get these mortgages is because lenders were doing little or no due diligence. This did coincide with a period when fuel prices were rising but, I think, this was more a case of 'the last straw breaking the camel's back' rather than a direct causation of financial distress.
Symmetry 5y ago
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.
deleted 5y ago
[deleted]
panick21_ 5y ago
They are somewhat right, but for the wrong reasons. 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. You can actually go back and read the minutes of those meetings. As Scott Sumner writes: > 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. 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.
TradingPlaces 5y ago
This is what triggered the housing crisis. https://fred.stlouisfed.org/graph/?g=MfJE https://fred.stlouisfed.org/graph/?g=MfJE
ethagknight 5y ago
High gas prices certainly preceded the housing crises, but good luck convincing anyone it caused. 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. 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. 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. (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)
- zitterbewegung 5y ago
  Gas prices have been from the $2.00 to the $5.00 mark for the past decade. Adjusting for inflation Gas is getting relatively cheaper but the last time it actually changed consumption it would be around 2008 so it was at the $5.00 mark ($6.55 a gallon). Biden just released the national gas reserves which is an attempt to keep prices lower. For a long time it has been said that we have to change peoples behavior to solve the global climate crisis but that seems unrealistic and I think instead we should invest in large scale carbon sequestration projects. Telling people what to do doesn't go over very well for anyone.
huitzitziltzin 5y ago
Economist here. 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. 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.
- mgh2 5y ago
  The link to the paper is broken, wanted to examine their method to see if the analysis is sound
  - jcrash 5y ago
    I found it on another site: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.800.3891&rep=rep1&type=pdf https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.80...
- b112 5y ago
  It is being shared for clicks, aka money, regardless of the belief.
- ddubski 5y ago
  Hi, I’m the OP. I shared this because from a practical perspective it seems that filling a car’s fuel tank is one of the most volatile and essential line items in a typical household budget, and when expensive housing (owned or rented) stretches household budgets, prolonged increases in gas prices could feasibly be a “straw that breaks the camel’s back”, as another commenter mentioned. I appreciate the far more educated perspectives available on HN, so given some of the current parallels (expensive housing, rising prices) and some of the much more unfortunate new variables (war, inflation, supply chain), I wanted to raise the topic for discussion. I personally think that trends like increased EV/hybrid ownership and WFH could mitigate this issue in particular, but I don’t think these are trends that apply to all Americans equally (especially those with more precarious finances).
  - deleted 5y ago
GoodJokes 5y ago
jcrash 5y ago
Here is the paper (link in article is broken): https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.800.3891&rep=rep1&type=pdf https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.80...
not2b 5y ago
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? 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.
ThinkBeat 5y ago
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. 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. 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. We would sell loans that had $1500 - $2000 payments per month to someone living in an appartment just able to afford $400 in rent. 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. The boss and founder managed to sell the business about 3 months before the big bang. 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. I had friend who stayed until the bitter end.

56 points by ddubski 5y ago

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. And now fear we're in for a replay.

FollowingTheDao 5y ago

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.

willcipriano 5y ago
> (corporate induced) inflation Why did the corporations wait for the government to print tons of money to decide collectively to raise prices?
- pavlov 5y ago
  Did you notice there was a multi-year pandemic that destroyed supply chains and greatly increased labor costs? The causality is not as simple as “governments printing money -> inflation”.
  - HarryHirsch 5y ago
    Yes, this time it's a stuff shortage, not an oversupply of money. But the central bank still wants to raise rates, which is silly. The current prices and shortages are a result of longstanding policy, just not monetary policy.
- FollowingTheDao 5y ago
  You say "government prints tons of money" like that goes to the people and not to the corporations. See, inflation would not be a problem if wages kept up with rising prices. But they do not? Why? Because profit and stock buybacks. Corporation are not paying you a fair wage based on the cheapness of the money they can get from the fed. Instead of keeping profit stable they aim at not raising your salary and keeping that profit so their company looks better and their stock price goes up. I guess you still believe in trickle down economics?
- long_time_gone 5y ago
  When did the governments stop printing tons of money?
ejb999 5y ago
I don't have the figures handy, but based on what I am seeing I suspect we are entering a period of the biggest wealth gap in recent history between the rich and everybody else. Massive, massive asset inflation, for those that own things - and the bigger and more you own, the more you have benefited, and then massive inflation in consumer/everyday products like food, energy and clothing and for those seeking to buy their first house, as well as renters finding out the rent is being jacked up rapidly - i.e. the people who can afford inflation, are seeing massive gains in their asset portfolios, and the people who can least afford it - are on the verge, if not already at, a disaster in the personal economic situation. We are heading for a train wreck of massive proportions imo, best to get prepared if you can.
- ryanSrich 5y ago
  I feel this. 2021-2022 has been insane as a person looking to buy a new house, car, and get kids into daycare. Luckily we already own a house with good equity, have a good car, and have childcare. But we’re looking at moving and upgrading a few of these things, and let me tell you. The demand for housing and vehicles is beyond anything I could have imagined. Houses routinely selling for 30-50% over list. Car dealerships selling new cars at $10k over MSRP because the two year old version of that car is selling for the price of a new one used. If we didn’t have existing assets like a house or quality cars we could trade in I don’t know what we would do. Just having two good salaries, a lot of cash, and high credit isn’t cutting. You need assets.
ejb999 5y ago
we are not seeing 'corporate induced inflation' we are seeing government policy induced inflation - very big difference.
- FollowingTheDao 5y ago
  This is from BUSINESS INSIDER: https://www.businessinsider.com/corporations-using-inflation-as-excuse-to-reap-fatter-profits-reich-2021-11 https://www.businessinsider.com/corporations-using-inflation... "Corporations are using the excuse of inflation to raise prices and make fatter profits," he said.
- mirntyfirty 5y ago
  I’d claim inflation responsibility is on both sides. I forget the number off the top of my head, but a rather large proportion of the price increased were collected as profits. Given that a number of industries are dominated by a handful of large conglomerates, the incentive to price products competitively seems rather low. However, this is also correlated and reinforced with the actions of the federal reserve for a number of reasons.....

chrisan 5y ago

> "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." 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

newsclues 5y ago
Canada’s housing bubble didn’t pop a decade ago, and continued to inflate.
- etimberg 5y ago
  Housing in the Toronto area has been even more insane than usual the last few months. Houses an hour away from downtown that were selling for ~850k in November 2021 were selling for $1.05M in January and February.
  - Ensorceled 5y ago
    All of Southern Ontario really; prices in Midland, Owen Sound, etc. etc. are all much higher.
  - newsclues 5y ago
    I live two hours from Toronto and a house in a bad area of town that I personally know was a crackhouse 2 years ago, sold for slightly under half a million and is getting gutted and renovated into a duplex. Last time I was in the house, crackheads were shitting in buckets. Literally. And there isn’t a lot of good jobs here!
- abeppu 5y ago
  Is there a convincing explanation of why the US and Canadian markets behaved differently? Were Canadian banks smarter about what loans were issued? Not being a Canadian, most of the stories I hear about Canadian real estate are about international investment by the global rich -- is that a large enough share of market to support prices even through a recession?

api 5y ago

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.

ejb999 5y ago
yea, all those poor people who can't afford to fill their cars should just run out and buy Teslas instead.
- api 5y ago
  It's an entire economy. When someone else buys a Tesla, oil demand is rendered less inelastic. This also primes the market so that more EVs get sold, including cheaper ones, and eventually used EVs become available at a much lower price. You can get a used Nissan Leaf for <$10K now in good condition with enough range for most commuter needs, and those things are super reliable and require virtually no maintenance. I guess we should not do anything if it can't immediately be made affordable to everyone in the very first generation. So we should never have done ocean travel, air travel, non-emergency medicine, higher education, personal computers, ... Everything is always expensive when it's new.
  - ejb999 5y ago
    so what you are saying is you are in favor of trickle-down economics? - where people who make $300K+ a year, buy government subsidized Tesla's, and somehow, somewhere, the poor single mother who now has decide between filling her car to get to work, and buying food - will somehow benefit from wealthy tech-bros driving $100K cars.
    - tandymodel100 5y ago
    - api 5y ago
      Bash that straw man! I agree that current inequality is excessive, but the argument I made applies if there is any inequality at all. There has never been a human society with absolutely zero inequality. If there is any inequality at all there is always some "trickle down" effect in the form of aftermarkets, priming of industrial production leading to future lower prices, etc. It's possible to simultaneously acknowledge certain "trickle down" effects and believe they can be beneficial while also being in favor of reducing inequality.

alkonaut 5y ago

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.

bin_bash 5y ago
In the US the term "gas prices" will virtually always refer to gasoline. Heating gas we call "natural gas".
fireflash38 5y ago
Almost the entire article is talking about commuter distances & times. Natural gas used as a vehicle fuel is exceedingly rare in the US.
simula67 5y ago
Why Americans refer to petrol as gas, even though it is liquid, is still a mystery to me.
- zekrioca 5y ago
  maybe from gasoline?
- brendoelfrendo 5y ago
  It’s short for gasoline, a word that, etymologically, has no relation to the word gas.
- causi 5y ago
  Gas is short for gasoline, which is what we're putting in our cars. Petrol is short for petroleum, which is not what Europeans are putting in their cars. Remind me again which colloquial wording makes the most sense?
  - Doxin 5y ago
    Well I dunno, last time I checked by far most of Europe does in fact not call it petrol. I can't claim to know which word is most commonly used, but as an anecdote the dutch call it "benzine" which is also "wrong" but in a different way from both gas and petrol. Seems to me no one can figure out what the proper name for this stuff ought to be :P

jjtheblunt 5y ago

i wonder how often Economists are right, and never tried to measure it.

jdrc 5y ago
The frequency is assumed to be so low that nobody even bothers to measure it
travoc 5y ago
Economists are never wrong. They just have “updated forecasts.”
- jjtheblunt 5y ago
  that's the best thing i've read today

rotanibmocy2 5y ago

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

Beltiras 5y ago

As opposed to the greed of the banks and the ratings agencies being catatonic?

martinald 5y ago

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?

HideousKojima 5y ago
Higher gas (and petroleum product and energy in general) prices have a lot of knock-on effects on prices beyond just the cost to make a commute. The costs of delivering goods goes up, higher energy prices means lower profit margins for virtually every industry, etc.
ryanSrich 5y ago
I agree. But then again, most of my knowledge of the housing crash comes second hand. It didn’t impact my parents (rural area, one mortgage), and I don’t personally know anyone that defaulted or had their parents default. On the other hand I acutely remember the gas prices at that time. I was a senior in high school and filling up my tank was something i specifically had to save a decent amount of money for. So perhaps that was the bigger issue, but it does feel like an insignificant amount of money in the grand scheme.
asteroidp 5y ago
It's amazing how tight people budgets are they simply can't absorb a relatively small increase
dazc 5y ago
From memory, people were getting large mortgages they couldn't afford once the teaser rate had expired (usually 1 - 2 years). The reason they were able to get these mortgages is because lenders were doing little or no due diligence. This did coincide with a period when fuel prices were rising but, I think, this was more a case of 'the last straw breaking the camel's back' rather than a direct causation of financial distress.

Symmetry 5y ago

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.

deleted 5y ago

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panick21_ 5y ago

They are somewhat right, but for the wrong reasons. 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. You can actually go back and read the minutes of those meetings. As Scott Sumner writes: > 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. 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.

TradingPlaces 5y ago

This is what triggered the housing crisis. https://fred.stlouisfed.org/graph/?g=MfJE https://fred.stlouisfed.org/graph/?g=MfJE

ethagknight 5y ago

High gas prices certainly preceded the housing crises, but good luck convincing anyone it caused. 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. 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. 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. (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)

zitterbewegung 5y ago
Gas prices have been from the $2.00 to the $5.00 mark for the past decade. Adjusting for inflation Gas is getting relatively cheaper but the last time it actually changed consumption it would be around 2008 so it was at the $5.00 mark ($6.55 a gallon). Biden just released the national gas reserves which is an attempt to keep prices lower. For a long time it has been said that we have to change peoples behavior to solve the global climate crisis but that seems unrealistic and I think instead we should invest in large scale carbon sequestration projects. Telling people what to do doesn't go over very well for anyone.

huitzitziltzin 5y ago

Economist here. 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. 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.

mgh2 5y ago
The link to the paper is broken, wanted to examine their method to see if the analysis is sound
- jcrash 5y ago
  I found it on another site: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.800.3891&rep=rep1&type=pdf https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.80...
b112 5y ago
It is being shared for clicks, aka money, regardless of the belief.
ddubski 5y ago
Hi, I’m the OP. I shared this because from a practical perspective it seems that filling a car’s fuel tank is one of the most volatile and essential line items in a typical household budget, and when expensive housing (owned or rented) stretches household budgets, prolonged increases in gas prices could feasibly be a “straw that breaks the camel’s back”, as another commenter mentioned. I appreciate the far more educated perspectives available on HN, so given some of the current parallels (expensive housing, rising prices) and some of the much more unfortunate new variables (war, inflation, supply chain), I wanted to raise the topic for discussion. I personally think that trends like increased EV/hybrid ownership and WFH could mitigate this issue in particular, but I don’t think these are trends that apply to all Americans equally (especially those with more precarious finances).
- deleted 5y ago

GoodJokes 5y ago

jcrash 5y ago

Here is the paper (link in article is broken): https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.800.3891&rep=rep1&type=pdf https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.80...

not2b 5y ago

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? 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.

ThinkBeat 5y ago

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. 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. 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. We would sell loans that had $1500 - $2000 payments per month to someone living in an appartment just able to afford $400 in rent. 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. The boss and founder managed to sell the business about 3 months before the big bang. 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. I had friend who stayed until the bitter end.