deflation?

DEFLATION?
I know, I said no more chicken little stories on the economy, but I've been force feeding you warmed over election news and Peak Oil stories so perhaps now economic news won't be so hard to swallow. I got all worked up over a blurb at www.survivalblog.com so I thought I would bend your ear over that. The case for deflation was made and housing and oil were used as examples. It was argued that credit contraction was leading us into a depression. It wasn't a bad argument, and we all do tend to forget that our economy is mostly credit rather than paper currency. Yet something was nagging at me over the article.
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Excess credit creation might have been inflationary in the housing market, and that collapse is causing housing costs to deflate to a degree. Yet, rental costs are rising as fewer people are willing to sell at a loss and credit dries up for others. And I would argue that credit creation has been deflationary in the retail sector. Yes, a lot of businesses had to pay extra to cover the increased cost of interest plus principle on loans as they were forced to expand to survive. But economics of scale allowed a profit as long as interest rates were low. Can you imagine all those Wal-Marts and Home Depots would be in existence if it weren't for an orgy of cheap credit being created. Credit creation allowed growth to continue. Now the lack thereof will rise prices. At first intense pressure will force some price lowering as firms are desperate to survive the credit drying up. There are already countless examples of bankruptcies due strictly to lack of credit. After excess firms are dead, there will be both lack of competition and increased interest costs to drive prices up.
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Oil is falling drastically, and only some of that contraction can be blamed on a sudden ( and I'm sure short lived ) surge in the value of the dollar and the decrease in demand. We used eight percent less imports this last year and I'll call ethanol use a ballpark 2%. Does a ten percent decline in demand drop the cost of oil two thirds? Plus, China seems to be buying up what we don't use, so it seems odd the decrease has been that much. And the dollar has increased in value about 15%. Even with futures markets queering the price it still seems oil should be closer to $75 than $50. Of course, the drastic slowdown in international trade due to the freezing of letters of credit might account for the lower oil sales leading to decreasing prices.
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Yet, if oil is now so much lower, why are food prices still so high? Food is mostly oil, from machinery to fertilizer to transport to packaging. If oil went from $150 to $60, why did a bag of flour go from $1 to $2 and only ever so slowly creep down to $1.80? Rice and beans remain high, as does anything in a can. And Rawles is also reporting that can costs are going up. I would hazard to guess the following. This time it is less about the value of currency and more about true supply and demand. Population is up, water availability and fertile land is down. Food prices will continue to rise. Oil will fall to a point. People can continue to cut recreational driving ( prices may be falling but credit is drying up faster, and unemployment is increasing ). Businesses failing means less energy needed. For a time that demand destruction will keep costs on gas down. But eventually supplies will fall enough that oil costs will rise even with less demand. Oil isn't effecting food because we have already reached a point of increased demand canceling that out. More mouths to feed every day.
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In other words, resource depletion has its own pricing mechanism.
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