Sunday, April 8, 2012

The realities of inflation in our current economy....

So, what is the realistic result of inflation? I can only describe this from my viewpoint, which is totally unschooled and dependent on direct observation and the following cogitations.

Inflation, at it's very core, simply means more 'dollars' are entering our economy without any value to back them. They get their value from the dollars we already have in our hot, sweaty, little hands... stealing it away. There is no way to say this more accurately; Inflation takes the wealth from our pockets even as we earn it, leaving us less to live on. Our money is worth less, and we see this as rising prices. It's not the apple that's worth more, but the money which is now worth less.

What does this mean to little 'ol me..... and pretty much every other consumer out there? An example.....

I have been in the market for a 'new' camera for some time. I've grown in photographic skills to the point my present camera is (in a small way) a limiting factor. The pro-sumer camera that meets my desires costs about $1000 new, for just the camera body. My current camera was purchased at $400 new, as a complete camera kit with a mediocre zoom lens attached.

Given current economic condition, and the current rate of inflation (Real numbers = 11%), would it be reasonable for me to buy that camera new? No... it simply isn't. I would be spending dollars that were worth (X) when I earned them a year ago, and are now worth (X-10%). That lowering of my moneys value shows up as a price increase on the camera of over $100. Inflation makes a new camera too expensive.

So, I am shopping the local used market. Person to person, I have located a lightly used camera of the make/model I desire, with an additional $700 in lens and accessories... for almost exactly what the camera body alone would cost me new. This is a more reasonable way to buy the camera, under these conditions.

What does this mean to the economy? Well... to start with, I am buying used on a personal level. That means I've cut out the entire retail marketplace from this transaction. I've also cut out the entire manufacturing base.... Canon isn't getting a penny of this money. In both cases, that means lower sales for them, and lower need for employees. Also lesser need for raw materials and all the related services that go towards manufacturing and sales.

Multiply this by millions of buying decision throughout our economy, and now it's become a huge, huge factor.

Add to this... no government sycophant can collect taxes on the person-to-person purchase I plan to make. This means the tax base is reduced by (x) amount every time I do it. Again, multiply that by millions and millions of buying decisions. The government only has a few choices when faced with plummeting revenues like that... print more money (more inflation), raise taxes (job loss and economic hardship), or reduce services (Politicians take heat and lose their cushy high paying jobs). Guess which choices they make.

This is just one example of one small result of inflation. Multiply it by almost every consumer, and by almost every transaction.

The next step down the trail of inflation.... I would buy no camera, of any kind, as it's a luxury. The next phase of inflation results in my buying nothing at all that isn't needed for direct survival, or that will increase my earnings enough to be worthwhile. When that phase strikes, the guy who has a camera to sell will find it's suddenly worth far less, if it has any value at all. His personal value just dropped $1000. The camera shop that might have bought it used is no longer around, as they went out of business in the previous stage of inflation.

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