You Are Being Ripped Off and You Pretty Much Go Along With It.

Well, the new year is here and so are the annual new year price increases. I went to buy grated cheese and saw it was up about 10%. Eggs were up where I usually shop. Bread was up too on certain loaves. You see it everywhere. Happens every year.

Let me tell you why we will always have inflation and rising prices and what you can do to keep it to a minimum.

Our money and economic system has inflation built right into it. The federal reserve makes money out of thin air to feed a fractional reserve money system. I can't explain that in detail here, but there are plenty of videos on Youtube that explain it and will probably make you mad, It may take a while for you to get mad, at first you will probably not be able to believe it and take it seriously.

Next we have taxes and taxes are inflationary. When you have taxes you can't exchange value for value, you must exchange value for value plus taxes. With taxes you are always paying more than what your purchase is worth in free market dollars.

Here is an example. My neighbor raises vegetables to sell investing his time, labor and materials, such as seed, fertilizer and water. He boxes up what he considers $10 worth by figuring his expenses and adding a fair and correct amount for his labor. So far so good.

Unfortunately I can't exchange $10 in money value for $10 in vegetable value, he has to add tax. With tax I am always paying more than the value of what I get. That isn't bad enough, this creates a demand throughout the system for higher wages, so people can buy things and pay the tax. There are a lot of effects it creates as it ripples through the system. None are good. Not for you and me at least.

So as long as we operate like we do you will see inflation and higher prices, but how much and how fast they rise is variable and in part depends on you.

There is a program they used to call CREEP, but that name was too creepy I guess, so they call it several other things now. Here is how it works. The program takes items a store sells and raises the prices just a bit. Most people don't notice or really care if things are a few cents higher and the volume of sales remains the same. Then a little later, the program raises the prices again. It keeps doing this over time until the sales volume goes down. See why they called it CREEP? It creeped up the prices.

When the volume goes down, then the program rolls the price back and the store puts up a sign that there is a price roll back on this item. People see the notice and buy again. Unfortunately, it seldom goes back as low as it started. It is actually a program created to make you pay more and create more inflation. How nice.

Recently a large chain gas station in my area closed a station for remodeling. The prices in the area went up after that, while prices on gas in other areas went down. I asked a station manager that I know if that other gas station would have to reopen for us to see lower prices in the area. He said, "Oh, you picked up on that. We price our gas based on our sales goals. If we aren't selling enough to hit our volume goals we lower prices and if we are selling more, we raise prices." I had heard about the same from other gas station managers when I was in the car wash business.

So what can you do when prices go up? Buy somewhere or something else, that is what. These companies and governments can't survive without the consumer. In my business I see a lot of price increases "fail." Years ago the prices on candy bars went up a big jump, but the big three manufacturers didn't stick together. One needed more sales to maintain their business, so they dropped prices and the others rolled back soon after that. It happens a lot with food and commodities, but other things too.

When you stop buying when the price goes up, the people making the product have an incentive to find ways to cut their expenses. They may go to their suppliers of raw materials or to the people that transport their products and ask for price reductions, just like you did when you stopped buying at the higher price. They may invent a better way to make the product or use some innovation to change the market and shake up prices. Think of CD's and mp3 players for example.

I mentioned insurance some posts back. This year my insurance company decided they needed an extra $50 or so of my money. No new coverage, no claims, no reason as far as I was concerned. I was ready for them. For a year now I have been reorganizing my affairs so I could go with another insurance company and fit their under writing profile. They will provide more coverage for about $460 less a year and since I won't be paying that extra $50, I will be saving over $500 a year compared to just habitually writing checks to the same company and saying, "Oh well, everything is going up these days."

$500 buys a lot of milk for the grandchildren. The rich still look for value for their money, because that thinking is what made them rich!

We all depend on you and each other. Take the grated cheese for example, if you and the others pay more now, we will be paying more forever. I will be getting mine somewhere else. I actually feel like it is my duty as a responsible citizen.

best and be blest,
Scott Hogue CChH