Inflation versus deflation.  Those are fancy terms that are thrown around like everyone knows what they mean - but few really do.  Oh, we all know that inflation means rising prices and deflation means falling prices, but do any of us really understand what they mean for us and whether they are good or bad?

Many economists say that a little inflation is the sign of a healthy economy and deflation is the real enemy?  Why is either true?  Inflation is caused by too much money chasing too few goods and services.  If there is excess money in the system, then goods and services act like a sponge and soak it up in the form of higher prices.  Conversely, deflation is just the opposite.  So why is inflation better than deflation?  It's not.  Just on its face falling prices mean that you buy more for less, so why would economists and politicians think it is bad?

Economists do because the majority of them think that they ability to raise prices is the sign of a healthy business and if they are forced to cut prices, well, that's bad.  However, that leaves out the other reasons for falling prices like increasing productivity (making more with less effort using technology and better practices) and abundant raw materials used in  the manufacturing of whatever it is that is being bought and sold.  In simple English as an example, as farming has become more sophisticated, crops have gotten huge with less people needed to tend them.  In fact, without government price supports artificially keeping prices high, lots of things from milk to bread would be a LOT cheaper.  Politicians hate deflation because it would mean that the debts we are running up would not be made to seem cheaper over time.  In other words, think about it, doesn't a million sound like not very much today and doesn't a government program costing a few billion seem like a little thing and now we are all thinking in trillions?  That's the effect of inflation making the horrible seem like not much.

In our own lives we need to prepare for inflation because with all the printing of paper money that has gone on for the past couple of years, inflation is coming.  Why hasn't it showed up yet?  Because tons of the funny money was printed, lent to banks at .25% which in turn bought government bonds for their reserves at 3.5% or so, sending the money back to the government to be spent on entitlements.  Sound like a Bernie Madoff style scheme to you?  It should!  And sooner or later those bonds will be retired with more printed money and the banks will lend that money to business and individuals creating too much money in circulation and well, now you get the point.  Inflation is just around the corner. 

So, you need to buy things like gold and silver to protect yourself.  Silly as it may sound mark my words; gold will be at $5000 ounce sooner than anyone would predict.  I know that is thinking outside the mainstream, but when has common knowledge ever been anything but, well, common?  To succeed where others fail you have to go where others fear to go.  Be different and be prosperous!