Thanks for being there for me in this time of confusion.

In terms of future value growth or decay, I’, thinking in terms of whole effects versus fractions and components, i.e, not just breaking out oil or mortgages but thinking in terms of net exposure.

In the balance of your question, between oil and housing, I think it’s obvious that as oil related costs increase and home values on average decline, the economy will slow and the aggregate result will be a loss of net value, which will occur as inflation increases.

In regard to wages, why would they go up? A great example of future reward is on wall street right now, i.e, not too many bonuses will be handed out and XMAS will look bleak for many. Furthermore, as debt matters widen, it seems obvious that the dollar should remain under pressure and weak, which fuels the symbiotic sustained value of oil.

I’ve been on the deflation side of the argument for a couple months.

The real question is ‘Which is larger… the inflationary effects of oil, or the deflationary effects of housing?’

The central banks, as much as they wish, cannot stop the deflationary sprial of housing prices. 30yr fixed rates are rising as the fed holds interest rates near an all time low.

The inflationary effects of oil are causing demand destruction and will eventually reach a plateau.

Unless we see wage inflation, further destruction of the dollar,
or a significant change in fiscial policy I don’t see how we avoid a period of overall deflation.

(I look toward Japan in the 80’s and not the US in the 30’s an example.)

The Times tells us…

There is only one “The Times” and that is the one published in London.
[/pedantry]

Btw, love the blog.

Even if oil backs off a bit for now, there are too many negatives going forward in terms of future value, i.e, we will see less access to money as a result of the compounding multi-trillion write-offs and subprime flu fallout. We will also see inflation-like pressure on wages and savings in term of yield, i.e, consolidation of banks will force yields lower and lower (as dividends are cut by every corporation) and as home prices drop, any current money invested will be displaced by the impacts of inflation. Furthermore, as banks consolidate and become less liquid, mortgage rates will rise, which will continue to push home prices down. Jobs will be difficult to find and unemployment will rise.

This type of environment will leave The Fed frozen, as they ignore inflation and stagflation, and as they hesitate (for months) in acting, they will fuel a deflation spiral. Obviously this decay will result in a weaker dollar, which will aid the “recovery” of higher oil prices, which will keep inflationary pressures rising, which IMHO, will result more in deflation than stagflation.

So much for late night theory… meaningless..