Hamilton's interpretation is that the housing bubble collapse was a drag on the economy before and after the oil price spike. But the oil price spike multiplied what was merely a slowdown in growth to a full blown recession. In the short term we are still seeing the economy collapsing worldwide, but Hamilton concludes:

If growth in the newly industrialized countries resumes at its former pace, it would not be too many more years before we find ourself back in the kind of calculus that was the driving factor behind the [oil price] problem in the first place. Policy-makers would be wise to focus on real options for addressing those long-run challenges, rather than blame what happened last year entirely on a market aberration.

So the accelerating job losses in the world we're seeing is because oil went from 45 to 50? :-)

I suspect that many firms and investors are not so much worried about the price of oil today, but the price of oil over the course of the payback period for long-term investments they want/need to make. The fact that people actually bought and sold barrels of oil for $140+ in 2008 throws many profit models out-of-whack. If you want to estimate the payback period for a given investment, you want to assume some stability in the price of the key commodities involved. A recent history of a core commodity doubling or tripling in price in a matter of months will generate some scary looking error terms if your investment requires a 10 year payback period.

So what do you do? You probably sit on your money and think about it for a while, and you probably get a whole lot more conservative about the ventures you fund.

The way I think of it can be explained with the following image.

The economy is like an airplane, zooming along nicely. The oil price *shock*, was such a shock to the plane that it blew up one of the engines.

The plain stalled and is now dropping faster and faster, the remaining engine is not enough to keep the plain in the air.

It is using less oil now, so oil price is low, but the economy is caught in self-reinforcing downward spiral:

joblosses
=> slowing consumption
=> slowing economy
=> joblosses
=> slowing consumption
...

There really isn't a contradiction with the oil price spike being part of the cause that sent the economy into a tailspin and the oil price being low right now.

Your logic is akin to being in a plane seeing the engine of the plane explode and then a few minutes later declaring that the exploding of the engine has nothing to do with the plane currently loosing altitude, because the explosion already happened 5 minutes ago.

My point would be that, if you assume the price shock may have caused some serious damage to the economy, it may now be in a "broken" state and still loosing altitude, even though the oil price is down.

Actually it worries me. If a drop of the oil price from nearly 150 to around 50 isn't enough of a "stimulus" to the economy, then what is?

Also I believe that economic recovery will be hard if not impossible. As soon as the econmoy starts recovering, oil price will shoot up again, and that'll be the end of that.

Of course, it ain't as simple as that here. We can't know for sure that oil price spike was the cause, and likely it was a combination of things.

I've thought of it as a system stressed to breaking point. Just an overstressed system goes "kaboom" I think you'd expect a lot of "measurable parameters" will show extreme values. So many things may seem to be going wrong at the same time. None of these parameters were really "the cause". The thing just finally blew up because it was being driven beyond its limits for too long.