CIBC: Just How Big is Cleveland?

CIBC has an idea how this recession started.  I thought it seemed interested. I'd be curious to see what anyone else thought. Incase you can't open it or download it, below are some excerpts from it. 

And the world economy is coming off the
mother of all spikes. Over the past expansion,
real oil prices rose over 500%, twice the
climb in real oil prices that produced the
two biggest recessions in the post-war era:
the 1974 recession and the double-dip
recession in 1980 and 1982. If oil shocks half
the size of the recent one caused the worst
recessions in the last fifty years, they’re a
pretty obvious explanation for the recessions
in oil-dependent Japan and Euroland earlier
in the year. And even back in Cleveland,
few could doubt the link between $4/gallon
gasoline last Memorial Day weekend and
what’s happening in Detroit today. And from
where the US economy currently stands,
vehicle sales have a much bigger downside
than housing starts.

Oil shocks create global recessions by
transferring billions of dollars of income
from economies where consumers spend
every cent they have, and then some, to
economies that sport the highest savings
rates in the world (see pages 4-6).

While those petro-dollars may get recycled
back to Wall Street by sovereign wealth fund
investments, they don’t all get recycled back
into world demand. The leakage, as income
is transferred to countries with savings rates
as high as 50%, is what makes this income
transfer far from demand neutral.


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That is why it is worthwhile to look at past Oil shocks: 1974, 1980, 1990 -- for guidance as to how this economic shock plays out.

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