Letter Re: The Cost of Things to Come

We are in a simultaneously deflationary and inflationary situation.
The deflationary forces are:
1) We’ve been a credit based society and with less credit available, less purchasing will happen driving down prices.
2) Most people have most of their wealth in their home, their stocks and their banks (Indy Mac anyone?), all decreasing in value thus putting the brakes on discretionary purchasing driving down prices.

The inflationary forces are:
1) The rising price of oil raises transportation and manufacturing costs for everything.
2) The increasing population and decreasing supply of commodities (food, metals etc.) increases prices.
3) The Fed cannot raise the interest rate and slow down inflation without causing an even worse housing collapse.

With two opposite forces pulling on the economy, for a time we have had a dynamic stasis as the forces balanced each other. Now these two forces are literally tearing the fabric of the economy asunder.

On one side, anything available that is sold in the international marketplace or has intrinsic value will increase in price.
This means food, oil, ammo, metals, commodities. This is due to the loss of the value of the dollar and the fact that the demand for these items is less negotiable. On the continuum, you must have food, and you’d really like not to freeze this winter due to lack of heating oil.

You, along with six billion other people will do what you have to, in order to continue to eat but do you really need that 40″ television, a dinner out or a vacation or…
Anything that is sold exclusively locally (not including commodities), and is discretionary will begin to decrease in price.
Expect deep discounts as stores that do not have international presences liquidate inventory to cover expenses. Have you been to [shop at] The Sharper Image lately?
This includes anything that people own and don’t really need such as: Trucks, cars, boats, electronics etc…

Consider what you do for a living. If you have hard skills (plumbing, gardening, medical), your skills are non-discretionary. You will be needed and your prices can rise with the prices of commodities.

If you are a consultant, artist, analyst, if you have a store that sells non-essentials, you’re vocation is discretionary. Your prices will likely go down if you want to attract work.- SF in Hawaii