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sparcebag

Question for you financial guys

13 posts in this topic

OK with the turmoil happening,Do you think prices of our groceries,fuel,general living expenses will drop?

How bout construction materials?

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Hmmm maybe. Freezing up credit, which is the grease of the global trading system, would tend to raise prices especially if fresh produce distribution is disrupted. Having to use cash on delivery for commerce (and say good by to having 60 days to pay an invoice) would tend to limit supply more than demand falling - hence raise prices. If frozen credit is around for awhile then some businesses will go under, employees will be let go and our recession will deepen. That should eventually decrease demand enough to start lowering prices. Take a look at the Great Depression to see what can happen.

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I agree with DinkADunk, if anything it will increase prices.

Shipments will be frozen in port waiting for upfront payments meaning supply slows as demand stays the same.

Like the last post said if people lose jobs and money for your average family runs out you will see some drop in demand for some products so prices may come down at that point. But then again people won't have any money left to take advantage of the savings.

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Fuel prices will remain high, and may increase. Generally, that is an international commodity (barrel of oil, as an example) and a contributing factor to the high cost of - for example, a barrel of oil - is the devalued dollar. This 'bailout' will dump more dollars - out of basically 'nowhere' - into the economy, futher devaluing the dollar and increasing our costs (dollars per barrel of oil) of such items.

Food/groceries are heavily dependent on fuel prices, so don't expect a drop there.

Where you might see some price drops are on durable good items. These are purchases - such as appliances, vehicles, etc - that are going to be put off by people until the dust settles. There will be large inventories of these items by this winter. You may be able to find some good deals on these items before too long, if you are in position to take advantage.

Things like travel - both personal and business - will get cut back heavily as a larger share of income/revenue goes toward energy costs. Things like hotel stays may get cheaper.

Think of it this way...as more of people's disposable income is spent on energy, fuel, and groceries that leaves less for things like restaurants, movies, durable goods, and other luxury items..all the way down to things like fishing tackle.

One place where people aren't thinking about decreased revenues is to local governments. Dependent on sales tax revenue and property tax (and thus property valuation), local governments could really be in the hurt bag by this time next year.

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Nothings gonna drop. It's going to stay high. All products have to be transported (oil) and that's just not gonna go down by a lot.

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I wouldn't bet on continued high oil prices. When Thailand floated the Bhat (start of Asian financial crisis) it took less than 6 months for Oil prices to start falling and they ended up comming down a lot. With a credit freeze, industrial production would drop quickly leading to a decrease in oil demand in India and China (as well as here). That would work it's way to significantly lower oil prices. One good estimate is $75/bbl oil for the non-speculation price. That's a number that the Saudi Oil Minister was using for what the price should be given supply/demand conditions of 6-12 months ago. A credit freeze resulting in a fairly deep recession could bring the price of a barrel of crude to $35-$50, or gasoline at roughly $2/gal (very rough calculation). I'm not saying this will happen it's just that a reasonable drop in world wide manufacturing demand can rapidly bring oil prices down.

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I was thinking with no or little spending most everything has to drop in price,just to keep those who sell in buss.A small profit is better than no profit.

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That works in general but a short term credit feeze really messes up the works and can drastically reduce supply thus increasing prices. I'll give you an example of what a short term lending freeze can do (i.e. banks not willing to lend other banks money overnight). Say you have a service company of electricians. You pay your electricians a monthly salary. You send your electricians out on service calls to other companys and those companies pay you within 60 days of being invoiced. Well it's the last week of the month and you need to make payroll. You have received income from some previous months invoices but you don't have enough cash on hand to make your payroll (employee's like to be paid). You know it will all work out once your invoices are paid but you need some cash for a couple of weeks. You go to your bank for a very short term loan. Usually you have no problem. But with a short term credit freeze you're unable to get a short term loan - at any price. So, what do you do? Not pay employee's? Pay half? Demand payment from your suppliers? Go in default? Put payroll on your credit card? Basically every option you have is a bad one and not good for your company. Many businesses will get through it but many won't and most will be hurt. That leads to a quick and deep economic contraction. Now take the electrical contractor and scale that up to a lettuce producer and their shipping company. Don't have the cash to send the lettuce out (shipping company not extending net 30 terms, etc)? No shipping - lettuce rots, no lettuce in the stores. Panic is a definately possibility. Price goes up because of supply disruptions. Eventually things work out and prices will drop but that can take awhile (couple of years). Unfortunately a lot of damage can be done to well run companies and individuals.

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Don't companies in this situation already have established lines of credit such as a revolving account of some sort? It's really risky to run a business without some kind of credit line to even out the highs and lows, isn't it? I know ours does.

Bob

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I think those prices are going to stay and continue to go up until we are out of this recession, oh sorry, financial funk is the new term....

I think they should lower the price on the hunting license's and stamps and fishing licenses since we will be forced to live off the land pretty soon!

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With a credit freeze those lines of credit are canceled (or frozen, not honored, etc). Same thing can happen with your credit card. We already see folk's who have obtained financing for a house show up at closing and find out they don't have financing anymore. Banks reserve the right to not extend credit at anytime. Here's a pretty good story from the LA Times that highlights the problem

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Being in business, I will say that credit has tightened up on buying materials quite a bit. Doesn't help having all the shady contractors in the past not pay their bills. The other thing is that we usually don't use the junk most lumber yards or distributers have on hand, so it is ordered. If the order isn't big enough, we have to wait until an order is filled from other orders to make it worth it to send out a truck.

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this has nothing to with the credit but I have run into this twice so far in the last 3 weaks. I have done some retainig walls on 2 differant town home complexis and I had a scare where when the associations told me to pay the bill it maybe a while because their money was tied up in these banks that were failing. Luckily they pulled the money out before the S__ hit the fan. That would have a big chunk of chang out my pocket to sit on.

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