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The devaluation of money.

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Don't look now but prices are beginning to rise at a fairly rapid rate!

  • Mar 31, 2011
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"Inflation is going to be serious".  That is the sobering assessment offered by Wal-Mart US CEO Bill Simon during a recent meeting with the editorial board of USA Today. We have already started to see the evidence.  Led by the biggest jump in food prices since 1974, inflation at the wholesale level soared 1.6% in February.  And the likelihood is that it is going to get worse…..a lot worse!  Many analysts are predicting price increases in the range of 2-3% per month for the remainder of the year!  That would be devastating to the U.S. economy!  Given the sorry state of the U.S. dollar this hardly comes as much of a surprise to anyone who has been paying attention.  Led by higher food and fuel costs and substantial increases in the cost of raw materials consumers should brace themselves for substantial price increases for groceries, clothing, energy and building materials.  As a result, the U.S. economy might very well experience its second downturn in three years, the kind of "double-dip" recession that would boost an already scary jobless rate -- while also sending U.S. stocks into a bearish tailspin.  It is not a pretty picture.

Rampant inflation penalizes the most responsible individuals among us. Those who have carefully budgeted, lived within their means and saved for a "rainy" day will quickly discover that inflation gradually reduces the real value of the savings they have accumulated.  Governments tend to use inflation as a strategy to try to wring the excesses out of the economy that were often caused by their own uncontrolled spending coupled with the reckless decisions made by private individuals (i.e. buying a house they could not afford).  The result is that once again the responsible people wind up bailing out the irresponsible.  It makes me want to pull my hair out!  Now as to the practical ramifications of an inflationary spiral the average consumer can expect to see dramatic price increases for many or most of the items they purchase at the grocery store. This is starting to occur already and will become more and more prevalent in the weeks and months ahead. Some manufacturers will merely pass along their increased costs by raising prices while others will adjust the size of a product.  We have seen a lot of this in the past few years with grocery items like ice cream, canned tuna and dishwashing liquid. The most recent example would be orange juice. Tropicana has recently changed their 64 ounce container to a 59 ounce container but there has been no corresponding decrease in price. When asked why the customer service representative responded, "Our consumer research shows that most shoppers, when given a choice between a price increase or slightly less contents, prefer to hold the line on prices." This is pure illusion. The result is exactly the same. The price of your OJ just increased by 7.8%! I nflation also has a devastating effect on the poorest and least educated among us.  These folks are ill-prepared to deal with all of the marketing gimmicks that manufacturers and retailers will employ to try to conceal what is actually happening and are much more likely to fall prey to such tactics.

Those of you under the age of 40 have never experienced the kind of hyper-inflation that occurred in this country back in the 1970's. You have no idea what you are in for. Still, there are ways to survive inflationary times. You will definitely need to be a smarter and most disciplined shopper. Here are a few suggestions you might want to consider:

1) Since we are just at the beginning of the inflationary cycle it might be wise to build a pantry of stockpiled food and other grocery items such as paper products and cleaning items. This will help you to mitigate the expected price increases. The same advice would hold true for clothing and electronics you might need. If you have the available cash buy now and avoid the dramatic price increases that are likely to occur in the months ahead.

2) Avoid the "junk food" aisle at the grocery store and reduce the number of meals you consume at fast-food restaurants. This is a no-brainer.  There is precious little nutritional value in any of this stuff and the costs to your health can be quite high.
3) Eat less. A revolutionary idea! We are all creatures of habit but you just might be surprised to discover that you can actually cut out that mid-morning snack or evening treat or maybe reduce the portions you consume at mealtime. It's certainly worth a try!

4) Be a more savvy shopper.  Pay closer attention to the "unit cost" stickers at the supermarket. There are lots of hidden bargains on the shelves but you have to hunt for them. Clip coupons.  Take the time to make a list before you head to the market and stick to your list. Avoid all of those "impulse" items that are strategically placed all over the store. They are usually not a good value anyway.

5) Eat leftovers. Americans have become more and more averse to this practice but it is an idea whose time has come again. We will no longer be able to afford to waste anything.

6) Buy locally grown and in-season produce. These items are usually considerably less expensive.

7) Plant a garden. Home grown produce tastes great and can help you to reduce your weekly food bill.

8) Energy conservation. Make a conscious effort to reduce the energy consumption in your home. Turn off the computer and the big screen television when they are not in use. They suck up lots of juice. Switch to energy efficient compact fluorescent bulbs (CFL). Hang your clothes out to dry, do your dishes in the sink once in awhile and take shorter showers. The savings that you realize will help you to cope with the inflationary pressures that every household is going to have to deal with.

Now I could go on and on but I think you get the picture.  I am firmly convinced that America is in for a very rough ride over the next couple of years.  When inflation rears its ugly head it wreaks havoc with family budgets, forces those on fixed incomes to make extremely difficult choices and has a negative impact on businesses of all sizes.  We will make it through these tough times if we are informed, frugal and open to making adjustments to our lifestyles.  Unfortunately many clueless people are going to fall by the wayside.  Make sure you are not one of them. If you have any thoughts or practical suggestions that would help members of the Lunch community cope with the coming inflationary period I would be thrilled to hear from you.  Your imput would be greatly appreciated by everyone.  Thanks for reading.       
Ideas to weather the coming storm Ideas to weather the coming storm Ideas to weather the coming storm Ideas to weather the coming storm

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November 16, 2011
Great job! You've got to wonder with all the people out of work and many people behind on debts, how prices can continue to rise? Nice list of tips for spending less.
July 17, 2011
People are buying more gold, silver and other commodities. We should go back to the Victory Gardens under President Truman. People grew their own food in every nook and cranny of large cities. There were actually food surpluses for a change. Expect the debt ceiling to be raised and doing so makes common sense because our population has grown from 120MM to over 300MM since 1960. We simply need more services of every kind and the world has become more dangerous in some respects. In addition, nature has not been cooperative with Hurricane Katrina, earthquakes and tsunamis globally. To take care of things, we will have no choice but to raise the debt ceiling. A growing economy is the ultimate goal. Once this happens, the debt servicing will become less prominent because the revenues coming into the government's coffers will be far greater than the interest on the debt. At that point, we can pay down the debt incrementally. The trick is to hold spending down in a growing economy so that all of these good things can happen. If you break down the numbers, every American owes about $40,000 although the number would be smaller assuming a contribution by corporations and other entities which are a creation of the Uniform Commercial Code. Higher taxes on junk food would help us reduce the government's debt because people would be healthier and the medicare/medicaid costs would stabilize over time . Junk food aggravates every disease process from diabetes to cardio.
April 27, 2011
Great break down of inflation, Paul, and I really love all of your money saving tips.  I love how being green and eating healthy saves you money and is good for the environment.  Definitely a win-win situation.  A lot of the topics that I have on my list of little things that I do for the environment actually contribute to a lot of money saving.  Thanks so much for sharing this!
April 27, 2011
Nothing new about it, US is already 6 months late in this regard. We are seeing 5% monthly incremental right now in Hong Kong, Singapore and China. I wrote about it in 2010 and most just haven't realised how serious this problem is. Blame it on QE2! The US government is making the problem worse by printing those massive amount of easy cash. What goes around comes around!

America is in for tough time the next decade. The rest of the world will suffer is similar dosage, some more, some less...
April 21, 2011
Absolutely - inflation is here and going to get a lot worse. Amazingly the government's CPI numbers exclude things like food and energy cost, so doubt count on an accurate official number anytime soon!
April 02, 2011
I'm not sure I'd stock my basement with granola bars quite yet (or buy a Glock to protect my hoard when my starving neighbors find out what I have. Inflation isn't the issue...the rate of inflation is. No one knows what that might be. Some inflation is necessary for economic growth (or a reflection of it). I'm one of those who managed the double-digit years of inflation in the Seventies. It was tough on those with fixed incomes, but most of us -- and the nation -- survived reasonably well. For those who think the new experience might be worse, well, it's always wise to eat healthily but I'd recommend buying some inflation protected mutual funds. Just not a lot...you could be wrong. :-) I might not always agree with drifter51's point of view but I admire his research and style.
April 27, 2011
For those who doesn't have much investments, the only way to protect themselves is to stock up on food. Food prices will definitely escalate. The clue? Well, try buying commodities if you're rich!
April 02, 2011
We have been handed BS about the economy for a long time. It is kind of late to fix. Do economists understand economics? If they do, do they tell us. How is it that John Kenneth Galbraith could write about the planned obsolescence of automobile in 1959 in his book The Affluent Society when that was 10 years before the Moon landing but now, 40 years after the event, economists say nothing about useless variations in cars.

If accounting had been mandatory in the schools since the 60s what would the state of the economy be? Nobody knows. How much would it change spending behavior? Nobody knows.

But what could it hurt? What good was four years of English Literature?
March 31, 2011
The inflation we are now beginning to see is largely caused by the falling value of the U.S. dollar. You can thank the irresponsible spending by our leaders in Washington over the past few years and bad decisions by individuals who got themselves into debt for the pickle we are now in. This is one situation we are not going to be able to wish away. We have run out of options and now it is time to pay the piper.
April 27, 2011
USD will fall by another 10-20% I reckon. And... it'll stay there! There is only one or two options left, the government has to sell something. It's either arms, passports or technology advantage! It doesn't take much intelligence to figure that out really. Something gotta give...
March 31, 2011
I've noticed avocados, for the first time ever around here are now $1.49 each. Too bad my daughter and I love eating them. They used to be $0.99 at one point. What a rip off. The most disheartening thing is that inflation is really completely artificial and created by our out of control government.
April 27, 2011
To be fair, it's not quite the government but those running Wall Street! The government was just trying to put out the fire but instead they end up flaming it!!!
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Quick Tip by . April 27, 2011
Interestingly, the only way to beat inflation is to spend those worthless money if you still have any of them left! Otherwise, be prepared for devaluation (if it's not already in progress!)!
About the reviewer
Paul Tognetti ()
Ranked #2
I guess I would qualify as a frustrated writer. My work requires very little writing and so since 1999 I have been writing reviews on non-fiction books and anthology CD's on amazon.com. I never could … more
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In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.  When the price level rises, each unit of currency buys fewer goods and services; consequently, annual inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.  A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.

Inflation's effects on an economy are manifold and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, or may lead to reductions in investment of productive capital and increase savings in non-producing assets. e.g. selling stocks and buying gold. This can reduce overall economic productivity rates, as the capital required to retool companies becomes more elusive or expensive. High inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include a mitigation of economic recessions, and debt relief by reducing the real level of debt.

High rates of inflation and hyperinflation can be caused by an excessive growth of the money supply. Views on which factors ...
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