If you listen to Ben Bernanke and Wall Street economists, it was the damage the subprime mortgage crisis inflicted on highly leveraged banks that deep-sixed the global economy.

No one has to tell me about how severe the banking crisis was. Why the hell do you think I’m an author now? But blowing up bonuses at investment banks and blowing up the world economy are two very different notions.

Everyone will tell you that it was virtually free credit conditions that spawned the subprime mortgage phenomenon. And everyone acknowledges that it was the sharp mid-decade run-up in interest rates that burst the bubble and caused the collapse in US housing prices and in the value of those mortgage-backed securities that are still wreaking havoc on bank balance sheets all around the world.

But the question folks aren’t answering is, what forced that fatal five-fold increase in the federal funds rate in the first place?

The answer to that, my friends, doesn’t lie with foreclosed homes in Cleveland, or with over-leveraged banks in New York, but rather with something that was happening in Cushing, Oklahoma.

From January 2004 to January 2006, a doubling in the price of West Texas Intermediate (the benchmark oil price in North America, which is priced at Cushing), from $35 per barrel to $70 per barrel, drove energy inflation through the roof.

Inflation, as measured in the energy component of the US Consumer Price Index, soared from an annual rate of less than one per cent to as high as 35 per cent. That, in turn, drove the headline consumer price inflation rate from less than two per cent to almost six per cent, the highest reading since Saddam Hussein lit Kuwaiti oil fields ablaze in 1991.

The Federal Reserve Board had no choice but to follow suit. Pretty soon, not only was inflation at almost 6 per cent, but the federal funds rate was as well.

Suddenly borrowing wasn’t free any more, and then, when homeowners couldn’t make the mortgage payments on homes they couldn’t afford in the first place, the whole financial system imploded.

But if oil had stayed around $35 per barrel (incidentally what the “energy experts” were calling for at the time), energy inflation would never have spiked, and neither headline inflation nor the federal funds rate would have gotten anywhere remotely close to the levels that sparked the financial crisis.

The subprime mortgage crisis was not the cause of the recession. It was a symptom of a much bigger problem—an energy shock.

It was oil prices that brought about the last recession, and unless we make some major changes to the way we live, it’ll be oil prices that bring about the next recession as well.

Ben Bernanke doesn’t get it. Make sure you do.