Readers suggested a topic on how housing prices and incomes will be resolved. "How about inflation vs. deflation? Most of those who post on this blog believe housing prices and consumer spending will have to collapse back to the level income can support, but there seems to be a difference of opinion as to how it is going to happen. I see it, in part, as a choice — and the choice that is being made is inflation, even if that means the dollar will no longer be the world’s reserve currency and the rest of the world will never lend to us again."

Another said, "We’ve had 3 solid months of rising consumer prices and over a year of falling home prices. What’s more, the credit crunch is widening its grip. People are so hopeless, they are walking away from their homes. The entire financial system is in chaos. Unless wages rise for the masses, we are heading for depression."

One responds, "But how, exactly, would this come about? Government/city workers may have the safest and most recession-proof jobs, but the bureaucracy in those institutions moves so slowly that it would take a couple of years before any wage increases were instituted. City and state revenue will fall in a recession, making a wage increase unlikely."

"In the private sector, of course, sky-high CEO wages could come down and regular worker pay could come up, but how likely is that? If anything a tanking economy will result in more layoffs and more downsizing while the suits keep getting bonuses. This will continue until shareholders finally realized they’ve been getting fleeced for the last couple decades and demand an end to over-the-top CEO compensation. I won’t hold my breath on that."

"So what’s that leave? Maybe increase the minimum wage to an actual livable level, like 15 bucks an hour? Corporations would fight that tooth and nail. I see no viable scenario for wage inflation."

One said, "In a perfectly globalized world a factory worker in Bangalore or Shanghai or Des Moines would have exactly the same standard of living and there aren’t enough resources for 6B people to live like north Americans. So the inevitable end of globalization is a drop in American standard of living."

One added, "I have wondered how China will avoid going through a similar downturn if the U.S. stops spending like it does."

A reply, "China and India’s economy is based on us buying their crap (China’s) and their services (India). If we consume less, China and India also hit a recession, demand drops for commodities, and all those people trying to hedge against inflation, end up getting burned by less demand and less purchasing power from their consumers which means deflation."

One had this, "A good friend of mine just returned from a visit to China last week. He said real estate prices in Beijing are outrageous — sub-500 square foot apartments for the wage equivalent of 300K USD. They are displacing tens of thousands of people for the Olympics, and Beijing is one big construction zone. China has gone into development overdrive, but it can’t be sustained forever."

A reply, "It takes 6-12 months for our spending slowdown to hit China. They are already drastically trying to increase domestic consumption but once the Olympics is over, it’s game over for them as well. Commodity prices (cement, copper, iron, oil) will drop like a rock once their building binge stops, as our binge here has already stopped."

To which was posted, "The more pedestrian commodities will certainly suffer from the world-wide slowdown, but Gold is a special case. There is only enough to satisfy 1 out of every 50 units of fiat moneys in the world."

And lastly, "As a corollary to the inflation/deflation debate, how about some discussion as to indicators of the commodities bubble topping out? Are there any already present?"

"I previously believed that there wasn’t another asset class big enough to replace real estate as a bubble, but I’m beginning to believe that commodities as a whole may just fit the bill."