There’s been quite a bit of talk in the media lately about a coming economic collapse. Precious metal dealers warn of it. Nearly half of the people featured on Doomsday Preppers are prepping for it. I’ll admit times are hard right now, and they’re likely to get harder before they get easier. The truth, however, is that a complete economic breakdown is unlikely.
The image that frequently comes to mind when someone mentions economic collapse is one of an apocalyptic nightmare where neighbors are killing neighbors over the last can of beans. At worst, things may become as bad as they were during the Depression. Even then, there weren’t roving bands of raiders trying to loot your house. It was simply a very difficult economic time.
Most of us are scrambling for dollars right now because the dollar doesn’t go nearly as far as it used to. Prices have gone way up in the past few years and salaries have not. I don’t like it any more than you do, but this cloud does have a silver lining and that is the law of supply and demand.
People don’t go into business to fail. They do it to succeed and prosper. To do so, they have to sell you a product or service. Their goods aren’t the only supply there is. Your money is also a form of supply. Vendors need (demand) your money to stay in business. If they ask for too much, you will simply take your money to one of their competitors.
What everyone is noticing most right now is the price of groceries, so let’s use that as an example. A grocery store is a business, and as such, they need your money. However, what most people don’t consider is that groceries don’t just magically appear on the shelves inside the store. The store has to buy them from a supplier. Then, based on how much the store paid the supplier, they calculate how much to charge you, the consumer.
Let’s say there’s a milk shortage and a supplier wants $10 per gallon of milk. The store has to sell it for more than $10 to pay first for the gallon of milk then for other expenses like employees. Then the price has to be raised even further so they can make a profit, so the store prices its milk at $20.
I don’t know about you, but I’m not paying twenty bucks for a gallon of milk! Therefore, the store must lower its price to a price that people will pay. And to make things even better for the consumer, the store only has until the milk goes bad to reach that price point. Otherwise, they run the risk of going out of business. If the store can’t sell the milk at a profit, it most likely will not buy any more from the supplier at that price. This places the risk of going out of business on the supplier. The supplier will then have to lower its prices.
This is what’s known in economics as a market correction. When something is valued too low or too high, the market corrects it through the law of supply and demand.
Like I said in the beginning, businesses are not in business to fail. So if prices have to drop in order to keep them from closing their doors, that’s what’s going to happen. In reality, the chain of events I described is much longer and more complicated, but the principle is the same. Things will get better eventually. Just keep your chin up and don’t pay more for anything than you think it’s worth.