Readers suggested a topic on home prices and overall price movements. "Where to now………………? Inflation or deflation?"

One said, "I know alot of retired people who tell me that inflation is killing them, especially the food prices at the stores and medical costs. Also, its interesting how the global money supply served to help create the excess money supply that made the housing boom so possible."

A reader from Europe, "The reality is that current central bank policy hugely benefits certain citizens while stealing from others (savers/renters/fixed income etc.). I don’t think that will change, the politicians have already made their choices and continue the current road until the bitter end. And their choices about who to support are not much different in the US or Europe."

"In Netherlands over the last 15 years or so, homeowners have seen their income from equity gains far outpace the higher expenses for daily life. Even with the current 5-10% yoy home appreciation the equity gains probably outweigh the inflation losses, that is: if you are a homeowner. Central banks and politicians know this, so they keep inflating."

"Our realtors are now warning that there is a looming ’shortage of homes because of high prices’ in the Randstad (the big Dutch cities): home prices are getting unaffordable for most of the population, but on the other side home prices have to keep rising to keep the middle class homeowners happy, they simply need the extra income…"

"There is no real ’shortage’ of homes as the Dutch population is hardly growing. The shortage is artificial, pentup demand from people who want to move up as long as the government or tax office pays the extra cost, and many renters who want to own a home because that is the easy way to riches. The price level of Dutch homes is most of all the result of all the free money the Dutch government and the banks keep pumping into the housing market."

One looked back, "In the 90s inflation pressures created by excess money did not go to gold. Instead they went into two successive bubbles, stocks and housing."

"Also, the effects of outsourcing/globalization were highly deflationary in the consumer goods sector. This one-time deflationary effect is now over, and we have seen since 2000 gold outperform the stock market. Inflationary pressures at work in Asian export markets will now spill over into our economies as well and we will see that inflation was only postponed, not reversed."

"Combined with weakening USD, growing demand for goods in developing nations, and rising commodity prices this is a recipe for hyper-inflation IMO."

A reply, "I dunno. Look to Japan as a model? People seem to like to compare that scenario with the current one. They are still trying to recover from their last bubble collapse which drew down industries of all types, reversed growth and caused severe deflation."

"We see deflation now. A dollar buys much more house today than it did yesterday. As people’s ability to purchase thing dries up further, a buck will buy more of just about anything than it can today."

Another said, "Housing is deflating just like Enron and Worldcom stock deflated. It was overpriced and with similar lies."

"The industry in Japan most impacted by the deflation were financial firms. It was keeping the banks solvent that resulted in a generation of deficits. Manufacturers were not impacted with lack of buyers, Japan is an export oriented country."

"Tis not prudent to call a credit bubble collapse in housing deflation. The misnomer is the perception of houses as assets when they should more properly be thought of as liabilities."

Which drew this post, "I can’t say I’m completely clear about your point.. but let me suggest that a house is a real thing.. solid.. bricks and wood. Under any conditions, some entity owns all or a part of it, and that entity sees it as an asset."

"At the same time, it may also be a liability to some other entity, and in the normal course of things it likely is. How this particular distinction helps in predicting macroeconomic conditions escapes me."

"If nobody can afford to buy that house, regardless of our POV of it as an asset or liability, it’s price will deflate.. no?"

Another added, "I would think that in most cases, aside from architecturally significant properties, most if not all of the (long-term sustainable) value increase is due to the land, not the decaying structure standing on it."

"Outside of bubbles or the handful of cities where it’s nearly impossible to build a new building (SF and NY), the only way you can say that the building itself appreciates in value is to neglect the maintenance and other carrying costs."

One made this stand, "I vote for deflation. There’s too much money destined to be destroyed by the coming economic contraction. Cash will be king, even USDs."

One agreed, "That’s about it. The country will still have the hard assets and natural resources and goods and services available for sale.. (Most) people will just lack the money to purchase them." "High demand is nullified by the lack of ability to pay the price. Add high inventory...in what direction do price tags go?"

One posted this, "People bemoan the negative savings rate in this country, as they should, and as a country the pain will be felt. But an individual in this country who bucked the trend and saved instead of borrowed will be in a great bargaining position in the days to come."

"Because saved dollars are few and thus scarce their value will increase. Much of the borrowed dollars will simply disappear."