Unknowns: Inflation, Deflation, Peak Oil, Climate Change...

This is just a little diversion from the main focus of this blog to look at the big picture.

A lot has been going on in terms of trying to prop up the world financial system and it is unclear what impact these actions will have going forward.

Google image search source lewrockwellblog

One thing that I cannot sort out is deflation vs. inflation. It is clear that deflation has been winning recently. Good news for me, my salary is in dollars and houses and stocks become cheaper. Saving for a downpayment in cash is working, even at low returns. Go bears!

However, I have anxiety over what I don't understand. I don't fully understand where this money is coming from to bail out banks worldwide and to 'provide liquidity'. Perhaps there will be a delayed reaction and inflation will return.

So in the short term it appears that the credit crunch is resulting in a reversal in leverage causing deflation. However the impact of the desperate solutions by those in power is a concern to me in the medium to long term. Are savers going to be coerced to invest through monetary policy?

Google image search some blog post I added to bloomberg LIBOR chart

There is a view that the energy industry, and specifically the tarsands, will keep Alberta's economy insulated to some degree. I think that some of this growth was the result of distorted demand from the United States living greatly beyond their means. There are those that have said American personal, government and trade deficits are sustainable with lines such as "America is the largest economy in the world" and "World reserve currency". I have my doubts.

Imagine a world where money is a method for trading goods and services and ignore for a moment the apparent permanent imbalances in US monetary policy. I know this sounds foreign and simplistic but bear with me. Extracting oil from the tarsands is expensive in terms of resources such as labour and capital. Consider the sacrifices made by people working long hours, living in camps far away from home. How much capital is being invested to retrieve this energy? If money is an exchange for goods and services what will Americans offer in the future to us for all this hard work? During the housing bubble they would remodel their kitchen, take out a home equity loan and buy a Hummer. Now what?

google image search Texas REALTOR

Google image search some Bloomberg article

In regards to oil there are two wild cards. Oil is a limited resource and therefore could use more of people's incomes to sustain marginal production methods such as the tarsands. At the same time policies to combat climate change could promote alternatives.

What impact will inflation, deflation, peak oil and climate change will have on the Alberta economy and nominal real estate values going forward? Any thoughts?