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Page added on February 1, 2008

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Michael Klare, Barreling into Recession


The economic bubble that lifted the stock market to dizzying heights was sustained as much by cheap oil as by cheap (often fraudulent) mortgages. Likewise, the collapse of the bubble was caused as much by costly (often imported) oil as by record defaults on those improvident mortgages. Oil, in fact, has played a critical, if little commented on, role in America’s current economic enfeeblement – and it will continue to drain the economy of wealth and vigor for years to come.



The great economic mega-bubble arose in the late 1990s, when oil was cheap, times were good, and millions of middle-class families aspired to realize the “American dream” by buying a three (or more) bedroom house on a decent piece of property in a nice, safe suburb with good schools and various other amenities. The hitch: few such affordable homes were available for sale – or being built – within easy commuting range of major metropolitan areas or near public transportation. In the Los Angeles metropolitan area, for example, the median sale price of existing homes rose from $290,000 in 2002 to $446,400 in 2004; similar increases were posted in other major cities and in their older, more desirable suburbs.


This left home buyers with two unappealing choices: take out larger mortgages than they could readily afford, often borrowing from unscrupulous lenders who overlooked their overstretched finances (that is, their “subprime” qualifications); or buy cheaper homes far from their places of work (the “exurbs”), which ensured long commutes, while hoping that the price of gasoline remained relatively low. Many first-time home buyers wound up doing both – signing up for crushing mortgages on homes far from their places of work.


The result was metastasizing exurban home developments along the beltways that surround major American cities and along the new feeder roads that now stretched into the distant countryside beyond. In some cases, those new homeowners found themselves up to 80 kilometers or more from the urban centers in which their only hope of employment lay. Data released by the US Census Bureau in 2004 show that virtually all of the fastest-growing counties in the country – those with growth rates of 10% or more – were located in exurban areas like Loudoun County, Virginia or Henry County, Georgia.


At the same time, cheap oil and changing consumer tastes – pushed along by relentless advertising campaigns – led many of the same Americans to trade in their smaller, lighter cars for heavy SUVs or pickup trucks, which, of course, meant only one thing – a significant increase in oil consumption. According to the Department of Energy, total petroleum use rose from an average of 17 million barrels per day in 1990 to 21 million barrels in 2004, an increase of 24% – most of it being burned up on American roads.


Tom Dispatch



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