I have argued for a long time that what our money is "worth" is just as important as the prices we receive. As long as the "worth" of our money is changing slowly it is not much of an issue and is how we normally look at it. The change in value of the money might affect long term loans and things of that nature but not have much relevance on day to day transactions. If our money starts devaluing more quickly, it may come to the point it does affect our decisions on more short term things. For example if inflation kicks up our input costs might raise enough from one year to the next to affect our financial plans. Think of a financial transaction as a fractional number. The price of the good we are buying is the numerator (on top) and the money we use in the transaction is the denominator where the solution or the amount after the = sign is "value of transaction in real terms". As long as the denominator stays stable then we only need concern ourselves with the numerator. Should the denominator start changing more rapidly it affects the numerator if we want to maintain the same "value of transaction in real terms" in the transaction. Few people will ever understand this relationship. John
Edited by John Burns 11/26/2012 11:08
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