Rants – Inflation Is Good

    Inflation is Good!  At least it can be for me.  Let me explain.

    Like most people I have debt.  That debt is worth money.  What if my debt could be magically reduced in size, i.e. worth less money?  If only there was some kind of powerful economic force that reduces the value of money.  Well there is, it is inflation!

    Here is how inflation works in an ideal world.  A fisherman gets caught in his own net and need to buy a knife to cut the net.  He sells his fish to a fish and chips restaurant for money and uses that money to buy a knife.  The knife maker coincidentally loves fish and orders tasty fish platters from the fish and chips restaurant.  Let's say for the first time around the fisherman sells his fish for $5, buys the knife for $5 and the knife maker buys his platter for $5.  Then the fisherman gets caught in his net again.  The wily knife maker sees an obvious need for his knives and raises his price to $6.  Now the fisherman has to raise the price of his fish to cover the increased cost of the knife.  To cover the cost of the rise in fish prices, the restaurant raises its prices.  Now the knife salesman again raises the price of his knives so he can afford to buy those tasty fish platters.  You can see where this is going; eventually the value of the money gets so low that all involved just start bartering instead. 

    The moral of the story is that prices rise because people are greedy.  The actual products and services remain the same, only the price changes.  The fish was the same, the knife was the same, and the fish platter was the same, but market forces drove down the value of the dollars used to buy them.  So people are greedy and stupid. 

     You can also see why people hate inflation.  In the short term, raising prices is a really sweet way to make some cash.  But everyone who has to pay higher prices lose.  No one wants to be a loser.  What goes around comes around and eventually the losers demand higher prices/wages for their goods/labor and the boon of higher prices ends.  During that short time though, most of us lose way more than we gain.  While wage earners are catching up, the price raisers need only raise prices again to cover the extra labor and material costs due to inflation.  Consequently, a nyone relying on annual raises just cannot keep up with dynamic changes in inflation.  When I say anyone, of course, I mean nearly everyone.  

    Enter my plan to become an inflation winner.  The plan has two parts, massive debt and zero purchases.  Remember the fish from the story was still worth a knife in the end, but the value of money kept decreasing requiring more of it to buy the fish or knife or whatever.   Well, as money loses its value, things made of money lose their value too.  Remember all that debt is made of money, so as money loses value debt loses value.  So, if inflation lowers the value of money by 50%, my debt would be worth 50% less too.  Now comes the tricky part, I want to eventually pay off that debt and I can't do it if I keep buying ever more expensive goods with my ever decreasing money.  So I have to wait out the inflation ride, get my inflation adjusted raise, pay off my debt, and then start living high off the hog on my debt free income.  I love it when a plan comes together.

    Of course creditors lose out.  Which reminds me, anyone with money in the bank is a creditor.  So all your hard earned savings go down the toilet when inflation is on the rise.  But I have way more debt that savngs and investments.  Let's just add that step to the above plan, no investments.  Remember, this rant is about how I benefit from inflation.  If I had a bunch of investments I would just profit off of that instead.  My advice to creditors during time of inflation, secure higher interest rates or buy gold or real estate or knives or something with real value.  For goodness sake don't invest in freeloaders like me.  Lets face it, we are a hurricane and a middle east war away from everything going to hell in a handbasket anyway; that paper money is mere kindling in a post-apocolyptic future. 

    My inflation to riches idea is apparently not new.  In fact, shortly after I bought my house on credit a couple of years ago I thought about the plusses of inflation.  It was only a few months ago that I wondered if anyone had the same notion and looked it up on the good old world wide web.  Not only have people thought of the plusses of inflation, others despise us for etertaining the idea.  Creditors basically hate debtors like me who wish for inflation so we can freeload off of creditors.  My retort is that is how credit works.  People with money to lend to us moneyless folks in the hope they can sit back and profit from us.  People who leverage get an even better deal, they borrow money at low interest to profit from high interest investments.  Inflation is just the risk a creditor takes.  Besides, we mere debtors don't have the power to turn the economy on its head, or do we?

    So, add a nickel to the price of lemonade at your lemonade stand.  Demand an extra buck an hour for all that productivity you put out.  Get greedy.  If we all pitch in, I know we can reduce my debt load and buy me that $4000 replacement tooth!

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