The Oil Drum

64 comments on Minimal Behavioral Adaptations to Oil Shocks

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Eroie Van Tanstaafl on October 21, 2005 - 12:37pm

With few exceptions recessions are caused by overinvestment in assets that turn to be unproductive in the long run.

Overinvestment occurs because interest rates are too low - and those rates are set by the Fed. But recessions also happen when interest rates are too high, choking investment and starving marginal enterprises of liquidity or revenues. Recessions happen for lots of reasons.

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Gloomy on October 21, 2005 - 1:11pm

Overinvestment occurs because interest rates are too low

Not always, sometimes it is because of a bubble (like in 2000) and sometimes there is simply a change in the environment. If you take a different point of view the oil shock recessions were actually caused by long-term overinvestment in unsustainable oil-dependant way of life.