Subprime mortgages are a problem but they are not the cause of the collapse. The collapse was caused by an OPEC generated precipitous rise in oil prices. Subprime mortgage buyers could no longer pay their mortgages because too much of their pay check had to go to pay for gasoline. Yes, I know, gas prices have since declined but not before Humpty Dumpty, the American consumer, was broken.

Much of the economic development around the world rested on the willingness and ability of the American consumer to absorb a large portion of the excess global production especially from emerging markets. It was the role of the producing nations to enable the American consumers to fulfill its role, i.e, live above its means, by lending it the needed funds. All subprime loans did was to encourage poor people to join the national spending spree. The hope was that emerging markets consumers will slowly begin to follow in the footsteps of their American brethren enabling a careful rebalancing of the global economy.

Indeed, when Oil rich nations decided to squeeze the American consumer by not only raising oil prices but also by ending or lowering their investment in the American financial markets, they assumed that there were enough new consumers in Asia to replace the American ones. In other word, they assumed that the collapse of the US economy would not lead to the collapse of the global economy, most especially, the Asian one.

They were wrong. Instead of proving that the world no longer needed Americans and their dollars, they ended up proving that the US and its consumers were needed more than ever. Just note the post crisis rise in the value of the dollar and the enormous popularity of US treasury bonds.

So where are we now? OPEC got the American president it wanted but at an exorbitant price. To steady the American economy, oil prices will have to stay low and foreign government will have to buy more American debt than ever. The projected American deficit next year is going to be around a billion dollars to which a stimulus package of about another half a billion dollars will probably be added.

If all goes well, the American consumer (excluding its poorest component) will have a short memory and it will renew its reckless spending. If it turns thrifty, the recession will last longer. Either way, the new, less confident developing world consumers are no longer likely to follow suit and the corporate world is going to be much more risk averse. In other words, the era of fast paced global development is probably over and the poor will stay poorer longer.

What is to be done? We must use this crisis to make major strides towards energy independence. A major part of the stimulus package should be spent on investment in our energy resources. This is the time to take a holistic approach. We should do everything, so that never, but never, will energy warlords be in a position to hold us hostage again. As in 1973 and 1979, they have demonstrated yet again that they cannot be trusted. Enough is enough.