RE:How will the crashing housing market affect oil? In a post some time ago, I talked about what period of time is comparable to the situation we are facing today. I won't bore people by going through that again. The key thing is that while a lot people draw comparisons of today's situation to that of the Great Recession, the fact of the matter is that such a comparison isn't the one to look at because the underlying situation was very different.
2008
1....the housing crash that was the seed of the Great Recession was not caused by rising interest rates. In fact it was caused lax bank credit checks on homebuyers and allowing people to become overly leveraged in terms of housing
2....the increase in house prices was driven by Point 1 and speculative buying by thousands of people. It was an artifical market aided and abetted by synthetic derivatives to increase leverage to obscene levels.
3.....the ultimate collapse of the housing market dealt a huge gut punch to US banks since they were highly leveraged through lax oversight by US regulatory bodies. US major banks were leveraged at over 30:1 at that time.
4...the US Fed had the option to deal with the crisis through reducing interest rates and printing money through the purchase of treasury bills and mortgage backed bonds
5....the US budgetary deficit in 2007 was 1.1% of GDP
2022
1....the crisis emerging in the housing market is being caused by increasing interest rates and somewhat lax lending practices by US banks
2....banks today are leveraged around 10:1
3....the US Fed has essentially no scope to lower interest rates and its balance sheet is bloated through the buying of so many Treasury Bills and mortgage backed bonds over the past 15 years so it has no choice but to reduce this balance sheet not make it bigger
4...the US budgetary deficit in 2021 was 12.1% of GDP
Soooo....when you put this comparison together, it becomes evident that we are in worse shape now than we were in 2008 to deal with the economic crisis because -
1....there is nowhere for interest rates to go now but up compared to room for them to go down in 2008
2....the US Fed balance sheet is bloated and they have to sell of assets thus shrinking the money supply as opposed to 2008 when it had room in buy assets and print money
3.....the US Government fiscal position is a mess now (deficit is 12.1% of GDP) whereas in 2008 they had room to increase deficit spending (deficit was 1.1% of GDP)
4.....the partisan divide in the US Congress is much worse than it was in 2008 which means that very little can be done to deal with the problems. This will be especially true if the Republicans gain a majority on the House of Representatives.
The bottom line here is that to understand and react and make intelligent investment decisions today, looking at events today through the lense of what happened in the Great Recession may lead to misinterpreting the data and worse still, focussing on the wrong or irrelevant data.